China uses Mexico and Canada as transshipment hubs for sending small packages to the US. Bulk shipping reduces per-unit transportation cost. Chinese sellers ship bulk goods to Mexico or Canada. Tijuana and Monterrey serve as major transit hubs in Mexico, while it is Vancouver and Toronto in Canada.
So, why is China using Mexico and Canada for transshipment? How does the process work? What is the legal framework surrounding this practice, and what are the associated risks and challenges? Let’s examine these.
China uses Mexico and Canada for small package shipments by exploiting the US De Minimis Rule ($800 duty-free limit). Under Section 321 of the US Tariff Act, packages valued at $800 or less can enter the US duty-free. The goods are split into small packages, ensuring each delivery stays under the $800 limit.
Faster delivery
This enables Chinese businesses to bypass tariffs, take advantage of duty-free thresholds and speed up delivery. E-commerce platforms like Temu, Shein, AliExpress and DHgate have fuelled this logistics strategy, allowing Chinese sellers to optimise shipping costs while complying with US import regulations.
Shipping from China to the US takes 10-30 days. Using Mexico or Canada as a transshipment hub reduces delivery time to 3-7 days. Bulk shipments arrive at Mexican or Canadian warehouses. Labelling for individual customer destination is done after repacking and before final delivery. Packages are sorted and re-shipped using local logistics networks. FedEx, UPS, DHL and USPS handle the final US delivery.
Rules of origin
Chinese companies have also been taking advantage of the US-Mexico-Canada Agreement (USMCA), which provides preferential treatment for North American-origin goods, by near-shoring assembly units on US borders. Several Chinese companies set up warehouses or light assembly units in the many large industrial parks that were established to attract them. Goods are repackaged and labelled and mildly modified to claim North American origin for potential USMCA benefits.
The USMCA replaced NAFTA in 2020, modernising trade among the three nations. The rules of origin (ROO) under USMCA state that goods must be wholly obtained or substantially transformed in North America, else regional value content (RVC) and tariff shift rules will determine the eligibility. Self-certification is required, and records must be kept for five years.
The principle of substantial transformation shall require a tariff shift (change in ‘harmonised system’ classification) and goods should be significantly processed or transformed. Repackaging or relabelling alone will not qualify. Some qualifying examples include raw steel processed into auto parts in Mexico, and circuit boards and screens assembled into smartphones in Canada while non-qualifying cases involve simple rellabeling of Chinese goods or minimal assembly processes that do not alter product identity.
Evolving landscape
China’s use of Mexico and Canada for small package shipments to the US is a sophisticated logistics model that exploits duty-free thresholds, trade agreements and faster delivery options.
The evolving trade landscape will determine how long China can continue leveraging Mexico and Canada as key gateways to the US market.
(The writer is CMD of JMatadee Free Trade Zone)
