Temu’s Supply Chain Overhaul Aims to Dodge Tariffs

Chinese e-commerce giant Temu is rapidly restructuring its supply chain operations in response to President Trump’s punitive tariffs on Chinese goods. The company, which built its business model around direct shipments from China to U.S. consumers, is now pushing merchants to adopt a “half-custody” strategy that involves shipping products in bulk to U.S. warehouses before final delivery to customers.

This fundamental shift comes as Temu faces a 145% tariff on Chinese imports and the elimination of the “de minimis” exemption that previously allowed packages valued under $800 to enter the U.S. duty-free. The exemption, which ends May 2, was instrumental to Temu’s ability to offer rock-bottom prices that fueled its meteoric rise in the American retail landscape, according to PYMNTS.

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From Direct Shipping to Domestic Warehousing

Temu’s original business model gave the company substantial control over merchants’ operations, handling everything from pricing and shipping to marketing. The new “half-custody” approach shifts more responsibility back to sellers while focusing Temu’s role on managing its online marketplace. While not yet mandatory, the company has indicated to vendors that priority will be given to those who adopt this new system.

The strategic pivot involves encouraging factories to ship their goods in bulk to U.S. warehouses, creating inventory reserves on American soil that can then be shipped to consumers without incurring the new tariffs. This approach mirrors Amazon’s established fulfillment model but represents a major departure from the direct-to-consumer shipping strategy that enabled Temu’s ultra-low pricing structure.

“Local” Products Take Center Stage

Evidence of this strategic shift is already visible on Temu’s platform, where “local” shipping options are becoming increasingly prominent. Recent analysis of the company’s “lightning deals” page showed more than 75% of featured products labeled with a “local” tag and highlighted with “no import charges” banners, as reported by CNBC.

This prioritization of domestically warehoused inventory allows Temu to maintain competitive pricing on at least a portion of its product catalog, though it potentially limits the breadth of selection that made the platform appealing to exploratory shoppers. For products that continue to ship directly from China, customers now face substantial “import charges” ranging from 130% to 150% of item prices, effectively more than doubling the final cost.

Operational Challenges and Investment Requirements

Transitioning to a U.S.-based warehousing model presents significant operational challenges for Temu. The approach requires substantial investment in domestic logistics infrastructure, inventory management systems, and working capital to maintain stock levels. These investments come at a time when the company has sharply reduced marketing expenditures, suggesting a comprehensive reassessment of its U.S. growth strategy.

“This shift threatens to raise prices on Temu as merchants lose the economies of scale in shipping and handling offered by the company, while having to deal with higher U.S. warehousing costs,” notes PYMNTS, highlighting the economic complexities of the transition, as detailed by PYMNTS. The additional costs and complexity could erode the price advantage that fueled Temu’s initial U.S. expansion.

Divergent Strategies Among Chinese Retailers

Temu’s approach to the tariff challenge differs notably from that of its main competitor, Shein. While Temu has opted for supply chain restructuring and transparent import charges, Shein has incorporated tariffs into listed prices with a banner stating, “Tariffs are included in the price you pay. You’ll never have to pay extra at delivery,” according to CNBC.

These divergent strategies reflect different assessments of how to navigate the new economic reality while maintaining customer relationships. Temu’s separate import charges provide transparency into the tariff impact but risk heightened negative customer reactions compared to Shein’s all-inclusive pricing approach.

Economic Impact Beyond Retail

The tariff-induced changes at Temu illustrate broader economic ripple effects extending beyond retail. The company’s reduced advertising expenditure is already impacting digital marketing ecosystems, with Meta’s cost per thousand impressions (CPMs) falling 6% in Q1 2025, as noted by Digiday.

Additionally, logistics providers like UPS recently announced 20,000 job cuts, citing declining volumes from e-commerce retailers including Temu and Shein as contributing factors. This demonstrates how policy changes targeting specific trade practices can cascade through interconnected economic sectors, affecting employment and business prospects beyond the initially targeted companies.

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