Navigating New Horizons: The Impact of Fast Fashion on Air Cargo Rates & Dynamics
The intersection of fast fashion, globalized retail e-commerce, and air cargo logistics is coming to a head with Temu and Shein’s entrance to the US market. This shift, which relies on the de minimis US customs regulation that waives direct to consumer packages worth under $800 dollars, is pushing air cargo rates up, and has significant implications for capacity, and regulatory landscapes.  Pressure on rates and available space will likely intensify during Q4’s peak seasons.
The Rise of Fast Fashion Giants Shein and Temu in the U.S. Market
Partially in an effort to escape the saturated Chinese market, Shein and Temu have targeted the U.S. market over the past two years. Both giants—Shein holding 20% of the global fast fashion market and Temu reaching 49 markets globally—have embraced U.S. e-commerce customers’ love for free shipping.
Utilizing the U.S. ‘de minimis’ rule, which exempts imports under $800 from customs and makes brokerage fees minimal, they have shipped massive volumes via air cargo. This strategic move has not only circumvented significant costs but also dramatically increased air cargo demand from China, particularly from hubs in Hong Kong and Guangzhou, impacting traditional logistics and shipping frameworks.
The Air Cargo Context
Given its premium price, air cargo has historically been reserved for higher-cost, lower-volume products, avoiding the lower-margin, higher-volume products that Shein and Temu focus on. Despite the reduced customs costs, both companies are likely shipping by air at a loss—a sustainable strategy for their coffers but one that majorly impacts supply chain organizations reliant on the same volumes.
Following the post-COVID slump in 2022, global air cargo demand saw a recovery starting early 2023 with a notable 11% year-over-year increase in volumes from December 2023 through February 2024, according to IATA, with much of this rebound attributed to B2C e-commerce volumes.Â
This influx of e-commerce goods has kept air cargo rates elevated. From Q3 2021 to early 2022, Freightos Air Index China-U.S. rates soared to about $13/kg due to pandemic-driven demand and reduced capacity. These rates dipped to around $3.50/kg in the latter half of 2022, before rebounding to above $5/kg by November 2023, largely driven by e-commerce demands.
The Commercial and Ethical Impact
Beyond the underlying costs, U.S. policymakers are concerned for several reasons. The first is that the loss-leading strategy dramatically impacts U.S. businesses, with some traditionally low-cost dollar stores closing as a result.Â
The second concern is ethical; the ‘de minimis’ regulations, designed to reduce U.S. customs workloads, inadvertently reduce compliance, raising serious concerns about product quality and the potential for the use of forced or childlabor in production of these low-cost goods. Additionally, the heavy reliance on air cargo poses significant environmental costs, as its substantial carbon footprint makes it an environmentally costly option.
From Validation to Scale
Financially, it is possible that neither company intends to maintain this use of air cargo long-term. Both are exploring efforts that include shifting to ocean freight and establishing warehouses in the U.S., which would decrease reliance on air cargo and enhance delivery speeds, also reducing the overall carbon footprint associated with their logistics. For example, as per Technode, citing 36Kr:
Temu is set to ship China-manufactured goods via express sea vessels in cooperation with various shipping companies, including Matson, ZIM, and CMA CGM, according to a Tuesday report by Chinese media outlet 36Kr.
No Change (Immediately) Ahead
However, these changes are not expected to materialize in the short term.
Going forward, it’s hard to imagine that anything dramatically changes on this front. There is no indication that Temu and Shein have any interest in pulling back on their US expansions. Expanding ocean freight efforts or scaling up domestic fulfillment centers may reduce air cargo demand and, as an extension, rates. Either way, both companies are likely to continue to use de minimis for import purposes and will do so until there are any regulatory changes, whether to protect US businesses or to improve compliance with labor laws.
Adam Lewis, the President of Clearit Customs
For now, both Temu and Shein are engaged in a battle to capture U.S. market share. U.S. regulations, whether driven by the need to protect U.S. businesses or reduce forced labor—or both—are likely to evolve slowly. And, with demand expected to rise towards Q3 and Q4’s peak season, air cargo prices are, if anything, more likely to skyrocket than decrease. As always, the future of air cargo, tightly linked to global e-commerce dynamics, will need to balance efficiency, cost, environmental considerations, and ethical standards to sustain a resilient supply chain amidst changing global demands.
