Why TikTok is Outsourcing its Much-Hyped Fulfillment Network

Glenn Taylor
·4 min read

Rumblings that TikTok wants to build its own logistics network appear to be coming to fruition. But TikTok is partnering with outside logistics firms to make this network a reality.

The social media powerhouse is working with third-party logistics (3PL) fulfillment service providers that lease and operate warehouses to store inventory and to pack and ship orders for merchants selling on the TikTok platform, The Information first reported last week. Merchants will ship their items into the designated warehouse where their products will be stored and dispatched as orders roll in.

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TikTok confirmed the report to Sourcing Journal. The ByteDance-owned company did not name its new logistics partners, or the size and locations of the warehouses where it will stash sellers’ products.

A spokesperson noted that the fulfillment program is currently invite-only for a small group of sellers during the initial launch period.

Speculation about the fulfillment service started in October when TikTok job openings revealing that it wanted to build an “international e-commerce fulfillment system” that included international warehousing, customs clearings and supply chain systems supporting both domestic e-commerce in the U.S. and cross-border e-commerce. The posts suggested that TikTok planned to eventually get into parcel consolidation and even manage free returns.

Seeds were planted for the move from late last summer, when TikTok quietly hired Andy Huang, a former chief logistics officer for Alibaba’s Lazada Group, to lead its U.S. logistics unit. Two months later, ByteDance also brought in two more execs to TikTok—Vivek Madhwaraj and Teodor Antikarov—to be the head of U.S. fulfillment solutions and the head of U.S. e-commerce logistics solutions, respectively.

TikTok’s decision to outsource its fulfillment network to a third-party comes at a time when logistics costs and warehouse rent continue to rise, with Cushman & Wakefield saying average earning rent jumped 3.5 percent quarter-over-quarter and 17.2 percent year-over-year to $9.19 per square foot.

Overall, the cost of doing business in logistics increased significantly in 2022. The State of Logistics Report from the Council of Supply Chain Management Professionals (CSCMP) and Kearney indicated that the year saw the highest cost growth over the past decade, growing 19.6 percent year-over-year to $2.3 trillion. Inventory carrying costs, including storage, were 52 percent higher at $759.3 billion, illustrating the drawbacks in operating a fully owned network.

The biggest name in e-commerce has felt the heat from the rising logistics costs. While Amazon touts that it more than doubled its nationwide warehousing and logistics network during the peak of the Covid-19 pandemic, the tech titan has since curbed its expansion and regionalize into eight individual networks in an effort to cut costs. Amazon even brought back its Seller Fulfilled Prime (SFP) program to allow third-party sellers to ship Prime-eligible products out of their own warehouses, and introduced a new offering where local businesses can apply to deliver Amazon packages.

E-commerce rival Shopify similarly rethought the logistics investment when it sold off its fulfillment business Deliverr to digital freight forwarder Flexport. When the divestment was announced, Shopify CEO and co-founder Tobi Lütke described the logistics ambitions “side quests” that distracted from Shopify’s main goals on the front-facing side of its e-commerce business.

TikTok’s fulfillment ambitions comes as the company seeks to penetrate social commerce. TikTok allows its users to make purchases directly through the app’s TikTok Shop feature, launched in November 2022, which has onboarded popular Gen Z brands like PacSun and Revolve.

While another Information report in April said the service was seeing slow interest in the U.S. due to merchants’ concerns over whether the platform could be banned, TikTok seems to have a longer-term goal to sell its own Amazon Basics-like products through TikTok Shop to U.S. users.

Another report from The Financial Times indicated Wednesday that TikTok has been testing the sale and shipment of its own goods in its U.K.-based app, in a new shopping section Trendy Beat.

Hinting at expanding in the states, TikTok filed a trademark application in the U.S. for Trendy Beat on May 30, listing mostly clothing, bathing suits and footwear as goods associated with the mark.

TikTok’s foray into shopping comes after just about every major social media platform has launched its own “buy button” or live shopping feature. Unfortunately, these attempts haven’t fully taken off.

After heavily pushing its Shop feature during Covid-19, Instagram removed the tab in January before dropping its livestream shopping feature in March. Facebook also shut down its live shopping feature last October to shift its focus to its short-form video feature Reels.

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