FedEx Corp. and United Parcel Service, two of America’s largest private shipping giants, recently revised their projected earnings for 2024 — UPS in July, FedEx last week. Each company attributed their respective performance dips to at least one shared phenomenon: falling demand for priority shipping.
As shipping giants impacted by shifts in myriad industries, FedEx and UPS serve as unique bellwethers for broader consumer trends and behaviors. So it’s interesting that while both companies are recording declines in speedy shipping, Americans aren’t shopping less. In fact, they’re shopping more, with e-commerce sales up as much as 8% in August compared to a year prior.
At first, you might assume Americans are simply cutting back where they can. Sure, U.S. consumers are consuming just as much as usual, if not more, but they’re also looking to save amid high prices. That’s certainly part of the story, behavioral economists told Salon.
“People are starting to think through needs versus wants a little bit more,” Elizabeth Schwab, founding chair of The Chicago’s School’s graduate behavioral economics program, said. “I think we're getting better at delaying gratification.”
But another novel consumer behavior is cutting into shipping giants’ bottom lines: shopping on Temu.
If you haven’t shopped on Temu, you’re in an increasingly small minority of American shoppers: Nearly six in 10 U.S. consumers made a purchase on the global e-commerce platform in the past year. Pinduoduo, a Chinese e-commerce heavyweight, launched Temu in 2022 as its U.S. offering. Today, Temu sends an estimated 1 million shipments to the U.S. every day, according to The Wall Street Journal.
Pinduoduo caters to China’s low-income households, offering direct-to-consumer shipping at steeply discounted prices. Temu, similarly, hawks steep discounts on pretty much everything: home goods, clothing, electronics, furniture, power tools, pet supplies and virtually any item the imagination could conjure.
The discounts can be mind-boggling: $5 sneakers, $7 noise-canceling earbuds, a smartphone wall projector for $17. Temu can offer these prices by functioning as the digital connection point between online shoppers and Chinese manufacturers cheaply producing products based on real-time demand insights (provided directly by Temu).
And therein lies a catch for U.S. consumers: Because Temu specializes in shipping directly from the Chinese manufacturer, most Temu orders arrive at your doorstep within two weeks. Customers who shop on Temu can’t select FedEx Standard Overnight or UPS Next Day Air. And with a smaller portion of Americans’ online shopping translating into priority shipping sales, companies like FedEx and UPS are feeling the hurt.
“What Temu is essentially doing is removing middlemen,” Turney McKee, director at the business research firm The Decision Lab, said.
In UPS’s second-quarter earnings, executives noted shifts in consumer demand in line with Temu’s delivery model, with customers foregoing premium air services in favor of cheaper ground services and less expensive SurePost delivery, in which UPS couriers hand off packages to U.S. Postal Service offices for final delivery.
In July, UPS reported quarterly net income of $1.41 billion, a 32% dip from $2.08 billion the same time last year. It also revised its projected 2024 revenue to be approximately $93 billion, down from its earlier prediction of as much as $94.5 billion.
Meanwhile, in September, FedEx reported $1.21 billion in quarterly net operating income, down from $1.59 billion in 2023. It, too, cited declining demand for pricier shipping services. FedEx adjusted its projected per-share earnings, going from an earlier estimate of $18.25 to $20.25 per share, to between $17.90 and $18.90 per share, according to The Wall Street Journal.
“There are broader ramifications here,” McKee said. “If you frame shipping and logistics as the service shepherds goods from middleman to middleman, then the fewer of those that exist in the ecosystem, the worse for them.”
UPS and FedEx are processing many of Temu’s orders, albeit mostly outside their priority shipping offerings. UPS recently recorded its first positive uptick in shipment volume in two years, a trend analysts attributed to Temu’s surging shipments.
The decline in priority shipping spending can’t solely be explained by Temu, though, behavioral economists say. It's worth considering how little control over their dollar many U.S. consumers feel in this current moment. Food prices are up, and housing costs are rising faster than incomes; in a 2023 survey from the American Psychological Association, 63% of U.S. adults cited money as “a significant source of stress” in their lives.
Online shopping, behavioral economists say, provides the rare opportunity for shoppers to control one element of the transaction: how much to spend on shipping. A $40 sweater can either cost $40 and arrive in several days, or arrive rather quickly but cost $55.
“There certainly have been times when things are like, one-click buy, and we're not in an environment where inflation and price are so salient,” Jeff Kreisler, head of behavioral science for JPMorgan Private Bank, said. “Every day we're bombarded with ‘things are expensive.’”
For consumers, that’s a tough message day in and day out. In a spending environment where we can often feel anxiety over the money we have to spend, cutting our shipping expenses — even while spending more online than we could or should — represents a small opportunity for shoppers to feel like they made a smart money move.
“I think what you're seeing in the data, and I actually think it’s a good thing, is that consumers are separating those as two different things,” Kreisler said of a product bought online versus its shipping speed. “In doing so, they're recognizing that they don't lose out on the thing they need, by not getting what they want.”
