The latest tariff developments may have spoiled the US market for ambitious small businesses in Australia, but according to Virago Logistics co-founder Em Frost, the challenges of sending goods offshore have been building for some time.
“Because of increasing shipping rates last year, volumes to the US started to drop off but now they have really dropped off,” says Frost, whose Melbourne-based Virago provides logistics services for fashion, skincare, beauty and sexual health brands.
“Twelve months ago, we had huge orders going to the US and now we don’t.”
The latest kicker for businesses exporting low-cost items to the US is their exclusion from the De Minimis Tax Exemption introduced from 29 August.
Frost, who services budding brands seeking to expand into the US, says this change means that small businesses and startups targeting the world’s biggest consumer market are bearing the brunt of the new US tariff regime.
The De Minimis exemption had previously allowed for the duty-free treatment of shipments worth less than US$800, but now all items sold to the US from Australia attract a base tariff of 10 per cent.
“The latest version is a charge of US$80 per item – so about $122 Australian – or 10 per cent, whichever is greater per item,” says Frost.
“So, if you send a skincare product that sells for US$40, they will charge another US$80 to that customer to get it into the country. You might also have $20 to $30 in shipping on top of that.”
The De Minimis changes were critical to Australia Post suspending all deliveries into the US as the postal services provider isn’t set up for DDP (delivery duty paid) at the checkout.
Australia Post referred its customers to Zonos, a company that manages and calculates tariffs for companies sending products offshore.
But other commercial carriers, such as DHL which is set up for DDP at the checkout, have recently increased their charges to compensate for rising compliance costs, adding to increases already introduced over the past year due to broader inflationary pressures.
“Taxes aside, the cost of shipping was becoming astronomical,” says Frost.
"This was always coming because of the cost of shipping. Everything was already going up, but the De Minimis rule has changed that again.
"If you are sending a $20 product to the US, how do you make it work?
“You are most affected if you are a small business sending a couple of orders or if you are in the medium range where 50 per cent of your orders come from the US, but you are not big enough to set up a 3PL (third-party logistics) in the US.”
Frost says many owners of larger businesses are not fazed by the changes, as relative to smaller businesses they are paying a little more to get products into the US due to their own distribution centres in the country.
“A lot of the big brands have distribution centres in the US, so they only pay the customs import duty at the lowest possible price, such as the wholesale price or cost price, and not per item,” she says.
“But for some of our clients that send to the US the thought of setting up a distribution centre in the US is not viable for them.
“What does this mean for Australia becoming a global player in terms of exports? That’s what I am worried about. How do these brands get into these markets?”
The massive changes to Australian trade with the US comes at a critical time for local brands ahead of a traditional October spike in business in the lead-up to official Black Friday sales in November.
“I am doing the best that I can for our clients, but the information is not very clear and that’s the hardest thing about this,” says Frost.
“As a business owner and brand owner, we are heading into Black Friday which is the biggest moment for any of us anywhere and you don’t want to cut off a market like America.
“But our advice is that if your product is not high value, it’s not worth doing.”
Frost notes that some of her clients have presold items to America but have had to cancel their orders because “they can’t make it work on the other end”.
“That’s frustrating for them,” she says.
“I have another client who was about to send six pallets to the US but because this changed overnight, we have put that on hold.”
Frost says while she understands the tariff moves from a US point of view, it doesn’t make it any easier.
“They want to stimulate their economy, create jobs and grow industries. I absolutely get it, but I just worry about little brands in Australia.
“This is going to kill little Australian brands.
"America doesn’t need us. We need them but to launch into a US market now you need significant capital and it's the small business that are going to be hit the most."
Frost co-founded Virago Logistics with Jessica Breakwell in 2021 initially as a way for them to manage their own ventures – Georgia Elliot sleepwear and haircare brand Solibar. Both Frost and Breakwell were finalists in the 2024 Melbourne Young Entrepreneur Awards.
Their mission for Virago Logistics initially was to help women-led businesses who were struggling to manage their day-to-day logistics needs.
“There’s a lot of people out there with a dream to create a business that they’re proud of and they now have the ability sell across borders internationally,” says Frost.
“We want a country of business owners who are selling on a global stage.
“I want to run a business where I can employ people and where I’m stimulating the Australian economy.
"In order for me to do that I have to help my clients sell their products and for them to make revenue for them to employ me and to employ others. That’s the small business food chain.”
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