Has the e-commerce bubble burst for air cargo?

What a difference a month makes. In late January, the air logistics community was optimistic 2025 would be another strong year. Growth was projected to slow to between 4% and 6%, but maintaining last year’s torrid 12% gain was unrealistic once the market recovered from a long downturn. 

As the specter of tariff wars rises, logistics professionals now worry that air cargo demand and rates could contract. The most deflationary measure is a U.S. threat to eliminate duty-free treatment for low-value shipments from China, which could slash air cargo volumes.

So far, the market is a mixed bag. Global demand is much weaker than a year ago. In January, worldwide volumes grew 2% year over year, lower than expected, freight data provider Xeneta said in its monthly report. Results were impacted by lower volumes out of China toward the end of the month because of the manufacturing and logistics slowdown for the lengthy Lunar New Year holiday.

Year to date through mid-February, global demand remains even with last year, according to seasonally adjusted data shared by Xeneta. February is performing better than January, taking into account both the typical beginning-of-year softness in demand following peak shipping season and this year’s earlier Lunar New Year holiday. Based on figures through Feb. 16, weekly global demand increased by 5% on average in the first half of February compared to January.

Amsterdam Schiphol Airport reported that the number of all-cargo flights in January was 5% lower than in January 2024 and that total tonnage decreased by almost 12%. 

The bottom line is that after seven weeks, demand is essentially flat versus the same period in 2024.

Still, shipping prices have done better than normal for the short season around Chinese New Year, according to analysis by Bascome Majors at Susquehanna Investment Group. Rates out of Hong Kong and Shanghai to North America, for example, typically drop about 13% but are up 1% from Hong Kong and only down 2% out of Shanghai since the week before the holiday. And price reporting agency TAC Index shows global prices are about 15% ahead of last year’s level, as of Monday.

It’s worth noting that today’s numbers look worse compared to unusually high double-digit growth a year ago because the market was soaring back from the depths of a freight recession that bottomed out in August 2023.

Air logistics experts are bracing for a significant downturn in business as new trade restrictions, primarily by the United States, are implemented in the coming months. In the short term, a spike in volumes is possible as U.S. importers rush to beat President Donald Trump’s next round of tariffs, which economists say will significantly raise the cost of goods. But a lot of inventory moved to the U.S. in January to avoid delays from a potential port strike and Trump’s tariffs, so businesses don’t urgently need much that requires air transport, said Kathy Liu, vice president of global sales and marketing at Dimerco Express Group, on the latest edition of “The Freight Buyers’ Club” podcast.

Since Trump took office in January, the U.S. has imposed a 10% tariff on all Chinese products, plans to soon hit Canada and Mexico with a 25% tariff, and has threatened reciprocal tariffs on all nations. The biggest danger to air cargo is a pending order that would make parcel shipments from China valued below $800 ineligible for duty-free status under a trade facilitation program. 

Canadian freighter operator Cargojet this month cautioned that slower revenue growth is possible this year because of the uncertainty surrounding a potential trade war between the United States and Canada, as well as global tariffs the Trump administration is considering, which could dampen global air cargo demand.

The Trump administration in early February temporarily lifted a short-lived ban on Chinese goods qualifying for de minimis treatment because U.S. Customs and Border Protection needed more time to get staff and systems ready to process millions of cheap shipments per day that previously sailed through with little review. Critics say the de minimis program has allowed big online sellers in China to game the customs entry process, reducing their service cost compared to U.S. sellers and making it easy for criminal elements to smuggle the dangerous fentanyl drug. 

The four-day cancellation of the de minimis exemption created lots of confusion for e-commerce shippers and logistics providers. CBP was swamped with shipments, leading to reports of backlogs at a few airports. Many shippers ended up holding cargo in China while they figured out next steps.

Danger signs flashing

Logistics professionals are sounding alarms that demand for air cargo, which has been fueled by e-commerce the past two years, will drop sharply when de minimis is finally removed. Two-thirds of the 1.3 billion low-value shipments that entered the U.S. in fiscal year 2024 were from China, according to the U.S. government. 

Chinese marketplaces Temu, Shein and Alibaba’s logistics arm Cainiao are among the largest buyers of airfreight in the world. E-commerce shipments account for an estimated 50% to 60% of China-U.S. air volumes and an estimated 20% of total air cargo volumes, filling about 100 widebody freighter aircraft per day. Online shipments flown out of China grew 22% each of the past two years, according to consultancy Rotate.

“The big e-commerce vendors are actually very hesitant to move big quantities to the U.S. anymore because you never know what will happen tomorrow. … We see a lot of freighter charters and BSAs [block space agreements] being canceled. So that explains why the market is very down right now,” Liu said.

Temu and Shein, which alone accounted for a third of de minimis shipments in 2023, will be subject to tariffs of up to 35% and higher customs processing fees, eroding their cost advantage, supply chain experts say. The National Foreign Trade Council, a pro-trade advocacy group, calculates that without de minimis, the average $50 package would require about $31 in paperwork, a brokerage fee of $20, plus tariffs and taxes, which would more than double the delivery cost.

Opinions are mixed on how much Americans will reduce shopping on Chinese platforms if prices of ultra-cheap goods cost several dollars more.

If the de minimis pipeline to the U.S. shrinks from 4 million daily parcels per day, “that will have a big impact on the amount of airfreight capacity they [Chinese marketplaces] are buying and could result in there being an overcapacity situation. And that will have a negative impact on yields,” said Neel Jones Shah, a former senior executive at logistics provider Flexport, Delta Cargo and United Airlines, in an interview. “This is not good news for the airfreight industry by any stretch.”

Logistics experts say Temu and Shein will adapt by changing their business model from fulfilling orders at the factory and shipping individual parcels direct to the consumer. Instead, they will rely more on a traditional supply chain model that involves shipping large quantities of merchandise by ocean container to a North American agent, storing it in a distribution center that will fulfill orders and using the U.S. Postal Service, or couriers, for last-mile delivery.

The major Chinese platforms “have enough customers now that they can easily identify what kinds of products are most frequently ordered and put those into the U.S. inventory,” said Liu. Southeast Asian countries and India could replace some e-commerce demand from China as manufacturers shift production to escape tariffs on China-origin products, which could boost air cargo in those regions, according to other executives.

Justus Klüver-Schlotfeldt, the CEO of Nex e-commerce hub, said the top three parcel users of the cloud-based freight management system expect volumes to the U.S. to decrease slightly in the second quarter, while shipments to the rest of the world slightly increase.

Meanwhile, the European Commission released a proposal to cancel de minimis for all imports in response to the wave of low-value goods from China, which officials say are a conduit for products that are unsafe and unfairly undercut domestic competitors. A de minimis closure by both the U.S. and European Union would have an even more profound impact on the air cargo market. 

Jones Shah said e-commerce players will still utilize air cargo for overseas fulfillment because they can’t pre-position every type of product. But packages will now be shipped in bulk consolidations rather than individually so sellers can save on customs brokerage and other fees, Thomas Kempf, Jones Shah’s successor as Flexport’s airfreight chief, said earlier this month on the STAT Media Group podcast “Cargo Masterminds.”

Spot rates could drop below $3 per kilogram if the de minimis change drives a significant amount of e-commerce from trans-Pacific air cargo, according to Judah Levine, head of research at the booking platform Freightos, in a customer note. At the moment, air cargo spot rates on the corridor remain elevated at about $5 per kilogram and are on par with levels a year ago. 

Airlines are expected to redeploy underutilized cargo jets to other regions, creating downward pressure on rates in those areas too, experts said. As demand dropped earlier this month out of Hong Kong and China due to the national holiday, for example, some airlines temporarily moved freighters to Africa to help with the seasonal uplift of fresh-cut flowers to Europe, according to Glyn Hughes, director general of The International Air Cargo Association. 

Another possible ripple effect is that airlines will accelerate retirement of aging freighters that are no longer needed, Jones Shah said on a separate edition of the “Freight Buyers’ Club” podcast.  Cargo Facts Consulting projects that up to 120 widebody cargo jets could exit the market by 2027, which could stress capacity at a time when manufacturers are having trouble producing new and converted freighter aircraft at normal rates. 

Trans-Atlantic market shows strength

The shift of freighter capacity to the busy Asia-Pacific cargo market last year partly explains the recent rise in air cargo rates from Europe to the United States. As of Wednesday, Xeneta data shows trans-Atlantic spot rates gained 7% month over month in February to reach $2.46 a kilogram. The price movement contrasts with other trade lanes, especially the Northeast Asia-to-U.S. market, which has seen rate declines of 14%. And Europe-U.S. spot rates jumped 23% year over year, compared to 9% growth from Northeast Asia to the U.S. 

The sequential growth in trans-Atlantic westbound rates for immediate delivery was partly due to a post-holiday recovery in demand, while the annual difference can be attributed to lower capacity caused by lighter passenger schedules during the winter season and freighter operators relocating assets to higher-yielding Asia-Pacific export lanes to take advantage of the e-commerce boom, Xeneta analyst Wenwen Zhang explained in a blog post. The supply-demand dynamics meant carriers were able to fill about 80% of their cargo space, a level typically only seen during the year-end peak shipping season, and command rates of more than 70 cents above the seasonal norm.

More headwinds

Another red flag for air cargo demand is that consumer demand may be waning. Retail giant Walmart said in its recent earnings report that it expects slower sales this year because consumers are tapped out. Tariffs and inflation, which accelerated more sharply in January than anticipated, could further dampen demand, according to the retailer and economists. 

The U.S. Consumer Price Index in January was up 3% from a year earlier, the biggest annual increase since June 2024. Prices were up 0.5% from December to January, the biggest monthly gain since August 2023, partly due to a jump in energy prices. Inflation is also up in Europe. And global manufacturing contracted slightly in December.

And if shippers are pulling forward demand to escape tariff impacts, then air and ocean carriers should anticipate lower volumes later in the year, Freightos’ Levine said. 

A permanent ceasefire in the Israel-Hamas war, which could lead pro-Palestinian fighters in Yemen to halt attacks on container ships in the Red Sea, poses another threat to air cargo business. Vessels moving between Asia and Europe are currently going around Africa. Some shippers have used air, or sea-air, services to transport more urgent products. The conflict is still a tinderbox. Even with a resolution, experts expect ocean carriers to make sure conditions are safe before resuming service. But when the Red Sea does open up, it will shorten transit times and some of the ocean-to-air conversion will eventually go back to ocean over a period of months, logistics specialists say.

With all the uncertainty around tariffs and geopolitics, Xeneta recommends that shippers delay negotiations for new contracts until the second quarter, which might allow them to secure more favorable rates if market conditions improve.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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