The rapid rise of Temu and Shein has injected strong momentum into the parcel delivery market. According to ShipMatrix data (shared with sister publication Supply Chain Dive), in July alone, these two e-commerce platforms provided carriers with approximately 900,000 packages per day in the U.S.

The two companies' goods enter the U.S. through a simplified supply chain process that relies on the 'de minimis' exemption. This mechanism helps keep prices low to attract more consumers, thereby generating more delivery volume for carriers.

However, increasing legislative scrutiny and enforcement actions by Customs and Border Protection are threatening the future of this exemption, at least in its current form. Experts interviewed by Supply Chain Dive say that parcel carriers are counting on Temu and Shein to adapt, given the deep ties some industry players have with these two companies.

"I think if volume is disrupted, small carriers and regional carriers will be significantly impacted," said Nate Skiver, founder of parcel consulting firm LPF Spend Management.

'Explosive' growth draws UPS attention

Currently, this boom is helping carriers regain volume growth momentum that has waned since the pandemic-era home delivery surge.

After more than two years of volume declines, UPS finally shook off weak demand in the second quarter of 2024. In that quarter, UPS's average daily U.S. volume rose 0.7% year over year, helped by increased interest in its lower-cost SurePost service.

CEO Carol Tomé said on a July earnings call that e-commerce companies using different delivery models than traditional UPS users drove the rebound.

"There are two new e-commerce customers that have come into our network, and you can guess who they are," Tomé said. "These are new e-commerce shippers in the U.S., and their volume growth has been quite explosive."

Temu and Shein were not named on the call, but both companies use UPS services, and experts interviewed by Supply Chain Dive say they are the driving force behind the surge in UPS's lightweight parcel volume.

"Only these two retailers have enough volume to impact its performance that way," said Alan Amling, a practice assistant professor at the University of Tennessee and former vice president of corporate strategy at UPS.

Temu and Shein are not just creating demand for UPS. According to Temu's website, Temu also uses FedEx, the U.S. Postal Service, and numerous smaller carriers for package delivery within the U.S. Shein's website does not specify which carriers it uses, but notes that returns can be made via UPS or the postal service.

"The only source supporting growth in the last-mile market is cross-border e-commerce," said Andrew Townsend, senior vice president of corporate development and strategy at SpeedX, which provides delivery services for Temu and Shein.

Temu and Shein dominate low-cost delivery

In exchange for providing carriers with substantial volume, Temu and Shein demand favorable shipping rates, carrier executives and industry observers told Supply Chain Dive.

"Having that much volume every day should allow them to negotiate very favorable rates, and combined with the overall softness in the U.S. parcel market, that further pushes prices down," said Skiver of LPF Spend Management.

Low rates enable Temu and Shein to maintain highly competitive product prices while still covering the cost of air shipping to the U.S., a key part of their supply chain model.

The two companies' cost-centric approach leaves little room for speed, at least in their standard delivery methods. Temu's standard shipping is free for consumers, but delivery times can range from 6 to 22 days. Shein's standard shipping is free on orders over $29, otherwise it costs $3.99, with estimated delivery times of 10 to 13 days.

"If the average order value is below $40, there's not enough margin in the package to support any kind of expedited delivery experience," said Derek Lossing, former head of Amazon logistics and now founder and principal consultant at Cirrus Global Advisors.

The low rates carriers offer for Shein and Temu could squeeze their own margins if not managed properly. UPS's U.S. ground volume rose 2.3% year over year in the second quarter, but revenue per package in that segment fell 3.3%.

UPS's CEO said the growth in low-value volume was not by design, but rather that new e-commerce customers brought in far more volume than expected.

"We need to respond to and manage this," Tomé said. "Don't over-read into it, it's just that new customers have come into our network and their volume has surged."

Under margin pressure, UPS is preparing to impose a per-pound surcharge on all U.S. imports from 13 countries and regions starting September 15, with the highest fees on shipments from China, Hong Kong, and Macau, which could help mitigate revenue declines from Shein and Temu deliveries.

UPS is not the only delivery service trying to adapt to the low-cost parcel boom. Pitney Bowes Global Ecommerce, which once provided delivery services for Shein, saw sluggish revenue per package growth for several quarters before announcing its shutdown in August.

"These volumes, think about platforms like Temu, Alibaba, they typically have lower weights, which certainly impacts the per-piece rate," said Jason Dies, former interim CEO of Pitney Bowes, on a May 2 earnings call.

Low-value volume can cover costs

Parcel carriers serve more profitable segments, such as small and medium-sized businesses and healthcare shippers. But the wave of low-cost e-commerce parcels can keep trucks full and delivery routes busy, helping to cover expenses and improve efficiency.

Experts say this balance is especially important for smaller carriers looking to expand into new markets, and Temu and Shein offer a direct path to lowering service costs by increasing delivery density. Anthony Pizza, vice president of business growth and innovation at SpeedX, said the baseline volume associated with Temu and Shein will help the company attract more domestic customers.

"One benefit of working with Chinese importers is that it allows us to build good density in many delivery zones, which helps unit economics, and that applies to other carriers as well," Pizza said. "It really helps us offer more competitive services to enter the domestic market."

Despite calls from U.S. lawmakers to restrict the direct flow of low-cost goods from China, Pizza does not believe demand for Shein and Temu products will cool. Only a complete elimination of the $800 de minimis threshold could challenge this momentum, and even then, Pizza said there are workarounds, such as shipping to Mexico first and then entering the U.S.

But Temu and Shein must be careful to ensure that any supply chain adjustments made in response to new U.S. regulations do not lead to higher costs for consumers. Otherwise, shoppers accustomed to low prices may turn to other channels, putting carriers' volume dividend at risk.

"Your $10 jeans might become $12, and if you can get them on Amazon with next-day delivery but for $14, are you still willing to wait?" said Lossing of Cirrus Global Advisors.