Temu Watch #8: How Temu responded to US tariffs
An overview of Temu's strategies before and after May 12th
Contents
Things that caught our attention
Introduction
In March, we published Temu Watch #7, which elaborated on the many ways in which Temu had prepared itself for import tariffs and the cancellation of de minimis, which lets cross-border businesses ship packages directly to US consumers without having to pay import tax for goods valued under $800.
One of the key insights from that report was that Temu would be able to mitigate most of these challenges; however, if the tax rate exceeded 50%, it would have a significant negative impact on business operations, ultimately losing its competitive advantage. Considering how most regular import tariffs were less than 50%, the prospects did not seem all that bleak for Temu.
On April 2nd, the White House announced the cancellation of de minimis as of May 2nd. Ironically, this tax-free policy below $800 was first introduced by the Obama administration, to alleviate the high cost problem in the United States by introducing low-priced goods from China. According to the announcement, this would result in a 30% or $25 fee per postal item, the latter fee to be raised to $50 by June 1st. Later, the tariffs exploded in what seemed like a game of ‘trade war chicken’ and reached levels that would most probably end Temu’s fully managed model approach.
And they did. At the end of April, Temu stopped its fully managed service. It would no longer have a price advantage when shipping goods by aeroplane to US consumers.
On May 12th, when the US and China reached a temporary truce, the tariffs were lowered to 54% for 90 days, and each package would be taxed a maximum of $100. This could still be prohibitive according to our findings shared in Temu Watch #7, but Temu has announced the restart of its fully managed business. And then, on May 29th, a U.S. trade court declared Trump's tariffs unlawful only to have them reinstated a day later while the appeal of the Trump administration is considered.
In the last few months, the situation has been highly unpredictable and has changed almost daily. We have therefore held back on doing a new Temu Watch report. What we would publish today could be irrelevant the next day. Still, considering some requests we have been receiving for an update, and how Temu's responses tell us a lot about possible future scenarios in various markets, we thought it might be time for a new Temu Watch, which we will publish on top of our regular bi-weekly schedule.
This Temu Watch is based on a series of expert interviews conducted in May, which should provide additional insights into the situation at Temu over recent weeks. Do note that the situation remains versatile.
We have split this report into two sections. The first section examines the impact of the tariffs prior to their suspension on May 12th. This section is free for all to read. The second section examines the period following the pause in tariffs and offers some new general new insights into Temu’s operations. This section is available to paid subscribers.
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Enjoy,
Ed Sander, Tech Research Analyst
Part 1: Before May 12th
The information in this section was primarily obtained from an expert interview conducted on May 7th, prior to the tariffs being paused and reduced.
In April 2025, the United States suddenly raised tariffs from 20% to 145%, which had a profound impact on the cross-border e-commerce industry. In particular, those merchants who rely on small packages, self-delivery, and have no overseas warehousing or low-priced products have almost all suffered heavy losses. After the tariff was raised to 145%, online platforms that provide fully managed services, such as Temu and Shei,n faced greater operating pressure.
The cancellation of the T86 policy (the de minimis policy for small packages) on May 2nd further impacted Temu's business operations. These policy changes have resulted in a decline in Temu's order volume and advertising spending in the United States.
Pricing
Before the tariffs were paused on May 12th, the overall tax rate for goods imported from China was approximately 105%, whereas it had typically been only 5.7% previously. If the original price of a consumer electronic product were $3, after the tax increase, the cost would be more than $6. Due to the increase in tax rates, shipments dropped significantly from April 2 to May 13, and the frequency of customs inspections increased from 5% to 15%.
On April 14, Temu announced to merchants that it would start raising the prices of fully managed goods to help them cover the additional tariffs. It also promised merchants more free traffic, assistance with customs clearance, and help in selling in other markets. [1] The price increases went into effect on April 25th.
Consumers who choose the fully managed model have to pay more than twice the fees at checkout. The new tax rate was as high as 145%, and the additional fees for certain high-profit items ranged from 100% to 130%, while the extra fees for most items reached as high as 160%. These additional fees include a 145% tariff and a 15% logistics fee. Each order also incurs a handling fee of approximately $2 for customs handling or clearance fees. Due to the sharp increase in costs, consumers' willingness to purchase has decreased, resulting in a significant decline in the number of orders.
Under the semi-managed model, the prices of various categories of goods vary, with some categories increasing by more than 100%, while most categories increase by between 50% and 70%.
Under the fully managed model, the final retail price of hot-selling products usually increases by 30%-50% after arriving at the US forward warehouse by sea. The prices of popular products on the platform have generally increased by this amount. For example, the cost of a mobile phone case increased from $1 to $ 1.50, but compared with similar products in the United States, which start at $3, it still offers a particular price advantage.
On Amazon, about half of the products come from China. These products also underwent price adjustments after April, but Temu still maintained its price advantage. Approximately 30% of Amazon's current products originate from Southeast Asian countries, while the rest come from the United States, Canada, Australia, and other regions. In early May, the prices of Temu's fully managed products increased by 30% to 50%, while the prices of Vietnamese products increased by about 20%, resulting in a 10% to 20% reduction in its price advantage. These changes significantly affected Temu's market competitiveness and consumer purchasing behaviour.
As can be seen in the screenshot below, which was shared on Reddit, Temu clearly indicated the source of the price increases.
Source [2]
“Items imported into the U.S. may be subject to import charges. These charges cover all customs-related processes and costs, including import fees paid to customs authorities on your behalf,” Temu explained on its website. Earlier in April, it had announced: “Due to recent changes in global trade rules and tariffs, our operating expenses have gone up. To keep offering the products you love without compromising on quality, we will be making price adjustments starting April 25, 2025.” [3]
Example calculation of price and profit changes. [4]
Business Models
The change of the de minimis tax-free policy has had a significant impact on both Temu and Shein in the North American market. The two companies are heavily dependent on the policy and therefore face enormous challenges. Specifically, 90% of Temu's business relied on the fully managed model that used the de minimis policy, and only 10% was semi-managed model.
Note: the source used for the chart below claimed the share of semi-managed was around 20%, and according to Dolphin Investment Research, the proportion of orders in Temu's semi-custody business may also be around 20%. [5]
Temu made a series of significant adjustments to its cross-border e-commerce operation model.
As of April 26th, Temu began removing fully managed products. By April 30th, almost all fully managed stores on Temu’s US site displayed “This store is closed.” [6] As of May 4, all fully managed air freight products were marked as out of stock and ceased to be sold. Shipping packages from China to consumers under the fully managed model was terminated.
Under the new operating policy, the best-selling products are now shipped to the forward warehouse in the United States by sea, utilising a fully managed model. Currently, the customs clearance process for the fully managed model is largely the same as that for semi-managed merchants, although the types of goods sold differ.
The new regulations have less impact on the local-to-local model.
The number of fully managed SKUs dropped significantly. From 4 million at the peak and 3.4 million usually, it has reduced to 100,000-150,000 currently sent by sea. At the same time, the number of semi-managed SKUs increased from 800,000 to about 1 million since the beginning of March, of which 90% are from China. These data refer to the number of SKUs on the shelves and do not represent actual sales.
About 5% of fully managed or semi-managed merchants have turned to Amazon, mainly focusing on 3C products. The lost goods are primarily medium- to large-sized items, while light and small items are mostly retained on the Temu platform.
In response to the total merchant churn rate of 20%, which is lower than the expected one-third, Temu accelerated the recruitment of semi-managed merchants. This included merchants from Vietnam, Canada, and other regions, as well as Chinese merchants in these areas. It has also made structural adjustments to semi-managed goods, retaining those that remain competitive after tax, such as certain Chinese household goods. However, the competitiveness of goods such as 3C and cosmetics has declined.
In early May, Temu’s policy was to expand the number of SKUs, especially those that remained competitive after tax. The semi-managed model would cover categories that could not be stocked by fully managed, such as seasonal clothing. Additionally, it introduced non-China-made goods through the local-to-local model to mitigate the impact of tariffs.
The prospect of semi-managed business in the United States is unclear, and a growth bottleneck appeared last year. Regarding the profitability of this business, it has been profitable since July of last year. However, it suffered a small loss in the fourth quarter. The primary source of income is advertising. However, the semi-managed business also faces some restrictions, especially in terms of expanding the number of merchants and the scale of cargo trays, and investment promotion efforts have also weakened this year. Despite this, the local model still shows great potential. Currently, this model is still in its early stages, and there is considerable room for growth in the number of merchants and GMV.
Semi-managed Y2 Model
On April 27th, Temu launched the "domestic shipping semi-managed" model, also known as the Y2 Model. It is similar to the semi-managed model, but instead of asking merchants to store goods in overseas warehouses, it enables Chinese merchants to ship directly from China to US consumers after the order is received. Merchants are responsible for customs clearance and compliance. [7]
Temu has been struggling to attract enough merchants to take the risk of storing goods in overseas warehouses. This Y2 model opens up new possibilities for Temu to attract more merchants to join its semi-managed program and keep its logistical costs low. Merchants won’t run the financial risks of overseas inventory and can ship on demand.
The logistics for the Y2 model after the consumer places an order are as follows: [8]
Temu does not offer the option to existing semi-managed merchants; they would need to apply to open a new store, a request that Temu will review and consider. Merchants will need to have capabilities for logistics and customs clearance. Temu is likely to retain pricing power and will be strict about delivery times. According to Paidai Cross-Border e-Commerce [7], Temu will demand an ambitious 9-day delivery, which might be a challenge considering the current US import climate. Late delivery will result in fines for the merchants. Temu may facilitate (but not cover the costs of) some of the logistics with third-party partners.
Temu provided a one-click migration model for full-hosting merchants. [5]
By offering this model, Temu essentially makes the US tariffs, customs clearance challenges, and rising logistics costs the merchants' problem. As such, it’s no surprise that the reception among many merchants has been lukewarm.
Impact on sales
Overall, Temu's total orders and visits in the United States decreased by about 50%-70%.
In the US, the average daily GMV of the US market dropped from $80 million in early March to about $40 million in early May. At the same time, the business model structure also changed significantly. The proportion of fully managed business dropped sharply from 75% to 10%, while the proportion of semi-managed business increased, and the proportion of local-to-local business increased from 2%-3% to 8%.
The traffic composition of the platform also changed. The proportion of on-site traffic increased from 60% to 70%-80%, primarily from existing users; meanwhile, off-site traffic decreased from 40% to 20%-30%, mainly through channels such as Facebook and Instagram. User activity has also declined. The number of daily active users dropped from 50-60 million last year and more than 60 million in early March to about 40 million in May.
In addition, due to the 145% tax imposed by the US market, about 20% of semi-managed merchants have chosen to turn to other markets, such as Europe. Most commodity prices have increased by more than 50%, which has not only affected sales but also the recruitment of new merchants.
Shifting markets
After the fully managed products performed poorly in the US market, the company adopted several strategies to expand its sales channels. These products were transferred to other regions, such as Europe and Southeast Asia, for sale. However, due to differences in standards, some products cannot be simply transferred to domestic sales. For example, 3C products need to be converted from US standards to European standards, which requires redesign.
Fortunately, most household goods, beauty and personal care products, and clothing items do not have significant differences in quality standards so that they can be sold directly in other markets. These markets include Latin America, the Middle East, Japan, South Korea, and Southeast Asia. The effectiveness of this strategy varies depending on the product category and regional market. For products with similar quality standards, such as home, beauty care, and clothing, they can enter these new markets relatively smoothly. This diversified sales channel strategy has helped alleviate the difficulties encountered in the US market while also opening up new growth opportunities for the company.
Although other regions have grown, a gap remains. Although other regions are expected to fill the gap in the US market in the second half of the year, the progress is relatively slow. From the perspective of financial impact, the US market was expected to be reduced by $10 billion throughout the year, depending on the tariff policy. If the 145% tariff were to continue until the end of the year, the loss would reach $10 billion, while other regions would only compensate at most $5 billion. However, if the tariff issue was to be resolved between July and August, the full-year impact may be reduced to $5 billion US dollars.
Impact on advertising of Shein and Temu
At the beginning of 2025, e-commerce giants significantly reduced their advertising spending in the US market. The tariff policy implemented in early April impacted the advertising strategy of most cross-border e-commerce platforms. Due to the impact of these tariff policies, the overall advertising volume of e-commerce platforms in the US market has decreased significantly this year. However, it should be noted that in November and December each year, the proportion of advertising in the US market typically increases significantly due to large-scale promotional activities, such as Black Friday. These holiday factors will drive additional growth in brand and performance advertising, while various traffic support measures will also increase overall delivery.
According to data from March, Temu's global advertising expenditure on the Meta platform reached $61 million, with the US market accounting for $13 million, making it its largest market. At the same time, Temu's advertising investment in the US market of Google was about $4 million, while the investment on other platforms, such as Applovi,n was relatively small, only tens of thousands of dollars.
In contrast, Shein's main advertising platform in March was also Meta, with a total global investment of $35.3 million, of which $3.9 million was invested in the United States, Canada, Australia and New Zealand. Shein invested $19.9 million in Google ads worldwide, of which about $7.2 million was spent in the United States, Canada, Australia and New Zealand. It is worth noting that Shein's $1.3 million advertising on Bing was all aimed at the US market. Additionally, Shein also invested approximately $2.3 million in AppLovin.
But then the tariffs arrived …
According to Smarter Ecommerce data, Temu completely stopped all sponsored video and shopping ads on TikTok and Google in the United States on April 9. In the first two weeks of April, Temu reduced its advertising spending on platforms such as Meta, X, and YouTube by an average of 31%. Meanwhile, Shein saw its average daily advertising spending drop by 19%. [5]
At the same time, both increased their spending in Europe and other regions. According to Sensor Tower data, in April, Temu's spending in France and the UK increased by 40% and 20%, respectively, while Shein's advertising spending in France and the UK increased by 35% month-on-month. [5]
Temu and Shein have many similarities in their global advertising strategies, but there are also some differences. Temu's total advertising expenditure in April was $66 million, of which performance advertising accounted for $57.79 million and brand advertising accounted for $8.5 million. The proportion of advertising in North America was only 4%.
In April, Temu's global advertising was as follows: Europe accounted for 49%, Latin America accounted for 16%, Japan, South Korea and Southeast Asia accounted for 12%, the Middle East accounted for 9%, Africa accounted for 6%, North America accounted for 4%, and Australia and New Zealand also accounted for 4%.
Among Japan, South Korea, and Southeast Asia, South Korea had the most advertising, followed by Thailand and Malaysia, while Japan had almost no advertising. In Africa, advertising was mainly concentrated in Morocco, Nigeria and South Africa, with Morocco accounting for the majority.
During the same period, Shein's global advertising situation was slightly different: Europe accounted for 52%, mainly concentrated in the UK and France; Latin America and South America accounted for a total of 17%, mainly in Mexico and Brazil; Southeast Asia accounted for 12%; the United States, Canada, Australia and New Zealand accounted for 5%, with the most significant number in Canada; Japan and South Korea accounted for 5%; the Middle East was only placed in Saudi Arabia, accounting for 9%.
The effect of Temu's increase in advertising in Europe was not ideal, mainly due to pressure from competitors and the presence of numerous independent websites. European consumers have a high acceptance of independent websites, which further intensifies market competition.
According to data from marketing performance agency Tinuiti, Shein’s daily ad impression share on Google Shopping in the U.S. was 0% on April 26. Two weeks earlier, Temu’s share on the platform also fell to zero. Earlier, Shein’s impression share in U.S. Google Shopping ads dropped from 20% on March 31 to 10% on April 15, and finally to 0% last Saturday. “We did expect Shein to continue to decline in the auction, but they did ultimately shut down their ads,” Andy Taylor, VP of research at Tinuiti, said. Temu’s share of U.S. Google Shopping ad impressions fell from 19% on March 31 to 10% on April 9, and then to 0% on April 12. [9]
In the US market, the reduction of advertising investment by Temu and Shein has had different impacts on various platforms. The decrease in advertising budgets initially started with Meta, and then gradually spread to other platforms such as TikTok. Specifically, in the US market, advertising on the Applovin and Bing platforms has been completely stopped. These changes have undoubtedly had a profound impact on the overall landscape of the US digital advertising market. However, the platforms still retained part of their advertising budgets to maintain the active status of their accounts to avoid complete cessation.
This concludes our look at the situation up to May 12th. The paid readers-only section below continues with the developments after the tariffs were reduced.
Part 2: After May 12th
On May 11, 2025, China and the United States signed a new trade agreement that reduced tariffs on commodities to 30%, while China's tariffs on exports to the United States fell to 10%. Within the next three months, the tax rate for all seaborne imports will be uniformly adjusted to 30%, and no other fees or special conditions will be attached.
The policy for small parcels (T86), originally scheduled to be implemented on June 1, has been cancelled. The policy originally included a fixed fee of $200 per parcel and a tariff of 120%. Currently, the tariff rate for small parcel business is 54%, with a maximum levy of $100 per order.
The new policy has brought new development opportunities to small package platforms such as Temu, and their business is expected to recover quickly. The reduction in tariffs from 120% to 54% has significantly reduced operating expenses, playing a crucial role in the rapid recovery of platforms such as Temu. In addition, the stability of trade relations between China and the United States has also provided these companies with a more predictable operating environment.
While the current official tax rate for small packages in the United States is 54%, through legal channels, the actual tax rate can be reduced to about 30% because the inspection rate is only 10%.
Under the current policy environment, cross-border e-commerce platforms face many challenges. The cancellation of the de minimis $800 tax exemption has had a profound impact on cross-border e-commerce platforms such as Temu and Shein, as well as independent websites and small package direct mail models. This has made it difficult to continue the previously commonly used order processing method of direct shipment from China.
Although tariffs returned to normal on May 12, the tax exemption policy for goods below $800 has not been re-implemented, and it is expected that this measure will continue. In general, cross-border e-commerce platforms and logistics companies are actively seeking new strategies to adapt to these policy changes, in order to maintain the sustainable development of their businesses.
Bain and Company traced the effect of the various tax announcements on the sales of Temu and Shein in the charts below. [10]
Business models
In the logistics strategy for the US market, there are now three different options:
1. Continue to retain the fully managed model, but encourage transformation
2. Introduce the Y2 model, that is, delivery within 14 working days
3. Completely switch to the semi-management model.
In the Y2 and semi-managed models, merchants can choose a double-clearance tax package and negotiate the total price with the freight forwarder, covering transportation and tariff costs.
The Forward Warehouse Model
Temu's fully managed forward warehouse model involves transporting goods from the country to the local forward warehouse, and then shipping them to customers from there. However, this method will lead to higher warehousing costs and is less efficient than merchants directly shipping with their own overseas inventory. The fully managed forward warehouse model is more suitable for manufacturers that do not have their own brands or overseas warehouses.
After May 12th, Temu has been working on restarting the fully managed services. On May 14th, merchants were asked to arrange replenishment of warehouses as soon as possible and, remarkably enough, provide a certificate proving that the goods are not made in China. [11] It also told merchants that after the tariff reduction, the cost of the Y2 model has dropped significantly and products that did not have a price comparison advantage before now had an advantage. [12]
Temu plans to gradually increase the proportion of forward warehousing in its fully managed operations. At present, the ocean-based forward warehouse model (see our Temu Watch #6 report) accounts for about 18% of fully managed sales. Temu’s is to increase this proportion to 50% in the third quarter and 60% in the fourth quarter. The remaining 40% of fully managed sales will be adjusted according to factors such as changes in tax rates. For example, merchants can choose to ship goods on their own (Y2) or switch to a semi-managed model.
Under this new model, merchants will centrally ship goods to Temu's US warehouse, and the platform will be responsible for fulfilment. The US warehouse does not charge the merchants. If the sales proportion of the forward warehouse model increases rapidly, Temu will expand its warehousing network in the US offshore area and set up a transit warehouse in Mexico. Some goods will be sent to Mexico for transit and then shipped to the United States to shorten logistics time. Customs clearance in the United States is currently slow, taking 3-4 days for both sea and air transportation.
Some goods in the forward warehouse may be stored alongside the goods of semi-managed merchants, but not all warehouses are configured in this manner. Warehouses with good locations are usually used for a variety of purposes, while remote warehouses may be explicitly used to store goods in fully managed forward warehouses. Orders from American consumers that include goods from fully managed forward warehouses and semi-managed merchants may be shipped together. However, suppose an order contains both goods from local merchants and goods from fully managed forward warehouses. In that case, these goods will not be shipped together because local merchants do not use Temu warehouses.
In addition, due to timeliness reasons, goods from forward warehouses will not be shipped together with cross-border fully managed goods. As the proportion of forward warehouses increases, the overall proportion of combined shipments will also increase, which will help reduce the last mile delivery cost. In the United States, the last mile delivery fee is about more than $2, which is competitive.
By the end of May, Temu had not fully restored the fully managed model. Although it has communicated with some merchants, the actions are limited and may be waiting for policy changes. It is worth noting that only about 5% of the previously blocked fully managed stores and links have been restored. The specific reasons for the lack of restoration are still unclear. Many merchants' fully managed accounts have not been restored, and some merchants have given up trying again.
So, the recovery of the fully managed model is progressing slowly. Regarding future development plans, fully managed services in the US market are expected to resume within 1 to 2 months, which may have a positive impact on Temu’s business performance. However, the recovery of order volume remains a major challenge, and it is not easy to reach the previous highest level. The recovery of order volume requires time and continuous support, which will be a key factor affecting the future business performance.
Third-Party Model
After launching the fully managed model in 2022, adding the semi-managed model in March 2024, and introducing local-to-local business more recently, Temu introduced the third-party model in the US in March and plans to roll it out to other countries. [13]
The table below (source: Paidai Cross-border e-Commerce) shows the differences between the three main models. In the third-party model (a.k.a. POP, 'Platform Open Plan'), the initiative of product selection, pricing and delivery returned to the merchant. The right to set their own prices will be attractive to many merchants, especially those who already have overseas logistics.
Through the third-party model, Temu aims to enhance its competitive edge against Amazon by expanding its product offerings and implementing faster logistics. Temu plans to attract more merchants who are already active on Amazon and eBay.
In the early days, Temu focused on clothing, accessories, and low-priced home furnishings, priced at $5 - $20. By the end of 2023, following the introduction of sea shipping and the semi-managed model, large items such as furniture and outdoor equipment were gradually made available, and the value of a single item could exceed $200. As it adopts a more platform-like third-party model, Temu's operating strategy also tends to shift towards "quality of life" scenarios.
The move to semi-managed and third-party would result in Temu driving out smaller merchants that cannot bear the risk of overseas inventory or price wars. Fifteen per cent of SMEs were expected to exit.
In the future, Temu will no longer simply pursue low prices, but also provide fast after-sales service to improve user satisfaction and customer unit prices, and increase the repurchase rate. While Amazon becomes more like Temu with Amazon Haul, Temu becomes more like Amazon.
Logistics
Domestic warehouses
Temu has adopted a distributed warehousing strategy, with multiple warehouses established in various regions and target markets. Goods for the United States and Europe are mainly handled in the Guangzhou warehouse, while the Weihai warehouse is responsible for handling goods destined for Japan and South Korea. Yiwu also has dedicated warehouse facilities and distributes goods according to the specific needs of each market.
In terms of product type, different types of goods are assigned to specific warehouses. For example, electronic products are mainly stored in warehouses in Dongguan. The warehouse in Guangzhou is primarily responsible for handling cosmetics, general merchandise, and clothing products from Japan. This is because Guangdong is a significant production base for clothing and beauty products, so most of the related warehousing facilities are located in Guangzhou. Through this strategic warehouse distribution and product classification, the company can manage inventory and process orders more efficiently, thereby improving overall operational efficiency.
US Warehouses
Temu's warehousing expansion plan in the United States is progressing steadily. Currently, it has about 100 overseas warehouses in the United States, and this number has remained stable since April. However, Temu plans to increase the number of warehouses to about 200 by the end of this year. Among these warehouses, Temu has established three self-owned warehouses, two of which are located in the suburbs of Detroit and the other is located in Los Angeles.
Temu's warehouse scale is quite considerable, with the current average warehouse area at approximately 20,000 square meters. Even after the number of warehouses increases to 200 by the end of the year, Temu expects the average warehouse area to remain at around 20,000 square meters.
Meanwhile, Temu's own warehouses are pretty large, with the largest one covering an area of 100,000 square meters and the other two ranging from 50,000 to 100,000 square meters. Currently, the number of third-party warehouses with their own equipment and personnel, but directly managed by Temu, is approximately 10. Of the existing 100 warehouses, approximately 60% are certified warehouses dedicated to storing Temu's goods. Logistics companies must be certified before they can settle in. Another about 30% of the warehouses are third-party warehouses, which can store a variety of goods, including Temu and TikTok.
Temu's strategy is to gradually increase the proportion of certified warehouses and self-operated warehouses while reducing its reliance on third-party warehouses. This move will not only help optimise its logistics network but may also improve operational efficiency and customer satisfaction.
Temu plans to establish a new return centre in the United States, primarily to address the increased demand for returns resulting from the surge in shipments from semi-managed and overseas warehouses.
Temu has not yet conducted an in-depth analysis of the economic benefits of overseas warehouses and only has preliminary statistics on the use of warehouses under different management models. The actual utilisation rate of semi-managed warehouses managed by merchants is approximately 65%, while the utilisation rate of warehouses managed by companies ranges from 70% to 75%, with some space remaining underutilised.
Overseas warehousing costs account for 4% of the total cost. Taking the fully managed orders in the United States as an example, the average value of each order is US$40, the warehousing fee is US$1.6, and each order contains about 7 items, and the warehousing cost of a single item is slightly more than US$0.20.
Freight costs
During the period of the previous high tariffs, many merchants did not dare to stock up. For Chinese cross-border e-commerce sellers, the Temu platform presents several significant challenges and risks. First, the Amazon FBA or semi-managed model brings enormous financial pressure and risks to merchants. Merchants need to invest a substantial amount of money in advance, which can be as high as hundreds of thousands of RMB, to ship goods to the United States. These funds will be occupied during the one- to two-month sea transportation period. If the goods are unsalable in the United States, the handling costs are very high, which may result in significant losses. Due to a lack of brand awareness and financial strength, many merchants are hesitant to adopt these models, primarily because of cash flow issues and high risks.
Temu itself advises merchants to first test the popularity of a product in the fully managed model and move to the semi-managed model if it is. [14]
The reduction of tariffs resulted in a significant increase in demand for shipments to the United States after May 12, which in turn led to a substantial rise in logistics costs. Air transport costs have risen significantly, from RMB 60 per kilogram in early April to RMB 120 per kilogram on some routes. This has led to the need to re-negotiate agreements with airlines, and route resources have been reallocated. It takes some time to repurchase logistics capacity.
Currently, air transportation is not the most effective solution for emergency replenishment. Since the cancellation of the T86 policy, air freight costs have increased significantly, and are now more than five times the cost of sea freight . Although the tax rate for air freight is only 54%, the high logistics costs will still seriously affect profits. At this stage, cross-border e-commerce companies primarily use air freight to replenish urgent out-of-stock goods, generating almost no profit, and can only temporarily maintain their inventory supply.
After the tariffs were paused, Temu told suppliers to put products back on the shelves, but it would take another week to arrange transportation. Some freight forwarders had also resumed operations outside the peak period. Temu expected air transport services to resume around May 20.
Sea freight and forward warehouse businesses have not been affected, and Temu has requested that merchants expedite stocking. However, it may take 1 to 2 months for sales or order volume to return to the level of early April, and it is expected to return to normal in July. Due to the cyclical nature of tariff issues during the Trump era, Temu is relatively cautious in its forecast of the recovery progress. It plans to expedite sea freight stocking within a 90-day timeframe to ensure sufficient inventory in the third quarter.
For lower-priced goods, such as those priced at $39.99 or $9.99, sea transportation is currently the primary method of transportation. Sea transportation typically takes 30-60 days, and for inexpensive goods, this mode of transportation is usually the only option.
Custom clearance models
Temu’s shipments use either the T1 or T11 model. The T11 model is primarily suitable for small parcel businesses in cross-border e-commerce, with a single parcel limit of US$2,500 and a customs clearance fee of slightly more than US$2 per parcel. The T11 model has several advantages, making it particularly suitable for small businesses. It offers fast customs clearance speeds and a low inspection rate of only 2%-3%.
There are differences in logistics time and audit process between the T11 system and the T86 system (de minimis). The logistics time of the T11 system is longer than that of the T86 system, and the audit steps are more complicated, usually adding an additional 5-7 days. Specifically, it takes about 10 days to ship from China to the United States using the T86 method, but after switching to the T11 method, American buyers need at least 15 days to receive the goods. These differences have a significant impact on the transportation options for goods at different price points.
In contrast, the T1 model is more suitable for bulk cargo transportation, such as bulk cargo shipped by sea, and is particularly suitable for business-to-business models, as well as for companies registered in the United States and exported to Europe or the United States. The T1 model was originally established for specific categories in the United States (such as food, medicine, health products, etc.), which are directly regulated by the FDA, with a complex certification process and slow customs clearance. Although the inspection rate of the T1 model is relatively high, about 10%, the actual rate of goods detained is lower than that of the T11 model due to strict certification standards. Temu's fully managed forward warehouse shipments uses the T1 model for customs clearance, while non-forward warehouses shipments use the T11 model for customs clearance.
The extension of customs clearance time and the increase in cargo volume have had a significant impact on the operation and cost of cross-border e-commerce companies. Specifically, the customs clearance time of the T1 model has been extended from the original 5-7 days to 7-10 days, while the customs clearance time of the T11 model has been extended from about 3 days to 5-7 days. This is mainly due to the decrease in customs clearance speed caused by the increase in cargo volume.
There is a view that the United States may use artificial intelligence technology to identify the types and values of goods, but it has not yet been heard that the United States will restrict the import of Chinese goods on a large scale.
Products
Product differences between models
There are significant differences in the commodity characteristics between the fully managed and semi-managed models. The fully managed model primarily deals with white-label products and small, lightweight commodities, while approximately half of the semi-managed models focus on large commodities. Considering the slow sales of large commodities, it is expected that the proportion of small and medium-sized light commodities in the semi-managed model will increase in the future.
Due to the restrictions on air freight and insurance costs, some categories cannot be covered by the fully managed method. In contrast, semi-managed can provide a more diverse selection of commodities, especially in categories with compliance or export restrictions, which can make up for the shortcomings of fully managed. The semi-managed model helps increase product variety and average order value, including some branded products.
In the US market, the average order amount for the full-managed model is approximately US$40, while that of the semi-managed model ranges from US$50 to US$60, highlighting the difference between the two in terms of commodity value and order amount. In the semi-management model, customers typically purchase 2 to 4 items, which are relatively high in unit price, mainly comprising US local brands, foreign trade OEMs, local mid-to-low-end brands, and some IP products.
These differences will have a significant impact on the future development of the two models. The semi-managed model may have an advantage in product variety and high-value orders, while the fully managed model may maintain its advantage in lightweight products and fast turnover.
Product sales cycle
Under Temu's operating model, the life cycle and profit model of popular products are quite unique. In Temu's full and semi-managed models, the market survival time of best-selling products is very short. Hot-selling products are usually only profitable in the first batch, and subsequent replenishment may result in losses. When merchants realise that a product has the potential to become a best-seller, they need to quickly transfer goods from the country, but there is usually only one chance to make a profit. When merchants try to replenish the second batch of goods, the market may be saturated, making it difficult to sell the product.
Temu adopts a white-label model, prioritising suppliers with lower prices and higher profits, which leads to a rapid decline in profits for similar products. In this case, the price war for similar products is very fierce, which may eventually lead to all merchants being unable to make a profit. When a product sells poorly, merchants usually choose to quickly clear their inventory and transfer funds to other, more profitable categories. Under the Temu model, the sales cycle of popular products typically lasts 2-3 months before entering the decline stage. This model has a significant impact on both merchants and platforms, requiring them to respond quickly and continually seek new popular products to maintain profitability.
Assortment and SKUs
There are significant differences in assortment around the world; different regions have unique assortments. The differences within Europe and between Europe and the United States are not substantial. However, there are significant differences with Asia. In terms of product type, products for daily necessities and household items are basically the same everywhere. However, 3C products, clothing, and cosmetics differ significantly due to variations in certification and standards. Additionally, due to regulatory restrictions, some products can only be sold in certain regions.
The peak number of fully managed SKUs in the United States exceeded 4 million, while the peak number in Europe was close to 4 million. The peak number of fully managed SKUs in other regions was between 3 million and 3.5 million. Specifically, the number of fully managed SKUs in Japan and South Korea is about 3 million.
In major European countries, the number of SKUs typically ranges from 3.5 million to 3.8 million, but this number can increase to 4 million during promotional periods. Germany has the most significant number of SKUs, followed by the United Kingdom and France, while Italy and Spain have slightly fewer SKUs. The number of SKUs in other European countries is relatively small. The supply recovery of SKUs is relatively simple and can be supplemented by existing merchants or new merchants. Currently, the launch ratio (Number of SKUs planned divided by the number of live SKUs) in the US market is 30%, while the launch ratio in the European market is 38%, a result of recent adjustments.
There are some significant differences between the US and European markets in terms of product supply and sales strategies. First, the SKU overlap rate in the two markets ranges from 70% to 75%. Some products are only used in the US or European markets.
In terms of transactions, the average amount of a single transaction in the US market is generally higher than that in the European market. Additionally, some merchants opt to operate exclusively in the US market.
Pricing and impact of tariffs
In the face of rising tariffs, e-commerce platforms must carefully balance multiple factors. First, price increases will lead to a reduction in demand. A 10% price increase in specific categories of goods may lead to a sales reduction of up to 50%. Usually, price changes are controlled within 10%. However, for low-priced goods with a net profit of only 7%-8%, such an increase is difficult to offset the cost increase caused by the tariff hike fully. For a platform like Temu, if it decides to increase prices, its price advantage will be weakened, thereby weakening its attractiveness compared to competitors such as Amazon. At the same time, it will also face competitive pressure from similar platforms such as Shein. The impact of this balance on different categories of goods varies, mainly depending on the tax rate, profit margin, and market competition pattern of the goods.
In terms of pricing, the price of fully managed 3C products in Europe is about 80% of Amazon's price. Overall, the pricing of fully managed products is between 60% and 80% of Amazon's. The cost of fully managed daily necessities and beauty products is between 40% and 60% of Amazon's.
The US now shows a different picture. Tariff policies have had a significant impact on the prices of goods on e-commerce platforms. Under the fully managed model, the final price rose by 10% to 30% before April, with tariff costs primarily borne by consumers. The prices of goods on Amazon fluctuate depending on the level of competition. Some goods have seen significant price increases after the tax increase, while others have only increased slightly, and the prices of a few goods are even lower than before the tax increase.
Temu previously stipulated that the prices of goods on its platform should not exceed 85% of the prices of similar products on Amazon. However, due to the weakening of logistics advantages, Temu now allows the pricing of semi-managed goods to reach 90% of the Amazon price and 95% of the Shein price. [14] This reduction in price advantage has led American consumers to prefer shopping on local platforms, such as Amazon and Walmart. If low-price declarations are prohibited, it will be difficult for goods priced below $90 to make a profit in the US market.
Amazon is still the most stable e-commerce platform. Approximately 80% to 90% of consumers in the United States are Prime members, and they have a very high degree of trust in the platform. If other platforms do not have obvious price advantages, American consumers are more inclined to return to Amazon for shopping.
Overall, the price increase of most goods exceeded 10%, while some increased by 10% to 20% or even 20% to 30%. Temu's prices are still lower than Amazon's overall, but the gap has narrowed. Now, the prices on Temu are mostly 70% to 90% of Amazon's, no longer as low as 40% to 60% as they were before. In addition, many low-priced goods have been discontinued.
For the US consumer, the shipping threshold has been raised to $15, and the shipping fee for purchasing a small item is $2.99. [5]
Advertising strategies Temu vs Shein
Shein plans to reduce its advertising spending in the US market significantly. However, if Temu and Shein gradually resume advertising in the US market, Meta's advertising business may be the first to pick up. It is worth mentioning that Shein tends to quickly increase advertising volume and control costs through Google search ads.
Regarding Temu and Shein's advertising on Google and Meta platforms, we can observe some interesting differences and trends. First, Google's advertising budget is decreasing at a slower rate, mainly because these budgets are used for lower-cost advertising tests while maintaining a basic market share. Temu places a greater emphasis on data performance in its advertising strategy. They directly obtain ROI information through APIs and make decisions based on actual data. In contrast, Shein primarily promotes itself in the US market through Google search ads, as this method is relatively cost-effective. Temu's advertising strategy is distinct and mainly consists of display advertising, with video content accounting for a significant portion, which aligns closely with the characteristics of the Meta platform.
Due to data evaluation and multiple requirements, Temu's advertising on Google may be more stable in the short term than on Meta. If Temu's global advertising budget remains at $60 million per month, its advertising expenditure on Google may be between $35 million and $40 million. Finally, it is expected that after the data is balanced, the proportion of Google's advertising of Shein will become more significant.
Europe, especially the UK and France, is the primary market for Temu and Shein outside the United States. Traffic costs in these regions are high, and e-commerce is relatively developed. After years of hard work, Alibaba has ranked among the top three in the e-commerce markets of the UK and France, achieving notable results. Temu's market strategy focuses on data-driven effects, improving overall performance through broad coverage and a multi-regional layout, with the primary purpose of increasing sales. Their advertisements are mainly centred around products, and more than 95% of the content is unboxing videos, focusing on price advantages and conversion rates. There are fewer brand promotion ads, which only appear during special events.
In contrast, Shein pays more attention to its brand image and market influence. Approximately 30% of the advertising budget is allocated to brand promotion activities, including public welfare projects and personal image display, to enhance brand awareness locally.
In terms of advertising cooperation, Temu has reached a global strategic partnership with Meta. Meta provides support for Temu in terms of algorithms and recommendation systems, including advertising delivery strategies and algorithm optimisation to improve advertising effects. While Shein's advertising in the United States mainly relies on Google, Meta's advertising ratio is higher worldwide. Meta's advertising is primarily concentrated in high-value regions, such as the United States and Europe. In contrast, medium-sized markets like Southeast Asia and the Middle East tend to use Google and other forms of advertising more widely.
Regional developments
In terms of global investments, Temu has observed some significant trends. As mentioned, the reduction in investment in the Americas exceeded that in Europe, while investment in Latin America, Eastern Europe, the Middle East, Northern Europe and Southeast Asia increased.
Latin America and the Middle East each contributed 5% of annual revenue, while the proportion in Southeast Asia was relatively low. Nevertheless, the Americas and Europe remain important markets, with a higher position than other regions. Northern Europe and Eastern Europe have become new growth areas, compensating to some extent for the reduction in major countries.
As for the Japanese and Korean markets, the current situation remains stable and is not significantly affected by the trade policies of Europe (see below) and the United States. However, if the United States begins to exert pressure, these markets may face some difficulties. Recently, the Japanese Ministry of Finance announced it plans to impose a consumption tax on imported goods with a value of less than 10,000 yen (about RMB 505) in the 2026 tax reform, and require cross-border e-commerce platforms to register tax numbers and pay taxes on their behalf. [18] These changing trends reflect the dynamic shifts in the global economic landscape and the increasing importance of emerging markets in Temu’s international investment strategy.
Vietnam's Ministry of Industry and Trade is reviewing and planning to issue operating licenses in Vietnam to foreign e-commerce platforms such as Temu and Shein. [15]
Temu is opening its marketplace to Australian sellers, allowing them to reach local customers directly—the "local-to-local" model it has already deployed in the U.S., U.K., Germany, France, Japan, and South Korea. By partnering with fulfilment centres in Sydney and Melbourne, Temu is slashing delivery times from 10–15 days to just 4–6, closing the gap with Amazon Prime speeds. [16]
In Brazil, Temu has surpassed Shopee to become the country's second-largest online marketplace, trailing only Mercado Libre. [17]
Ironically enough, the export reduction has benefited Pinduoduo in the domestic market. Due to the decline in export demand, manufacturers are increasingly competing in the domestic market, leading to a rise in advertising bidding and, consequently, an increase in advertising revenue for Pinduoduo. At the same time, this also provides more opportunities for promotional tools, which helps stimulate domestic consumption. To address excess production capacity, some factories opt to reduce profit margins and increase promotional expenses, which also indirectly promotes the growth of platform revenue.
EU Policy Changes
Like the US, the EU is also planning to cancel its import tax exemption on small packages (the threshold is €150 in the EU compared to $800 in the US). The cancellation was foreseen for 2028, although various stakeholders are pushing to have it implemented by 2026. In the meantime, the EU is also considering a fixed €2 fee per package.
In response to changes in the EU's small parcel policy, Temu has implemented several targeted measures to mitigate the impact and adapt to the future tariff policy.
First, it needs to reserve logistics resources in advance to ensure that it can cope with the challenges brought about by policy changes.
Second, it has implemented a semi-managed model, which helps to reduce the impact of policy changes. It has also adjusted customs clearance procedures and inventory control to better adapt to the new tariff policy. In terms of the semi-managed model, Temu has adopted a strategy of raising prices and reducing expenses to achieve profitability quickly. However, these measures may have a certain impact on the company's GMV growth rate and unique competitiveness.
Compared with Amazon, Temu’s inventory is relatively small. Therefore, it needs to take measures to enhance the enthusiasm of merchants to participate, ensuring it can remain competitive and adapt to the new market environment.
Overall, these countermeasures are designed to help the company maintain its competitiveness and growth potential against the backdrop of changes in the EU's small parcel policy. Although there may be some challenges, it believes that through these strategies, it can effectively adapt to the new policy environment and continue to develop.
Improving profit margins
Temu has implemented a series of measures to improve profit margins and address potential inventory issues.
First, by reducing large-scale advertising and switching to a semi-managed model, the platform's profit margin has increased significantly. It is expected that the profit margin in the US market will reach 10%-12% for the entire year, while maintaining a stable sales scale and reducing costs.
The budget cuts in the US market are the largest among all markets. Despite this, the losses in the US market in 2024 were relatively small, and the main losses occurred in Europe. Assuming the tariff policy remains unchanged, Temu expects the US market to generate an additional $10 billion in revenue by 2025, significantly reducing losses.
Regarding the recent performance of the US market, Temu remained in the red in the first quarter of 2025. However, the reduction in advertising from late March and further tightening in April have helped improve profits. Overall, these strategies have had a positive impact on the US market's performance and laid a solid foundation for its financial prospects over the next few years.
It also appears that Temu has begun adding new income streams…
Recently, fully managed merchants were unpleasantly surprised by a pop-up they had to agree to before being able to enter their Temu back-end accounts. Although the in-site advertising function is currently only open to some sellers, authorised sellers have revealed that Temu will require sellers to set up advertising service fee reserves for their advertising accounts. [19]
To use the "Temu advertising platform", please sign the "terms and conditions for advertising service".
Sellers can modify the advertising service fee reserve on their own. The backend shows that the advertising service fee reserve range given by Temu is RMB 1,000 to RMB 4,000. Temu will review the ad creatives, and only after they pass the review can they be used. Temu’s advertising is currently fully controlled by the platform. As for the effectiveness, it depends entirely on the operational capabilities of Temu’s advertising department or the platform’s system analysis capabilities. [19]
Outlook
Shein and Temu are currently facing similar difficulties, mainly due to rising air freight costs and changes in the tax system. Since they need to pay similar taxes, both companies have decided to respond by raising prices. In market competition, the entity that can occupy a larger share will depend on its ability to provide more subsidies and employ better market strategies, particularly in terms of pricing and user experience.
Suppose the trade conflict between China and the United States intensifies and tariffs are raised to 50%. In that case, it is expected that approximately a quarter of merchants will be unable to continue operating. Under the current 30% tariff level, 5%-8% of merchants cannot continue to operate. The increase in tariffs to 50% will have a greater impact on the survival of merchants because most merchants have low net profit margins and cannot afford higher costs. Strict implementation of higher tariff policies will make it difficult for large sellers to continue operating.
Temu is cautiously optimistic about its growth expectations for the next few years. Although GMV growth is stable, the speed is not fast. Specifically, the growth target for 2025 is set between 40% and 60%, and 30% growth is expected in 2026. The company is expects to maintain a similar growth rate over the next few years.
These expectations differ from the previous assumption of rapid expansion on a scale of hundreds of billions, and are more in line with the current international situation. The company has made appropriate adjustments to its growth targets in response to actual conditions, ensuring sustainable development.
Due to changes in tariffs, commodity prices could increase, with the specific increase depending on market conditions. These policy adjustments may impact Temu's visits and daily GMV, so it is essential to continue monitoring changes in these key indicators. In the US market, the future development prospects of semi-managed and localisation models still need to be further evaluated. Changes in tariff policies may impact the full-year GMV in the US market, and detailed forecasts and analysis are required.
Currently, Temu is facing a dilemma. With the sharp increase in air freight costs, Temu’s business model is becoming increasingly challenging to maintain, even with a cost increase of between 24% and 34%. This cost increase has led to a significant compression of merchants' profit margins, leaving no room for further concessions. If Temu decides to raise prices to meet this challenge, its price advantage will be weakened, which will not only decrease its attractiveness compared to competitors such as Amazon but will also face competitive pressure from similar platforms such as Shein. These impacts may have serious consequences for Temu's long-term development.
At the end of April, 0Temu’s ranking in Apple’s app store had since plummeted to No. 73, after consistently ranking in the top 10, according to Sensor Tower data. At the time of writing this article, it had returned to No. 12. [3] [20]
Temu is definitely not dead yet.
We will keep you posted about further developments in our Temu Watch series.
Key Takeaways
Severe Impact of Tariffs & De Minimis: The sudden increase in US tariffs, combined with the cancellation of the de minimis policy, had a profound impact on cross-border e-commerce, making direct shipping from China significantly more difficult for platforms like Temu and Shein.
Shift Away from Fully Managed Model: In the immediate aftermath of the tariffs, before their temporary reduction on May 12th, Temu discontinued its fully managed service, which had heavily relied on the de minimis rule. The proportion of fully managed business in the US dropped sharply from 75% to 10%.
Introduction of New Models: Temu introduced new operational models, including the "domestic shipping semi-managed" (Y2) model, where merchants handle customs and logistics from China after an order is placed, and a third-party (POP) model that allows merchants more control over pricing and delivery.
Planned Restart via Forward Warehousing: After the temporary tariff reduction, Temu announced plans to restart its fully managed business, primarily by shipping goods to US forward warehouses by sea before customer orders, aiming for this model to account for a significant portion of fully managed sales.
Price Hikes & Reduced Competitiveness: The tariffs led to substantial price increases on the platform, significantly narrowing Temu's price advantage compared to Amazon.
Significant Decline in US Performance: Temu experienced a substantial decrease in overall orders and visits in the United States, falling by approximately 50%-70%. Daily active users and average daily GMV also declined.
Increased Logistics Costs & Time: The policy changes resulted in a significant rise in logistics costs, with air transportation becoming over five times more expensive than sea freight. Customs clearance times also increased for both the T1 and T11 models used by Temu.
US Warehouse Expansion & Sea Freight Focus: Temu is expanding its US warehouse network, aiming to reach 200 warehouses by the end of the year, including self-owned facilities. The focus for stocking these warehouses has shifted towards sea transportation.
Reduced US Advertising & Shift to Other Markets: Following the tariff impact, both Temu and Shein significantly reduced their advertising spending in the US market and increased investment in other regions, particularly Europe.
Focus on Profitability and Moderate Outlook: Temu implemented measures such as reducing advertising and transitioning to a semi-managed model to improve profit margins, aiming for a 10-12% margin in the US market for the year. However, the full recovery of previous peak order volumes is seen as a major challenge, and future growth expectations are more moderate.
Sources
This article has been compiled from an analysis of exclusive expert interviews of the Six Degrees Intelligence network, augmented by insights from the articles below.
Images by Tech Buzz China’s Ed Sander unless stated otherwise. These images may not be reproduced without Tech Buzz China's prior consent.
[1] 出海商家 2025-04-14[2] Reddit 2025-04 [3] CNBC 2025-04-28 [4] Paidai Cross-border e-Commerce 2025-05-03 [5] 36Kr 2025-05-29 [6] 出海商家 2025-05-03 [7] Paidai Cross-border e-Commerce 2025-04-25 [8] 出海商家 2025-04-26 [9] 出海商家 2025-05-06 [10] Pyxis by Bain and Company 2025-05-18 [11] Chinesellers 2025-05-16 [12] 出海商家 2025-05-14 [13] Paidai Cross-Border e-Commerce 2025-03-22 [14] 出海商家 2025-04-09 [15] Paidai Cross-border e-Commerce 2025-05-01 [16] Chinesellers 2025-05-12 [17] Chinesellers 2025-05-26 [18] Paidai Cross-border e-Commerce 2025-05-26 [19] 出海商家 2025-05-28 [20] Sensor Tower 2025-05-31