The rapid rise of Chinese e-commerce giants Shein and Temu in the U.S. market has not only transformed American shopping habits but also presented unprecedented opportunities and challenges for the U.S. logistics sector.
According to reports, these two cross-border e-commerce platforms send over a million packages daily to American consumers, creating massive demand for logistics services and spurring innovation and transformation across the industry.
New Companies Ride the Wave of Chinese E-commerce
To meet the growing delivery needs of Shein and Temu, a slew of logistics startups has emerged.
One notable example is Hailify, founded in 2017. Initially, it served as an app for ride-hailing drivers to manage work across multiple platforms. However, sensing the burgeoning opportunities in e-commerce, Hailify pivoted to parcel delivery. Today, it is a crucial link between Chinese sellers and American consumers.
Several other startups have also found their niche amid this surge:
- PiggyExpress, founded in 2021, primarily serves Temu. The company uses flexible operations, leveraging temporary locations like parking lots for driver pickups to maintain low costs.
- UniUni, based in Vancouver, Canada, has raised over $100 million since its inception in 2019, thanks largely to orders from Shein and Temu.
- GOFO Express, established in 2022, has quickly become a primary last-mile delivery service provider for Temu in the U.S.
- SpeedX, also founded in 2022, derives 60% of its business from international retailers like Shein and Temu, providing a foundation for expansion into new markets.
These startups have thrived by adopting asset-light models, relying on temporary workers and flexible locations to keep operating costs low. This allows them to quickly adapt to market changes and compete with traditional logistics giants on price. However, this model also introduces potential risks, such as service quality instability and employee rights issues.
Traditional Logistics Giants Adapt to New Realities
Facing the opportunities brought by burgeoning e-commerce, traditional logistics giants are also making strategic adjustments.
The U.S. Postal Service (USPS) is currently Shein's main delivery partner in the U.S., reportedly offering discounts of up to 70%. This significant discount reflects USPS's aggressive push into the parcel delivery business and Shein's bargaining power as a major customer.
OnTrac, the fourth-largest courier in the U.S., is expanding nationwide, with Shein and Temu becoming some of its largest clients. This partnership brings substantial business and valuable experience in competing with giants like UPS and FedEx.
UPS, taking a different approach, provides return services for Shein through its subsidiary, Happy Returns. CEO David Sobie revealed that Shein is one of Happy Returns' top five revenue sources. Additionally, UPS is negotiating potential return services with Temu. This focus on specific service niches allows UPS to carve out a competitive space in a fiercely competitive market.
The Price War Hits U.S. Logistics
While Shein and Temu have created significant opportunities for the U.S. logistics industry, they also pose several challenges.
Firstly, there is the issue of pricing pressure. Both companies are known for their tough price negotiation strategies, which can squeeze the profit margins of logistics service providers. Reports indicate that Shein's contract with USPS includes discounts as high as 70%, a level that can challenge even large logistics companies and pose severe challenges for startups with thin profit margins.
Secondly, as consumer demands for faster delivery times increase, low prices alone are no longer sufficient to win orders. The success of Shein and Temu in the U.S. market partly hinges on consumers' willingness to accept longer delivery times in exchange for lower prices. However, recent trends suggest that accuracy and timeliness are becoming more critical factors in selecting logistics partners. Reports indicate that Temu is even considering using large carriers like FedEx to reduce customer complaints about delivery delays and errors.
Lastly, over-reliance on a single customer can lead to business instability. Many emerging logistics startups have bet heavily on Shein and Temu, a strategy that can drive rapid business growth in the short term but may pose significant risks in the long run. If these e-commerce giants change their strategies or face market fluctuations, logistics companies that depend on them might suffer severe setbacks.
For startups, the key will be to build sustainable business models while maintaining flexibility. They need to find a balance between service quality and cost control while actively expanding their customer base to reduce reliance on a single client.
