Dive Brief:
- Temu owner PDD Holdings is adjusting its supply chain and fulfillment processes to limit the impact of European Union customs duties on lower-value goods, taking a page out of its playbook for a post-de minimis U.S., co-Chairman and co-CEO Lei Chen said in an Aug. 24 earnings call.
- On July 1, the EU began applying a customs duty of 3 euros on each item worth 150 euros or less brought into the country. Previously, these items could enter at no charge under the bloc’s de minimis duty-free rule. Orders inbound to affected markets will see reduced fulfillment efficiency and higher costs, creating "a considerable impact" for parts of PDD's business, Chen said in remarks through an interpreter.
- To reduce the sting over the long term, PDD will continue to onboard and support "high-quality local merchants" that will broaden its supply of products closer to customers, according to Chen. The company is also speeding up the development of local warehousing and fulfillment infrastructure, he added.
Dive Insight:
Temu's owner continues to shake up its supply chain as regulatory changes challenge the low-cost, cross-border shipping model it has historically relied upon: shipping products into destination countries individually to limit added duties.
Prior to the EU's new charge, the U.S. ended duty-free treatment for lower-value China-origin imports in May 2025, before expanding it to all shipments a few months later. In an earnings call last year following the ban for China imports, Chen said the company would work to strengthen operations and help local merchants in the markets it serves, enabling more orders to be fulfilled from local warehouses.
But Temu can't avoid the impact of the added duties entirely, as the e-commerce outlet known for selling low-cost goods still primarily works with merchants outside the U.S. and the EU, a majority of which are based in China, according to a PDD annual report filed in April.
The end of the duty-free threshold in the EU will result in higher customs duties and taxes for Temu merchants, and additional regulatory requirements imposed by customs authorities could further delay shipments and increase costs, per the report. As a result, shoppers may face higher prices, order volumes may fall and merchant participation on the platform could decrease, it added.
As PDD and its merchants adjust to the EU’s new duty, the company is investing in warehouses to help local merchants streamline their fulfillment processes, limit logistics hurdles and increase delivery reliability, co-Chairman and co-CEO Jiazhen Zhao said on the call. Currently, point-to-point shipping methods used by merchants in certain markets — rather than a consolidated shipping approach — are resulting in higher fulfillment costs and leaving some consumer demand unsatisfied, he noted in remarks made through an interpreter.
"Our current supply chain investments have two complementary priorities," Zhao said. "First is ensuring a strong supply of quality products, and second is building the infrastructure to deliver them efficiently.”
Facts Only
* Temu owner Lei Chen discussed adjusting supply chain and fulfillment processes regarding EU customs duties.
* On July 1, the EU started applying a customs duty of 3 euros on items under 150 euros brought into the country.
* Orders inbound to affected markets will experience reduced fulfillment efficiency and higher costs.
* Temu plans to onboard and support "high-quality local merchants" to broaden product supply closer to customers.
* The company is speeding up the development of local warehousing and fulfillment infrastructure.
* Prior to the EU charge, U.S. duty-free treatment for lower-value China imports ended in May 2025, before being expanded later.
* The end of the duty-free threshold in the EU results in higher customs duties and taxes for Temu merchants.
* Additional regulatory requirements could further delay shipments and increase costs.
* Current point-to-point shipping methods result in higher fulfillment costs and leave some consumer demand unsatisfied.
Executive Summary
Temu's owner is adjusting its supply chain and fulfillment processes to mitigate the effect of European Union customs duties on lower-value goods, as noted in an earnings call. The EU began applying a 3 euro customs duty on items valued at 150 euros or less on July 1st. This change is expected to reduce fulfillment efficiency and increase costs for orders destined for affected markets. To address these long-term effects, the company plans to onboard local merchants and accelerate the development of local warehousing and fulfillment infrastructure.
Temu’s strategy involves shifting toward a model that supports products closer to customers by utilizing local suppliers and building out local logistics capabilities. This response is framed within a broader context where prior regulatory shifts, such as the U.S. ending duty-free treatment for lower-value China imports, prompted similar operational adjustments aimed at strengthening local merchant support. The ultimate implication is an ongoing effort to manage external regulatory pressures by restructuring operations and infrastructure to maintain business viability amidst shifting cross-border trade rules.
Full Take
The narrative demonstrates a tension between the existing, low-cost, cross-border shipping model relied upon by Temu and the imposition of new regulatory friction at the border. The company’s response is dual: immediate mitigation via operational adjustments (localizing fulfillment) and long-term structural change (building local infrastructure). This pattern suggests that when global trade rules shift to favor localization or impose tariffs on low-value goods, platforms dependent on vast external supply chains must internalize costs by creating localized logistical layers. The investment in local warehousing is not merely an operational fix; it represents a strategic pivot away from pure arbitrage toward building regulatory resilience within specific jurisdictions.
The framing around merchant support highlights the indirect cost borne by the ecosystem: while Temu adapts, merchants face increased complexity and potential reduced participation due to higher duties and administrative hurdles. This sets up a dynamic where adaptation benefits the platform’s operational stability but shifts the burden of change onto the suppliers. The underlying assumption is that physical proximity—local sourcing and fulfillment—will become a necessary condition for sustained market engagement when external tariffs create systemic instability.
What happens if these local investments prove insufficient to overcome customs bureaucracy, leading only to increased complexity without achieving meaningful cost savings? What are the long-term incentives for PDD Holdings to prioritize merchant support over maximizing throughput efficiency in the immediate term? Does this drive a trend where platform success is increasingly dictated by geographic compliance rather than pure transactional velocity?
Sentinel — Human
The text appears to be grounded reporting on an earnings call combined with subsequent analysis of the supply chain consequences of new EU customs duties.