Stark photos of a new Amazon warehouse in Tijuana standing directly beside a dilapidated housing development with dirt roads have gone viral over the last few days. The pictures, taken by photographer Omar Martínez, depict Amazon’s signature arrow logo towering over makeshift homes made out of tarps and scrapwood — to many, a dystopian symbol of modern inequality.
Online commenters, like Charmaine Chua, a professor who studies global supply chains at the University of California, Santa Barbara, soon began speculating about why the e-commerce giant had chosen such a conspicuous site for the warehouse, located less than a half-hour drive from another new Amazon fulfillment center in San Diego. Given Amazon’s penchant for avoiding taxes and its reputation for mistreating workers, some observers suggested that the company might use the facility to ship packages across the border to customers in the U.S., saving on labor costs and avoiding tariffs in the process.
But what the viral image of the Tijuana warehouse actually reveals is just how rapidly international e-commerce is evolving, thanks to the double shock of the U.S.-China trade war and the effects of the Covid-19 pandemic.
A policy spokesperson for Amazon told Rest of World that “under no circumstances” are warehouses in Mexico used to deliver goods to shoppers in the U.S. “Our fulfillment center in Tijuana and any others located in Mexico support the fulfillment to our customers in Mexico ONLY – full stop,” they said in an email.
After the Trump administration began imposing new tariffs on Chinese goods three years ago, some online sellers began relying on a U.S. customs exemption known as the “de minimis threshold.” The rule, also referred to as Section 321, stipulates that packages worth less than $800 can be imported to the U.S. duty-free, as long as they’re shipped directly to individual customers.
Here’s how it works: An e-commerce company in China might first import products to Mexico and store them in a warehouse there. When a customer in the U.S. places an order, it’s shipped to them directly, and neither party is required to pay import taxes, as long as the goods are worth less than $800.
Alternatively, the seller might portion out goods into sub-$800 bundles and then ship them across the border one at a time. It is a practice that Nada Sanders, a professor and supply chain expert at Northeastern University, calls “breaking bulk.”
Logistics firms advertise that they can help e-commerce sellers “save a significant percentage of money” through the exemption. One boasts that warehouses in Tijuana are “over 53% more affordable and labor rates are 76% less.”
A spokesperson for one of the firms, AIT Worldwide Logistics, told Rest of World, in an email that “In our experience we’ve seen that the Sec. 321 exemption has benefited companies in the U.S. that couldn’t otherwise stay in business without it.”
But e-commerce platforms like Amazon likely wouldn’t get much from using the de minimis threshold like this. The tech giant prizes speedy delivery and strategically builds warehouses in places where it can reach customers as quickly as possible. It would be impractical to risk delays at the border — especially when Amazon itself is not necessarily paying the tariffs on those goods. Millions of third-party merchants are responsible for the bulk of sales on Amazon’s platform, who themselves must pay taxes on the products they import.
Even if the company isn’t ferrying packages over the U.S.-Mexico border, Amazon and other e-commerce platforms like eBay and Alibaba have been reaping the rewards of Section 321 in a slightly different way.
Since bulk goods bound for retail stores are subject to tariffs, online sellers can often offer products for cheaper, as long as they ship to shoppers directly. That’s one way the Chinese fast fashion platform Shein, for example, can undercut competitors like Zara.
As Covid-19 pushed more shoppers online, the number of small packages coming into the U.S. skyrocketed. The total volume increased by 28% in 2020, according to data from the U.S. Customs and Border Protection, even though the number of international mail shipments decreased by 19% overall.
The pandemic also threw the global supply chain into chaos, since many factories and businesses could no longer operate as usual. To minimize uncertainty, some companies moved their operations closer to their customers, Sanders said, with Mexico being a popular destination. While tariffs were an issue before the pandemic, “it was really Covid-19 that made the push, in terms of what I’ve been able to observe, towards using Mexico,” she explained.
Amazon, however, likely didn’t open a warehouse in Tijuana to avoid risks caused by the pandemic (though its supply chains were disrupted as well). The e-commerce giant is almost certainly after something else: the opportunity to cash in on Latin America’s booming online shopping market, which grew over 36% last year, faster than anywhere else in the world, according to one estimate.
Amazon is competing against regional heavyweights like the Argentine e-commerce giant MercadoLibre, whose e-commerce revenue grew 90% last year, according to Bloomberg Intelligence. Both companies are now rushing to build out logistics and infrastructure in the region. In Mexico, Amazon already has seven fulfillment centers and has announced plans to open four more, including the one in Tijuana, which will serve customers in the city and other markets in Baja California.
In many ways, the viral Tijuana fulfillment center is a symbol of how the pandemic has changed the way the world shops. It was built to cater to a new class of customers in emerging markets, who are turning to e-commerce in record numbers.