Temu achieves air freight cost optimisation by selling small volume, lightweight products, focusing on selling items with smaller size and weight like jewellery. By leveraging relaxed delivery time commitments and excess inventories, logistics costs are effectively reduced, allowing for a buffer period to choose the delivery timing with lowest costs. Temu has adopted a strategy of mixing lightweight and heavyweight goods in its supply chain, using space and load capacity in collaboration with freight forwarders to achieve cost savings and improve operational conditions.
How does Temu build its supply chain network?
Based on the above methods, Temu needs to build its own supply chain network and choose locations with dense flight schedules that can provide enough heavy goods to match, as its main receiving warehouses. Currently, Temu has chosen the Pearl River Delta, including Hong Kong, Guangzhou, Shenzhen, etc., because these areas have strong transport capacity, with abundant tail-end and heavy goods resources. Additionally, since Temu does not have its own heavy goods resources, it cooperates with freight forwarding companies with such resources, bundling calculations to save on freight costs.
How does Temu manage its logistics costs?
Temu manages its logistics costs in two main ways: firstly, by prioritising the use of tail-end flights, i.e., selling the remaining transport space at a low price to Temu when the aeroplane has already reached break-even; secondly, by combining heavy goods (like electronics with batteries or CPUs) with lightweight goods (throwaway goods) for transportation, fully utilising the plane’s total volume and load capacity, thus achieving freight cost savings. Choosing air transport as the main mode of transport and adjusting transportation strategies for tail-end flights is one of the keys to reducing logistics costs for Temu.
Temu’s Forecast of Cross-Border Logistics Volume
According to Temu’s sales forecasts, the demand for cross border air cargo in 2023 will increase significantly, expected to reach 2 million tonnes, equivalent to the transportation capacity of about 40 Boeing 747s or 60 Boeing 767s per day. The company predicts that Chinese airlines might undertake the shipment of 15 full cargo planes per day, indicating a gradual increase in Chinese airlines’ participation in the field of cross-border logistics.
The increase in demand in the air cargo market has led to supply capacity becoming a bottleneck, impacting freight rates. In the fourth quarter of 2023, freight rates have rebounded, reflecting limited growth in capacity and influenced by US interest rate hikes.
Temu’s Cross-Border Logistics Supply Chain Advantages
Temu mainly sells unbranded goods, competing with Dollar General, Wal-Mart’s Great Value, Amazon’s Amazon Basics, etc. Temu achieves high growth during seasonal demand peaks such as back-to-school and holiday seasons. Moreover, adapting to the consumer trend towards cheaper unbranded goods, it is poised to continue capturing market share.
Due to the existence of the <US$800 duty-free policy, Temu has an advantage in cross-border logistics costs, difficult to replicate by competitors. A warehouse strategy in Mexico may further optimise logistics costs, supporting stable performance in the coming year.
Deep Dive into Temu’s Cross-Border Logistics Cost Strategy
Low-cost cross-border small parcel freight: From Guangzhou to the US, cost of small parcel freight can be controlled at less than a dollar per parcel, and can be further reduced through bulk transportation. Strategic advantage of using Mexico as a transshipment point: Establishing warehouses in Mexico, leveraging more flexible logistics systems and tariff policies between Mexico and the US, avoiding tariff costs associated with establishing warehouses in the US.
Change in air cargo price negotiation strategy: Due to limited supply capacity, airlines have more bargaining power in negotiating long-term prices this year, which may be higher than last year.
Analysis of Temu’s Cross-Border Logistics Costs
Chinese market shipping situation: The entry of small airlines into the market signifies that freight rates have begun to rise. Impact of belly compartment: Increasing capacity in passenger plane bellies has little negative impact on freight rates, as the actual capacity sold is limited, and most passenger luggage occupies significant space. Early or pilot nature of fast shipping will not reduce storage pressure at Guangzhou warehouses, as the scale-up of Mexican bonded warehouses is slow, and long-tail goods rely on air transport.
Temu’s Logistics Return and Supply Chain Strategy
Role of US warehouses: Handling returns, reducing freight costs, promoting local secondary sales. Supply chain service provider selection: Temu chooses overstock and cost-effective suppliers without fixed large suppliers, preferring flexible and diverse small suppliers.
Freight forwarding service provider cooperation: Temu does not set up its own freight forwarding services to avoid increasing logistics costs and industry competition, entrusting multiple companies for collaboration and maintaining an open cooperative attitude.