Temu Relinquishes Supply Chain Control Amid Tariffs, Threatening Price Hikes

Key Points:

* Temu, a Chinese e-commerce giant, is shifting to a "half-custody" supply chain model in response to President Trump's tariffs.
* The move involves factories shipping wares directly to US warehouses, potentially raising prices for consumers.
* This departure from Temu's Amazon-style model threatens to distance merchants from the platform.
* The shift may also reduce the availability of Chinese suppliers on Temu, as smaller merchants struggle with logistics costs.

Temu, part of PDD Holdings Inc., is relinquishing substantial control of its Chinese supply chain. The company's "half-custody" framework sees factories responsible for shipping their goods to American warehouses, with Temu primarily managing the online marketplace.

This transition aims to mitigate the impact of tariffs imposed by the Trump administration. However, it may inflate prices as merchants lose economies of scale in shipping and handling while compensating for higher delivery costs.

The move is also a shift from Amazon's model, where control over logistics and delivery enables a significant market share. PDD is expected to incur higher costs initially, potentially affecting profits and overseas operations.

Temu's efforts to push vendors into the "half-custody" model have accelerated since Trump's election. This may result in fewer Chinese suppliers on the platform, as smaller merchants struggle with logistics and shipping rates.

Temu and its rival Shein are bracing for the end of duty-free exemption on small parcels. Shein is setting up production capacity in Vietnam to preserve duty-free status.

Companies are encountering difficulties in booking cargo ships amid efforts to avoid tariff increases and adjust to geopolitical changes. Demand for semiconductors and small parcel shipments from China to the US will likely be impacted by these developments.