The Challenges Facing China's E-Commerce Export Model
China's e-commerce export industry is facing a significant slowdown as rising jet fuel costs and weak demand from lower-income consumers in the West threaten the profitability of major online platforms like Temu, Shein, and AliExpress. These companies have long relied on shipping low-cost items such as $5 dresses directly from Chinese factories to global shoppers. However, this model is now under pressure due to a combination of factors including increased logistics costs and shifting consumer behavior.
The situation has been further complicated by the ongoing conflict in the Middle East, which has led to higher fuel prices and added strain on the supply chain. According to data from the Trade and Transport Group, a Luxembourg-based consultancy, China's low-cost e-commerce exports fell by 10.9% in April, marking the fifth consecutive month of decline compared to the same period last year. This drop highlights the challenges that these platforms are encountering as they navigate a rapidly changing market.
Passing Costs to Consumers
Diana Qiao, a seller of women's clothing on Temu based in Shenzhen, has had to adjust her pricing strategy due to increased shipping costs. She raised her selling prices by $2 because the cost per garment has gone up by an average of $1. "The final burden is ultimately borne by consumers," she said, adding that the price increase was necessary to maintain her profit margins. While sales have declined slightly, Qiao does not see an immediate need to change her shipping arrangements.
Analysts suggest that the falling export values indicate not only a cost squeeze but also the end of the hyper-growth phase for these large low-cost shopping platforms. Frederic Horst, managing director of Trade and Transport Group, noted that these companies are likely moving more products into warehouses to dispatch locally rather than shipping everything directly from China. "It would make sense given the air freight cost relative to the value of the product," he said. "If you're buying a top that is 300-400 grams, you're getting to the stage where air freight is 60% of the cost."
Expansion and Adaptation Strategies
Shein has been expanding its warehouse capacity in Europe, recently opening its third warehouse in Cannock, near Birmingham in Britain. Meanwhile, a spokesperson for AliExpress, owned by Alibaba, stated that the company remains focused on maintaining value-for-money pricing for consumers and providing a stable environment for sellers and consumers despite the volatility in global transportation costs. However, Shein and Temu have not responded to questions about the impact of air freight costs on their businesses.
Weaker Demand and Market Maturity
While exports are still much higher than they were two years ago, the start of 2025 was marked by significant frontloading ahead of U.S. tariffs. However, returning to the growth rates seen in previous years will be challenging as Shein and Temu have already captured a significant market share. Additionally, surging petrol prices are affecting household budgets in the U.S. and Europe, leading to weaker demand.
The European Union is also set to impose a €3 fee on low-value e-commerce parcels from July 1, which could further impact the industry. A China-based freight forwarding executive, who declined to be named, noted that air freight costs have an impact, but the platforms are also in a slower-growth phase, with consumption overseas decreasing due to inflation.
Future Outlook and Transportation Costs
Air freight rates are expected to remain high due to continued jet fuel prices, and it may take time for them to decrease even if the Iran conflict ends. Judah Levine, head of research at freight platform Freightos, highlighted that if the costs stay very high or increase further, companies may switch to other modes of transport or hold back some of their shipments. Martin Habisreitinger, chief operating officer of airfreight at Hellmann Worldwide Logistics, echoed this sentiment, suggesting that companies may need to adapt their strategies to cope with ongoing challenges.
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