The recent executive order from the Trump administration to impose new tariffs on low-cost imports might be challenging for fast fashion retailer Shein, especially compared to online marketplace Temu.
While both companies have benefitted from the de minimis rule, which allowed imports valued under $800 to enter the U.S. tariff-free, their strategies for adapting to the changes vary.
The de minimis rule has been helpful for both Shein and Temu, helping them expand their presence in the U.S. over the past few years.
A 2023 report revealed that Chinese retailers, including these two, accounted for over 30% of all daily packages entering the U.S. under this provision.
However, with tight rules from the Biden administration, both companies have started adjusting their operations to reduce reliance on the rule. While Temu has made faster moves to diversify its shipping strategy, Shein has been more dependent on direct air shipments from China.
Temu, owned by PDD Holdings, assertive in modifying its shipping model. The company moved towards a semi-managed approach, which is akin to Amazon’s business strategy. This involves sending goods in bulk to overseas warehouses rather than shipping directly to customers.
As a result, by the end of 2023, half of Temu’s U.S. sales were fulfilled from local warehouses, according to estimates. Temu also increased its reliance on sea freight, a strategy that reduces the volume of items being imported under the de minimis threshold.
Basile Ricard, the operations director at Ceva Logistics Greater China, noted that this change, particularly towards bulkier and more valuable items, became more apparent in the latter half of last year.
In contrast, Shein continues to rely on air freight for its fast-paced, ultra-fast fashion business, which demands quick turnaround times for new trends. While the company has taken steps to open local distribution centres in places like Illinois, California, and Seattle, it remains primarily reliant on its Chinese manufacturing base.
Shein has, however, started diversifying its supply chain, adding suppliers in countries like Brazil and Turkey, a move that may speed up due to the new tariffs.
The impact of Trump’s executive order has created uncertainty in the express shipping industry, with confusion following a reversal by the U.S. Postal Service, which initially decided not to accept parcels from China and Hong Kong.
Nomura analysts predict that the volume of de minimis shipments could decrease by as much as 60%, leading to higher prices for American consumers purchasing from Shein, Temu, and other international e-commerce platforms.
In 2024, approximately 1.36 billion shipments entered the U.S. under the de minimis provision, a 36% increase compared to 2023, according to data from Customs and Border Protection (CBP). With the new tariffs now in place, it’s anticipated that consumers will face higher costs, as both Shein and Temu are likely to pass on the increased shipping expenses.
Experts believe that while the immediate impact of the tariffs will be felt, especially in the short term, both Shein and Temu are well-positioned to adapt. Tech analyst Rui Ma said, “I think there will be real impact, especially in the short term, but it is not catastrophic. China has the most competitive e-commerce operators and the most advanced supply chain. Short of a total ban or something crazy like that, I think they will be able to figure it out.”
The new tariffs, which specifically target imports from China, Mexico, and Canada, have led to talks about the implications for global trade. Other countries may retaliate, further complicating the international trade landscape.
These come at a time when global trade tensions are already high, adding another layer of complexity for companies like Shein and Temu.
For U.S. consumers, the immediate effects are likely to include higher prices and possible delays in receiving their purchases. With Shein and Temu adjusting their strategies to scale through the new tariffs, their ability to diversify supply chains and adopt alternative shipping methods will be crucial to mitigating the impact.
In the longer term, both companies will need to continue refining their logistics and supply chain strategies. Shein may further diversify its manufacturing base and expand its use of local warehouses, while Temu will likely continue investing in bulk shipping and sea freight to stay competitive.
Ultimately, while the tariffs will challenge both companies, their ability to adapt quickly, given their sophisticated supply chains, means they are likely to remain resilient in the face of these regulatory changes.
