Chinese e-commerce sites Temu and Shein ship about 88 Boeing 777 freighters around the world every day. This sheer volume has caused air freight prices to skyrocket, but both companies have agreed to subsidize fast shipping as part of their global growth…for now!
Article by Cyrus Farivar for Forbes US – translated by Flora Lucas
Nine months ago, Niall van de Wouw, who tracks air cargo shipments around the world for logistics analytics firm Xeneta, had never heard of Tema. Overnight, however, the Chinese e-commerce site, along with another fast-growing competitor, Shein, became so popular with American consumers that they raised prices for express air shipping from China, creating a cargo shortage that is changing global trade routes as the airline industry freight transport is struggling to keep up.
A system with high demand for air freight
“No one saw that last year”he stated that Forbes Niall van de Wouw. “Their volumes could be of the same order of magnitude as those of the world’s largest freight forwarder. Their volumes are delirious. » At that time, the company was only a year and a half old. “It’s very unusual”did he state. “I don’t remember one or two companies generating such high demand. That is what is most frightening about this exponential growth. »
Other retailers include Temu, which primarily sells clothing and homewares, and Shein, which built its brand on fast fashion and has since expanded into consumer electronics and kitchenware. That’s because the platform sells items made directly by unnamed Chinese companies, rather than selling American brands made overseas. The attractive costs offered by these two companies are partly due to their decision to source these manufacturers’ products directly from China, rather than working with well-known American brands that demand higher costs, prices and quality.
“Shein and Temu have a constant need for air transport, unlike what we have experienced so far. »
Wenwen Zhang, Air Cargo Analyst, Xeneta
However, in order to get products to customers in a timely manner, both companies rely heavily on air transportation. Together, Temu and Shein ship about 9,000 tons of cargo worldwide every day, or about 88 Boeing 777s filled to the brim, according to a study by Cargo Facts Consulting in February. The scale is comparable to Amazon’s Prime Air fleet, which has 86 aircraft in service, according to Planespotters.
This situation caused prices to rise to almost unprecedented levels. According to latest figures from Xenetaso far, “average spot price” May air freight from southern China to the United States is now around $4.75 per kilogram, the highest since late last year, compared with the usual peak demand as the year-end holidays approach. That price more than doubled in the same period in 2019, when it was $2.32 per kilogram.
Those rates are still lower than recent peaks in 2020 and 2021, when they reached $10 to $12 per kilogram. But those increases were the result of the pandemic, which led to shortages in transportation and supply chains around the world. Today, analysts believe that only two companies are largely responsible for the increase: Temu and Shein.
Competition follows Shein and Temu
Not to be outdone, some logistics companies and airlines have even started adding flights to prepare for increased growth. For example, Atlas Air, an American air cargo company, has Notice in early spring that it will soon put into operation a second air cargo plane in cooperation with YunExpress, a Chinese shipping company.
At the regional level, Korean Air He said earlier this month that it had revenue of $2.8 billion in the first quarter of 2024, stating “strong demand for freight”, which is an increase of 20% compared to last year. The airline added that during the second quarter its cargo traffic “would take advantage of growing e-commerce demand in China by strengthening partnerships with customers and deploying capacity on key routes”.
“Shein and Temu have a constant need for air cargo unlike anything we’ve experienced so far”Wenwen Zhang, an air cargo analyst at Xeneta, said in an email Forbes.
The boom even affected global shipping routes. He opened the topic of new sea and air routes from Taiwan, Japan and Korea to the United States, “change of traditional business patterns”according to a report from the Taiwanese shipping company Dimerco. “As a result, the freight rates of these alternative routes now exceed those of mainland China, which is unusual. »
Recently, the Chinese government did the same praised the merits new air cargo routes between the southern Chinese city of Zhengzhou and Dallas and Atlanta, which are “primarily intended for cross-border e-commerce shipments”.
Sending goods by air is always much faster and more expensive than shipping by sea, which can transport a much larger amount of goods, but is slower. The vast majority of the world’s goods, in terms of volume, are shipped by sea, while only time-sensitive and high-value items are usually transported by air.
And there is also the environmental cost. According to FreightosAccording to an online cargo booking platform, cargo ships generate around 10 to 40 grams of carbon dioxide per tonne kilometer travelled, much less than air cargo, which emits around 500 grams per tonne kilometre.
Reduce costs
For now, Shein and Temu are offering free shipping on orders over a certain size, in an effort to absorb the higher costs. “Temu and Shein rely on air freight because their business model is fast fashion and they have to ship all that stuff immediately”said Guillermo Ochovo, director of Cargo Facts Consulting, at Forbes. “They have no other way but to rely on air transport now. »
However, this could change in the medium to long term as companies look for ways to reduce costs now that both are well-established e-commerce platforms. They do not currently have a national shipping and ground logistics network comparable to Amazon or Walmart, but both companies have slowly begun to expand their operations in the United States and Mexico. Shein now has two distribution centers in Indiana and California, and Temu recently started working with Chinese retailers already in the United States.
“The fact that we’re talking about this type of market so early in the year leads a lot of people to think that the peak season, the fourth quarter, is going to be tough. »
Brian Bourke, Global Commercial Director, SEKO Logistics
Part of the reason for the high cost of air travel is that the planes are mostly empty and have to return from the United States to China: shipping that way costs about a fifth of the cost of shipping from China to the United States. said Niall van de Wouw.
“You have a full plane to the United States and an empty plane to return”he said, using an airline industry term for a plane that is nearly empty or completely empty. “The return becomes a real bloodbath. »
Neither Shein nor Temu responded to Forbes’ request for comment.
Advertising campaigns that encourage consumers more and more
A major television advertising campaign in the United States fueled Temu’s growth, particularly during the 2023 and 2024 Super Bowls, prompting Americans to “shop like a billionaire”. From new survey data released last month by YouGov show that almost all Americans surveyed said they had heard of the company.
Its parent company, PDD Holdings, which also owns a giant online shopping site called Pinduoduo that operates only in China, is worth more than $167 billion. PDD Holdings is technically located in the Cayman Islands. According to his latest Annual reportthe company employs more than 17,000 people worldwide, the vast majority of whom work in China.
PDD Holdings announced last month annual profit more than $8.4 billion in 2023, including approximately $5 billion in net attributable profit “other subsidiaries of PDD Holdings”, a group that includes Theme. Shein, whose worth is estimated at $66 billion according to CNBC, has quickly encroached on the territory of American fashion brands such as Gap and Macy’s. The privately held company has also grown incredibly fast, from roughly $2.5 billion in revenue in 2019 to an estimated $48 billion in revenue this year, according to ECDBa German e-commerce analytics company.
Both companies, which are expected to generate more than $90 billion in revenue this year, are expecting a record holiday season, and shippers are already worried.
“The fact that we’re talking about this type of market so early in the year leads a lot of people to think that the peak season, the fourth quarter, is going to be tough.”said Brian Bourke, commercial director of SEKO logistics, at Forbes. “If we are here today and it is the beginning of May, imagine what it will be like in September, October, November and December? »
Also read: Wish, AliExpress, Zaful, Shein, Clubfactory, how to resist the onslaught of Chinese fast fashion?