The upcoming holiday season will put unprecedented strain on U.S. parcel networks.
As the peak of the 2024 holiday season nears, parcel carriers are grappling with an unprecedented volume of deliveries, fueled by e-commerce platforms including Temu, Shein, and Amazon
Temu and Shein, two of the fastest-growing e-commerce platforms, have rapidly risen to dominate cross-border shipping. Both companies ship about 1 million packages per day to U.S. consumers, according to ShipMatrix, far surpassing volumes from more established American retailers.
According to ShipMatrix, Temu and Shein’s volume is forecast to rise by at least 15% during the holiday period, leading to potential bottlenecks in the shipping infrastructure. UPS and FedEx have already signaled that they will increase surcharges on peak season deliveries to manage the influx.
By building out its delivery infrastructure, Amazon has significantly reduced its dependence on third-party carriers like UPS and FedEx. This has had two primary effects: First, it has made Amazon less vulnerable to shipping disruptions, allowing the company to maintain quicker delivery times, especially for its Prime members.
Second, it has raised the bar for other e-commerce platforms, which must now compete with Amazon’s speed and scale.
In 2020 alone, Amazon delivered 4.2 billion packages in the U.S., surpassing FedEx in parcel volume.
Parcel carriers like UPS, FedEx, and the U.S. Postal Service have benefited from this influx of low-cost deliveries. In particular, UPS saw a modest uptick in ground package volume, up 2.3% year-over-year in the second quarter of 2024. However, the increased volume of lower-value packages has squeezed the company's revenue per package, which dropped 3.3%.
While higher volumes keep trucks full and routes optimized, the profitability per package declines, especially when servicing lightweight, low-margin goods. To manage this, UPS plans to implement a per-pound fee on U.S. imports from key countries, including China, starting in mid-September. This fee is designed to mitigate the lost revenue from handling an increasing number of low-cost packages.
Smaller carriers are also adapting by leveraging the dense delivery routes created by high-volume shippers like Temu and Shein to enhance their domestic operations.
The rise of cross-border commerce, particularly from Chinese marketplaces like Temu and Shein, has reshaped the parcel delivery ecosystem, which now faces new challenges and opportunities.
This growth has largely been driven by their reliance on the de minimis rule, which exempts goods under $800 from U.S. duties, allowing for cheaper goods to flow into the country.
The de minimis rule is vital for companies like Shein and Temu, which specialize in selling low-cost items with tight profit margins.
U.S. lawmakers, however, are scrutinizing the de minimis rule for its role in increasing the volume of low-value imports. Any changes to the regulation could profoundly impact how Temu and Shein operate within the U.S. parcel system.
Retailers like Amazon, which pioneered fast, next-day delivery, have set consumer expectations high. But companies like Shein and Temu, which promise affordable but slower deliveries, will face challenges as they try to manage customer satisfaction amid regulatory threats and a highly competitive market.
Temu and Shein's low-cost, high-volume model places significant pressure on global supply chains and parcel networks, particularly with respect to the carbon footprint of cross-border shipping. As these companies continue to expand, they will face increasing scrutiny from consumers and regulators over their environmental impact, which could lead to further changes in their logistics models.
The immense volume of packages, the competitive landscape, and regulatory challenges are reshaping parcel networks. While the immediate future may see growth and opportunities for both retailers and carriers, long-term profitability and sustainability will require innovation in supply chain management and adaptation to changing regulations.
