The Temu tsunami

For months, small consignments from the online marketplace Temu have been flooding the EU and North America, with rapidly growing volumes. The next candidate is Africa, where Temu wants to use a large distribution center in Addis Ababa to spread its products across the continent. The Chinese e-trader’s preferred means of transportation is by air. However, Temu’s reputation is shaded by some dubious practices and trade violations committed by its parent company Pinduoduo, that sold large numbers of fake products due to price pressure.

Cheap, cheaper – Temu – image: company courtesy

Whether earrings, necklaces, hair clips, sunglasses, or vintage baseball caps – there is hardly any product Temu does not have on offer. Most of them are extremely cheap and of limited volume or weight, this way fitting into small packages in cross-border trade. In case the value of an item is below 150 euros, it is exempt of any customs duties. However, VAT have to be paid from the very first cent. In Germany it’s 19%, in France 20% and in Italy 22%. In Canada, the taxes vary and are levied autonomously by the provinces. It’s 13% in Ontario and 15% in Nova Scotia, for instance.

Low prices, no customs duties
The duty-free limits are particularly interesting for Temu. This is shown by the product prices on their website, where almost all items cost less than EUR 150, i.e. they must be declared electronically to the customs authorities of the destination country before arrival but remain free of charge. This will stay so for the next 5 to 6 years. Only then will a simplified customs procedure be introduced in the EU and the value limit of EUR 150 will no longer apply. In the future, small shipments from Temu will therefore also become more expensive for buyers, unless the Chinese online service pays the customs dues out of its own coffers.  

Updated Tupperware praxis
At present, however, the e-seller would hardly be in a position to do so, as the 2023 financial year ended with losses. But these are priced in. Because Temu is all about volume. The higher the turnover, the more likely the e-tailer is to make a profit. To this end, the online platform has developed a snowball system. Customers receive discounts if they acquire more buyers. This process is known as “social commerce” and reminds of the traditional Tupperware practice.

Most Temu goods travel by air freight
The majority of goods produced in China and destined for customers in North America or Europe are transported by air. In contrast to integrators such as UPS or FedEx, Temu does not offer time-definite products such as 48h or 72h deliveries. Mostly, it takes 10 to 14 days from order to handover.

Speaking of data: Temo prefers to draw a veil over business figures. There is no information on market shares, claims, or performance figures. They are kept under wraps. Negative customer experiences, if made public, could damage the company’s reputation. For example, there are no statistics that show how many of the 300,000+ small consignments that travel from China to Leipzig, Frankfurt or Munich every working day belong to Temu. The same applies to Amsterdam, Paris CDG, Budapest, Milan, London and Liege.

Direct supply chain
In contrast to Amazon, which warehouses most products at fulfillment centers Temu allows vendors in China to sell and ship directly to customers destined in overseas. It is a typical form of direct sales in which Temu only acts as a middleman between seller and buyer, organizing the physical handling of the business process and collecting a service fee in return. The prerequisite for this is that e-traders such as Temu need to be admitted a tax ID-number from the national authorities of the designatory countries, which is automatically debited according to the reported value of the goods.

Data trap
As Temu does not act as a seller, product liability is loaded on the buyer’s shoulders. This leads to customer frustration in case the quality of an item does not match the announced functionality. Another source of annoyance is that Temu passes on customer data to third parties for commercial purposes. Users of the platform cannot prevent this as there is not corresponding button which can be activated. Temu and Shein, an e-tailer specialized in fast fashion, have contributed to an 8% growth in Chinese cross-border e-commerce trade last year. This figure is published by the Trade and Transport Group, a Sydney, Australia-based specialized aviation and transportation advisory data manager. In addition to airlines and integrators, airports and customs clearance specialists are also benefiting from the avalanche of small and cheap items flooding many markets. This also applies to last-mile deliverers.

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