Temu may turn aggressive in ASEAN and become a direct rival of Shopee as the Chinese online retailer faces challenges in the United States following the elimination of the de minimis exemption.
According to CNBC, the nearly century-old exception, known as de minimis, has been used by many e-commerce companies to send goods worth less than $800 into the US duty-free. This exemption has fuelled the explosive growth of Temu and Shein in the US by allowing them to bypass taxes on low-value shipments.
Temu and Shein are reportedly responsible for more than 30 per cent of de minimis shipments into the US. However, the removal of this exemption has raised concerns among investors that Temu may shift its focus aggressively to ASEAN.
A report released by Maybank on February 11 noted that outside of China, Temu had been aggressive in the US. However, emerging challenges mean its cross-border platform, which ships products directly from Chinese warehouses to US consumers, will face higher tariffs following the removal of the de minimis exemption. This has led to investor concerns that Temu and Shein may redirect their resources elsewhere, possibly ASEAN, intensifying competition for existing e-commerce players like Shopee.
“If Temu turns aggressive in ASEAN, there could be strong pushback from Shopee. We do not rule out Shopee returning to losses, although that may be the right strategy,” the report stated.
Shopee has already emphasised its long-term goal of maintaining its adjusted earnings before interest, taxes, depreciation, and amortisation to gross merchandise volume ratio at 2-3 per cent—a figure lower than the global average of approximately 5 per cent.
According to Maybank, Shopee could surpass its targeted margins through multiple take rate increases, higher ad penetration, and operational leverage. However, Shopee deliberately operates at lower margins to maintain a highly competitive market and deter new entrants or aggressive moves by existing players.
The report outlined three possible scenarios following the removal of the de minimis exemption in the US. The first scenario involves Temu adjusting its business model to operate as a conventional e-commerce company in the US. This shift is already underway, with Temu allowing US sellers onto its marketplace and introducing a local warehouse function. While this enables Temu and Shein to maintain their US presence, their competitiveness may decline as local merchants take a cut, leading to higher consumer prices.
The second scenario sees Temu reallocating resources away from the US towards other regions, including ASEAN. However, expansion in ASEAN presents significant challenges. Indonesia, the region’s largest market, remains largely inaccessible due to strict cross-border regulations that prohibit shipments of products below $100 from China. Other key markets, such as Vietnam, Thailand, and Malaysia, have also expressed concerns over Temu’s impact on local micro, small, and medium-sized enterprises.
Moreover, Temu’s unit economics in ASEAN are far less favourable than in the US. The average basket size in ASEAN is typically $5-10, making the model unsustainable, as shipping costs from China to customers range between $2-3 per order. In contrast, third-party e-commerce merchants in the US enjoy higher margins, making the economics more viable for Temu. Additionally, ASEAN’s local merchants tailor their product offerings to regional preferences, something Temu’s cross-border model struggles to replicate.
The third scenario suggests that Temu may transition from a cross-border platform to a traditional e-commerce operation in ASEAN, positioning it as a direct competitor to Shopee. If Temu follows an aggressive market entry strategy, similar to TikTok Shop in the past, Shopee is likely to respond just as forcefully.
Furthermore, Shopee has significantly advanced its logistics capabilities and operational efficiency, reinforcing its competitive position. As a result, any pushback from Shopee against Temu’s ASEAN expansion is expected to be even more intense.
In Vietnam, Temu was requested to suspend its cross-border e-commerce business in early December 2024 after failing to obtain the necessary licences. According to the Ministry of Industry and Trade, Temu is still awaiting approval to operate in Vietnam. The platform’s operator, Elementary Innovation Pte. Ltd., has submitted an application, which is currently under review by local authorities.
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