Havana’s new customs duties expected to slash Cuba-bound shipments, flights
Companies that ship gift parcels to Cuba are bracing for a sharp drop in business this fall because of new rules from Havana.
Starting Sept. 3, Cuba will require its citizens to pay customs duties on imported goods in the dollar-like currency known as CUC instead of the island’s peso currency. That means the cost of duties will be more than 20 times higher and too expensive for many residents to afford.
Duties would jump to about $4.50/lb for most shipments greater than about seven pounds. Laptop computers would pay about 170 CUC and a 32-inch flat screen TV about 200 CUC, shippers say.
That’s why many Cubans abroad are now rushing to send goods to their families on the island before the higher duties take effect.
One Miami shipper said he sent two cargo planes through Cayman Islands to Cuba during a week in mid-July, instead of his usual one plane, as customers hurried to beat the deadline. He sends down everything from food, bicycles and TV sets to supplies for small businesses: nail polish, hair coloring, condiments and even the latest fashions for resale.
But once the August rush subsides, the freight businesses wonder how they’ll survive. If islanders can’t afford the higher duties, then their families abroad will have to cover the extra cost. Shipping company executives warn that many in South Florida’s Cuban exile community can’t afford to spend much more.
Already, many Cuban immigrants scrimp to cover current costs of gifts and shipment. They tend to buy items slowly, and watch for sales at discount outlets such as Marshalls, Target and Navarro. And then they save up to pay shipping fees that often run $4/lb or more.
A typical 20-pound box containing a pair of sneakers, a couple of pounds of coffee, a ham, vitamins, clothes and bedding can cost $150 to buy — plus another $80 to ship. If they send the goods with human “mules” on charter flights for speedier delivery, shipments can run up to $12/lb in some cases. When Cuba tacks on another $100 in duties, the total cost may prove too much to be worth the effort to buy and send.
“Shipping with duties like that would be impossible,” said one Miami area resident, as she waited to send household basics to her family in Holguín. The cost for shipping: $120 for an air parcel not carried by a mule. “I guess I would try to send money down instead and let them try to find things to buy in Cuba.”
Money — not goods sent to the island — seems to be just what the Cuban government seeks with the strict new measures, said Emilio Morales, president of the Miami-based Havana Consulting Group.
He said that a surge in shipments from Cubans abroad in recent years has cut into sales at government-owned shops and has expanded the informal market so much that the state now wants to re-exert control.
Morales estimates the value of shipments of Cuba-bound gift parcels grew to at least $2 billion last year, thanks to Obama administration rules that allow unlimited shipments of gifts and Cuban government decrees that expand self-employment. Between $1 billion and $1.5 billion of those goods were resold or otherwise traded on Cuba’s informal market or by small businesses, he figures.
Now, the Cuban government wants to shift more sales to state stores and take in more of the foreign currency spent abroad, pushing Cubans overseas to send more money and fewer goods, said Morales.
But some analysts see the move as undermining efforts by President Raúl Castro to foster entrepreneurship and trim the government’s bloated state payrolls.
“This is an example of the government shooting itself in the foot,” said Ted Henken, president of the Association for the Study of the Cuban Economy. He said the new duties are “basically cutting the floor out” from budding entrepreneurs, who often rely on shipments of supplies for their businesses.
Just how much the new duties will cut shipments to Cuba isn’t yet clear.
Roberto Penate, owner of the Rumbos Express freight service in Miami, thinks his Cuba volumes could drop by half this fall.
Penate’s business ships goods throughout Latin America; he added Cuba service about two years ago, after Obama liberalized U.S. rules on gift parcels. He figures his volumes to Cuba rose to about 6,000 lbs/week this summer, as customers rushed to send goods before higher fees kick in.
Business could shrink to about 3,000 lbs/week when those higher duties take effect next month, Penate told CubaNews.
“People will still have to send things down, because there’s a need in Cuba. They will just send less,” he said. Buying at state stores in Cuba isn’t a real option, because the stores tend to have limited inventory, little variety, poor quality and prices far higher than those in Miami.
Charter flights transporting human “mules” carrying down cargo also will be hit hard.
Vivian Mannerud, who runs Airline Brokers Co., said luggage volumes at her charter operator already have declined this year after Cuba began imposing duties on food that previously entered the island duty-free.
When payments in convertible currency take effect Sept. 3, Mannerud expects cargo volumes to slip further — perhaps to half or less of their 2011 levels.
Charter operators for years have limited the number of seats they fill on Cuba-bound flights to compensate for the added weight on planes from extra luggage.
But as luggage volumes fall, operators can fill more seats. That means they can meet passenger demand with fewer flights.
Mannerud predicts operators will be able to cut “at least one flight per week” off their schedules. She’s watching luggage volumes on her own operations to decide what to do in the future.
Still, some veterans in Cuba business try to roll with the changes. Mannerud said she ex-pects that over time, Cubans on the island and those abroad will invent some new channel to boost shipments.
“They’ll find a way,” she said, with a little laugh. “They always do.”
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