PDD Holdings, the owner of Temu, is reshaping its supply chain and fulfillment strategy as new customs rules in Europe threaten the low-cost, cross-border shipping model that has fueled the platform’s growth.
The company is drawing on lessons learned in the United States following the end of duty-free treatment for low-value imports, while accelerating investments in local merchants, warehouses and fulfillment infrastructure across markets affected by the regulatory changes.
During an Aug. 24 earnings call, PDD Holdings co-Chairman and co-CEO Lei Chen said the company was adapting its supply chain and fulfillment operations to limit the impact of the European Union’s new customs duties on lower-value goods.
The EU introduced a temporary customs duty of €3 on July 1 for each item valued at €150 or less entering the bloc. Previously, such products could enter without duty under the EU’s de minimis duty-free threshold.
According to Chen, the new rules are expected to reduce fulfillment efficiency and increase costs for orders entering affected markets, creating what he described as “a considerable impact” on parts of PDD’s business.
To address those challenges over the longer term, PDD plans to continue onboarding and supporting “high-quality local merchants” in order to expand the availability of products located closer to consumers.
At the same time, the company is accelerating the development of local warehousing and fulfillment capabilities.
A supply chain model under pressure
The new investments come as Temu is in the midst of a wider transition in its supply chain as governments become increasingly skeptical of the low-cost, cross-border shipping model the platform has relied on for years.
Temu has mostly shipped products one at a time into destination countries, a strategy designed in part to limit the duties applied to imported goods.
In the United States, that model has already been heavily disrupted.
In May 2025, the U.S. ended duty-free treatment for lower-value imports from China. The measure was expanded to all shipments a few months later.
PDD would work to beef up its operations and help local merchants in the markets it operates after Chinese import restrictions, Chen said on an earnings call last year. The aim was to increase the number of orders that could be fulfilled from local warehouses as opposed to international shipments only.
However, Temu will not be able to escape the impact of the new duties entirely.
The e-commerce platform, which specializes in low-cost products, still operates primarily with merchants outside the United States and the European Union. Most of those merchants are in China, according to a PDD annual report filed in April.
The company warned that Temu merchants would face higher customs duties and taxes as a consequence of the end of the EU’s duty-free threshold.
Additional regulatory requirements on customs authorities could potentially cause further delays and increased operating costs for shipments.
Those changes could be felt by consumers and vendors alike. “PDD expects higher prices for shoppers, lower order volume and less merchant participation on the platform,” it said.
Warehouses at the center of PDD’s response
As the company and its merchants adapt to the EU’s new customs duty, PDD is increasing investments in warehousing infrastructure designed to support local merchants.
Co-Chairman and co-CEO Jiazhen Zhao said during the earnings call that these investments are intended to streamline fulfillment operations, reduce logistics challenges and improve delivery reliability.
According to Zhao, some merchants in certain markets currently rely on point-to-point shipping methods instead of consolidated shipping. That approach is contributing to higher fulfillment costs while leaving part of consumer demand unmet.
PDD’s supply chain strategy is therefore focused on two connected priorities: strengthening the availability of quality products and building the infrastructure needed to deliver them more efficiently.
“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.”
With both the United States and the European Union tightening their approach to low-value imports, Temu’s parent company is increasingly moving toward a more localized logistics model.
The shift signals a significant evolution for a business that has traditionally depended on direct, cross-border shipments from overseas merchants. Local warehouses, regional fulfillment networks and closer relationships with domestic sellers are now becoming increasingly important as PDD seeks to control costs, improve delivery performance and maintain demand in a more restrictive global trade environment.
