Sky-High Demands in Global Air Freight as E-Commerce Giants Expand Reach

Shein and Temu, Chinese e-commerce giants specializing in small shipments delivery directly to consumers, are reaching unprecedented scales in the global market. Temu’s reach has extended to 40 countries and continues to expand while Shein delivers to more than 150 countries. These companies, known for their affordable household and clothing items, are heavily impacting the air cargo sector by consuming substantial capacity.

 

Cargo Demand Strains Air Freight Capacity

Currently, Shein is shipping around 5,000 tonnes, Temu about 4,000 tonnes, TikTok – 800 tonnes, and Alibaba – 1,000 tonnes, which is the equivalent of 108 Boeing 777 aircraft daily. Consequently, e-commerce companies occupy more than 30% of available capacity, particularly in routes heading from Asia to Europe and the US. This surge in demand has led to increased competition for aircraft space in southern China, a major industrial region. As a result, in June 2024, air cargo rates were 40% higher than in 2023, an unusual spike for a typically quieter summer month.

 

Adjusting Strategies Amid Rising Air Freight Costs

In response to the growing demand by e-commerce, some airlines are increasing their charter capacities which have been predominantly booked for extended periods. Temu, on its own, is not only consuming capacity but is in the process of leasing 12 freighters, actively searching the market for any available aircraft.

However, the sustainability of this air-freight model for e-commerce is questionable in terms of profitability. This uncertainty arises mainly due to the high operational costs associated with air freight which include fuel, maintenance, and leasing expenses. As competition drives costs even higher, companies like Shein and Temu are already seeking different shipping solutions and local warehousing options. Both companies are shifting towards sea freight as an alternative and are strategizing to set up warehouses beyond China’s borders to shorten delivery times to various markets. In fact, Shein has already begun distributing goods to U.S. warehouses to expedite shipping times.

Such facilities can be used for products that have consistent and predictable demand patterns. These products are ideal candidates for bulk shipment via sea freight because they can be stocked in advance at major storage and distribution centers in Europe. For fast-selling or trending items, e-commerce giants could adopt a flexible air freight strategy. Due to their unpredictable demand, air freight might be necessary to swiftly replenish these products from China to distribution centers or directly to consumers when required.

Additionally, e-commerce giants could provide suppliers with direct access to their sales data, inventory levels, and demand forecasts. This would enable manufacturers to adjust their production schedules to align more closely with actual demand. This tighter integration would reduce the likelihood of overproduction and excess inventory which are costly for suppliers.

Storing unsold goods can be expensive, and suppliers frequently have to offer deep discounts to clear excess inventory. With enhanced planning, they can decrease the production of such slower-moving products and focus on manufacturing items that are in high demand and should be restocked more promptly.