Consultant’s Insight: Temu, Shein benefit from low logistics costs

China’s Alibaba is taking a back seat to upstart e-commerce providers Temu and Shein as they sell low-cost goods to a global market that is buying up bargains amid inflation, uncertainty and recession fears. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] The United States will rank second in total cross-border buyers this year, with 69.8 million, up 3.4% year over year, and behind China’s 280 million, according to marketing firm eMarketer . A January poll from software company Mirakl found that 86% of respondents look for better value when shopping because of inflation. In the first half of this year, China shipped RMB 1.1 trillion ($155 billion) worth of e-commerce goods, equivalent to about 5.5% of its total goods trade, according to Chinese official customs data reported by the Financial Times. Indeed, e-commerce has been a shining light in an otherwise dim airfreight market. “Strong levels of e-commerce business out of southern China have been an increasingly dominant feature of the market all year, with rates out of Hong Kong in particular holding up better than the global average,” TAC Index editor Neil Wilson wrote in a column. The index of outbound routes from Hong Kong rose 19.2% in November, according to Wilson. Managing logistics costs E-commerce providers such as Temu and Shein take advantage of the U.S. exemption of imported goods under $800 from taxes — de minimis exemption — to keep logistics costs down. U.S. Customs and Border Protection estimates that 85% of all shipments entering the United States are small packages valued at less than $800. A U.S. House of Representatives committee estimated in a June report that Shein and Temu together bring in nearly 600,000 packages daily under the de minimis exemption. In addition, Temu utilizes freight forwarders and takes advantage of lower-priced airfreight space on planes that have already reached breakeven, according to Singapore-based blog Low Down from Momentum Works , a provider of tech insights in Southeast Asia. Chinese airlines account for about one-third of the overall capacity. Goods are typically staged and prepared for export in China’s Pearl River Delta, including Hong Kong, Guangzhou and Shenzhen, because these areas have strong transport capacity and plenty of warehousing. U.S. lawmakers have introduced a bill to eliminate the import tariff exemption that benefits Chinese e-commerce providers. In response, Temu, Shein and other providers are opening warehouses in Mexico to address the potential tariff exemption elimination, further reduce transportation costs and expand services into the Latin American market. Shifting to ocean However, as airfreight rates rise, Temu is shifting to express ocean freight carriers such as Matson , ZIM and CMA CGM . Shein is also leaning more toward ocean freight shipments. In 2021, Shein shipped 312,385 pounds of goods into the U.S., according to ocean freight database provider ImportGenius . So far this year, ocean freight shipments have grown to 6.8 million pounds. To succeed in cross-border e-commerce, providers must have a supply chain network that is flexible and built on low logistics costs. Alibaba was the first to create such a network, but as it expanded globally, its logistics costs grew and became more complex. Meanwhile, Temu and Shein are still young companies and have yet to build truly global networks.

Consultant’s Insight: Temu, Shein benefit from low logistics costs

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