Chinese e-commerce sites ship the equivalent of 88 Boeing 777 cargo planes around the world every day. The sheer volume has sent air freight rates skyrocketing, but the two companies have been willing to subsidize fast shipping as they grow globally — for now.
A few months ago, Niall van de Wouw, who tracks air cargo shipments around the world for logistics analytics company Xeneta, had never heard of Temu.
But seemingly overnight, the Chinese e-commerce site, along with another fast-growing competitor, Shein, became so popular with American consumers that it raised prices for express shipping by plane from China, creating a crisis. cargo that is disrupting global trade routes for an airline.
“Nobody saw it coming last year,” van de Wouw, Xeneta’s air freight director, told Forbes. “Its volumes could be of the same order of magnitude as those of the largest freight forwarder in the world. Their volumes are crazy.”
At that time, the company had only been in existence for a year and a half. “This is very unusual,” he said. “I don’t remember one or two companies that have generated so much demand. This is the scary thing about exponential growth.”
Temu, which primarily sells clothing and home goods, and Shein, which built its brand on fast fashion and has since expanded into consumer electronics and kitchen items, differ from other retailers in that they sell directly manufactured items. by anonymous Chinese companies, rather than selling an American brand manufactured abroad. Part of its low cost is due to its decision to ship directly from China from those manufacturers, rather than working with well-known American brands that impose higher costs, prices and quality. (The two Chinese companies have become so well-known that during the Saturday Night Live season finale on May 18, the show lampooned a fictional company called “Xiemu.”)
“Shein and Temu have an ongoing ‘thirst’ for air travel, which is unparalleled by anything we have seen before.” Wenwen Zhang, air travel analyst, Xeneta
But to get their products to customers in a reasonable time, both companies have relied heavily on air transportation. Temu and Shein combined ship about 9,000 tons of cargo around the world each day, or about 88 Boeing 777 freighters filled to the brim, according to February research from Cargo Facts Consulting. (The scale is comparable to Amazon’s Prime Air fleet, which has 86 planes in service, according to Planespotters.)
That has driven prices to almost unprecedented levels. According to the latest figures from Xeneta, the “average spot rate” for May air cargo from southern China to the US is now around $4.75 per kilogram so far, the highest since last year, rivaling what is usually peak demand. in the run-up to the Christmas season. That’s more than double during the same period in 2019, when the rate was $2.32 per kilogram.
Rates remain lower than recent peaks in 2020 and 2021, when that rate peaked at $10 to $12 per kilogram. But those spikes were due to the pandemic, which created shipping and supply chain shortages around the world. Now, analysts say the rise is largely due to just two companies: Temu and Shein.
To keep up, some airlines and logistics companies have even started adding more flights to prepare for further growth. For example, Atlas Air, an American air cargo company, announced earlier this spring that it would soon put a second air cargo plane into service in partnership with YunExpress, a Chinese shipping company.
Regionally, Korean Air reported earlier this month that it had earned $2.8 billion in revenue during the first quarter of 2024, citing “strong cargo demand,” up 20 percent year-on-year. The airline added that during the second quarter, its cargo business “will capitalize on China’s growing e-commerce demand by strengthening customer partnerships and allocating capacity on key routes.”
“Shein and Temu have an ongoing ‘thirst’ for air travel, which is unparalleled by anything we have seen before,” Wenwen Zhang, an air travel analyst at Xeneta, emailed Forbes.
The boom has even affected global shipping routes. Temu has initiated new sea and air routes through Taiwan, Japan and Korea to the US, “disrupting traditional trade patterns,” according to a report by Taiwanese shipping company Dimerco. “Consequently, freight rates on these alternative routes now exceed those of mainland China, an unusual occurrence.”
Last Monday, the Chinese government also announced a new air cargo route between the southern Chinese city of Zhengzhou and Dallas and Atlanta, which “mainly serves cross-border e-commerce shipments.”
Shipping cargo by air is always considerably faster and more expensive than shipping by sea, which can transport a much larger volume of goods, albeit at a slower pace. The overwhelming majority of the world’s goods, measured by volume, are shipped by sea, and typically only urgent and high-value items are shipped by air.
Then there is the environmental cost. According to Freightos, an online cargo booking marketplace, cargo ships generate approximately 10 to 40 grams of carbon dioxide per metric ton-kilometer traveled, much less than air transportation, which emits about 500 grams per metric ton. -kilometer. )
For now, Shein and Temu are offering free shipping on orders over a certain size, apparently willing to absorb the higher costs as a shortcut to accelerate growth in the U.S. “Temu and Shein rely on air freight because their shipping model business is ultra-fast fashion. and they need to get all these products out immediately,” Guillermo Ochovo, director of Cargo Facts Consulting, told Forbes. “Right now they have no choice but to depend on the air.”
But that could change in the medium and long term as companies look for ways to reduce costs now that they are both established e-commerce platforms. They currently lack a national land shipping and logistics network comparable to Amazon or Walmart, but both companies have slowly begun to expand their presence in the United States and Mexico. Shein now has two distribution centers in Indiana and California, and Temu has recently started working with Chinese sellers already based in the US.
“The fact that we are talking about this type of market so early in the year is leading a lot of people to think about how challenging the peak season, the fourth quarter, will be.” Brian Bourke, global commercial director, SEKO Logistics
The high costs of air freight come in part from largely empty planes that must make the return trip from the United States to China: shipping in that direction costs perhaps a fifth of the price of a shipment from China to the United States, said van de Wouw.
“You get a full plane to the United States and a dead plane on the way back,” he said, using an aviation industry term for a nearly empty or completely empty plane. “The return becomes a bloodbath.”
Neither Shein nor Temu responded to Forbes’ request for comment.
A major television advertising campaign in the United States has fueled Temu’s growth, including ads during the 2023 and 2024 Super Bowls that encouraged Americans to “shop like a billionaire.” New survey data released last month by YouGov shows that nearly all Americans surveyed said they had heard of the company.
Its parent company, PDD Holdings, which also owns a huge sister online trading site called Pinduoduo that only operates in China, is worth more than $167 billion. PDD Holdings has its technical headquarters in the Cayman Islands. The company has more than 17,000 employees worldwide, according to its most recent annual report, and the vast majority of them are believed to work in China.
Last month, PDD Holdings announced record annual profits of more than $8.4 billion in 2023, including approximately $5 billion in net income attributed to “other subsidiaries of PDD Holdings,” a group that includes Temu. This is almost double the $3.4 billion in profits made by the company’s Chinese arm. Shein, valued at $66 billion according to CNBC, has been rapidly encroaching on the territory of American fashion brands such as Gap and Macy’s. The privately held company has also grown incredibly fast, going from about $2.5 in revenue in 2019 to an estimated $48 billion this year, according to ECDB, a German e-commerce analytics company.
Both companies, which will likely surpass $90 billion in revenue this year, will have an unprecedented holiday season, and shippers are already worried.
“The fact that we’re talking about this type of market at the beginning of the year is leading a lot of people to think about how challenging the peak season, the fourth quarter, will be,” Brian Bourke, commercial director of logistics at SEKO, told Forbes.
“If we are like this now and we are at the beginning of May, can you imagine what it will be like in September, October, November and December?”
Source: Forbes
