Trump policies make airfreight shippers jittery about downturn

Worries about a slowdown in airfreight shipping to start the year have quickened as President Donald Trump’s policy blitzkrieg begins to impact the global economy, especially small-dollar shipments from China that have fueled air cargo growth for two years. 

The distress is magnified by how quickly conditions have changed from the 12% growth in air cargo demand last year. Air logistics professionals expected market growth to normalize at about 5% year over year once a recovery ran its course, but after volumes grew 2% to 3% in January they are now coming to terms with a potential contraction.

The Trump administration’s hasty rollout of tariffs and other measures using emergency powers has created significant income and expense uncertainty for businesses, which say they are hesitant to spend and invest, and roiled the stock market last week. Economists are increasingly raising the possibility of U.S. recession or stagflation – the twin evils of high inflation and anemic economic growth. If the U.S. economy stalls, it could drag down the rest of the world.

Perhaps the biggest threat to air cargo is a pending White House order that would end duty-free treatment and simplified entry for low-value parcel shipments from China, Canada and Mexico. Cross-border e-commerce has been air cargo’s growth engine since 2023.

“If this now takes a significant hit, it will have a profound effect on airfreight rates around the world,” said Niall van de Wouw, the chief airfreight officer at freight data provider Xeneta.

The White House has imposed a 20% tariff on all goods from China, with 25% tariffs on all steel and aluminum imports scheduled to take effect Wednesday. Trump imposed, and then delayed again on Thursday, 25% tariffs on Mexico and Canada, and has indicated that tariffs could soon be coming on copper, timber, lumber and Canadian diary. And the administration has announced plans to impose reciprocal tariffs next month on all countries where U.S. exporters face higher tariffs than the other way around. Countries are retaliating with their own tariffs. The fear is that higher import prices will exacerbate hard-to-tame inflation and cause consumers to pull back on spending. 

Target and Best Buy executives said they would quickly begin raising prices on certain products in response to tariffs on China, Mexico and Canada.

Panelists at AirCargo 2025 in Arlington, Texas, last week thought that if tariffs are implemented largely as described and stay in force for more than six months, then cargo demand is likely to decline significantly, with COVID-era shortages reappearing, according to a customer note from TD Cowen equity analyst Tom Fitzgerald, who attended the event. Freight forwarders also expressed concern about the long-term outlook for the industry if the U.S. pursues an ultra-isolationist policy. 

“We came away expecting cargo revenue to be a drag on results in 2025, after being a positive contributor in 4Q24,” he wrote.

Lufthansa Group’s cargo subsidiary last year benefitted from strong e-commerce business from Asia, especially during the fourth quarter. Lufthansa Cargo generated an operating profit of 251 million euros ($272 million) in 2024, nearly 80% of it in the final three months, 15% higher than the previous year, according to financial results last week.

Trump in early February temporarily rescinded the emergency order ending de minimis eligibility for China-origin parcels when it became clear that U.S. mail and customs systems couldn’t handle the new data and duty collection requirements for millions of shipments. 

Critics of the de minimis program, aimed at making it easier for mom-and-pop sellers to import merchandise below $800 for their online stores, say large digital marketplaces have exploited the rule to avoid duties and regulatory scrutiny. De minimis also became a conduit for smuggling drugs, counterfeit goods and unsafe products.

E-tailers surprised many customers by applying huge fees for customs brokerage services and duties to direct-to-consumer shipments during the few days the de minimis ban was in effect. Passing on new import costs to individuals and small businesses could drive down demand for Chinese-made goods, and for air cargo capacity, some experts predict.

Logistics operators say e-commerce platforms are adjusting to the changing U.S. regulatory environment by shifting air cargo volumes out of China and fulfilling orders from other countries in the Asia-Pacific region. They are also expected to increase utilization of ocean shipping to U.S. warehouse operators who can arrange last-mile deliveries to consumer residences. 

An early indicator of the e-commerce crackdown’s impact on air cargo is the decline in volumes and spot rates – quotes for bookings within a month – on the trade lane from China and Hong Kong to the United States. Volumes of Chinese air exports to the U.S. fell 10% year over year, according to the latest report from WorldACD. Meanwhile, rates from Shanghai to the U.S. fell 29% from January to February, ending the month at $3.23 per kilogram, said Xeneta. By comparison, the Shanghai-to-Europe spot rate registered a modest 2% month-on-month decline to $3.86 per kilogram. On a regional basis, prices for immediate transactions from northeast Asia to North America dropped 17%. 

But supply chain practitioners say it is too soon to predict a material drop-off in demand for direct-to-consumer fulfillment from China, especially since de minimis has yet to be canceled.

Airlines are expected to respond to less China e-commerce business by redeploying underutilized cargo jets to other regions, such as Southeast Asia or the trans-Atlantic market, creating downward pressure on rates in those areas too, experts said. The uncertainty has led freight forwarders to delay contract negotiations with airlines for blocks of space as they wait for the economic dynamics to play out. Shippers also are postponing annual contract negotiations with forwarders and opting for shorter-term agreements. 

Overall, global air cargo demand grew 4% year over year in February, according to Xeneta’s latest monthly report. Volumes picked up in the second half of the month after initially being flat, which coincides with resumption of factory and warehouse activity in China with the end of the Lunar New Year holiday. Xeneta said a weighted measure that considers the earlier Lunar New Year in 2025 more accurately shows 3% growth for the combined January-February period. The diminishing impact of Red Sea disruptions on ocean shipping may also be influencing monthly performance as shippers shift out of air and sea-air shipping solutions.

It should be noted that 3% growth is a solid result considering that last year’s double digit numbers for February were juiced by a recovery from the freight recession and were not sustainable.

Airfreight capacity in February ticked up 1% year over year compared to high-single-digit increases last year, and the aircraft fill rate remained unchanged at 59%, according to Xeneta.

Global average spot rates increased at the slowest pace year over year since June, rising by 10% to $2.53 a kilogram, while contract rates dipped 1%, as the gap between supply and demand narrowed. Spot rates declined 5% on a sequential basis from January.

Macroeconomic unease 

Fast-changing Trump administration policies are also creating a potential drag on the U.S. and global economies, with implications for air cargo.

As experts revise downward global growth forecasts, U.S. manufacturing expansion stalled out in February on the heels of hitting a three-year high as recently as December, according to S&P Global Market Intelligence.

In the United States, inflation increased more sharply than anticipated in January, with the Consumer Price Index up 3% year over year, compared with 2.9% in December, and producer prices up 3.5%. 

Inventory levels shot up in February to their highest level since October 2022 as suppliers in recent months raced to stock up ahead of the tariffs, according to the Logistics Managers’ Index compiled by several U.S. universities. The news suggests that pre-buying activity has run its course and that fewer orders will be placed with overseas manufacturers in the coming months because importers have warehouses full of goods, reducing demand for air and ocean transportation.

The Institute for Supply Management’s Purchasing Managers’ Index shows a spike in raw materials prices, with survey respondents expressing fears that the combination of tariff actions will lead to sweeping price increases from suppliers.

Investment bank J.P. Morgan Chase last week released a new model showing the probability of a recession has increased to 31% from 17% at the end of November. And the Atlanta Fed’s imperfect running model flipped from strong growth to -2.8% growth for the first quarter. 

On Thursday, outplacement services firm Challenger, Gray & Christmas released data that U.S. employers cut 172,000 jobs in February, the highest monthly count since July 2020 and more  than any February since 2009. It said slashing of the federal workforce by President Trump since taking office on Jan. 20 coupled with rising economic uncertainty fueled the recession-like spike in layoffs. 

Steven A. Cohen, a hedge fund manager who has donated to Trump’s campaign in the past and owns the New York Mets baseball team, recently said the whipsaw of policy moves could undermine the economy.

“This is one of those moments where there is a lot of uncertainty. I mean, tariffs cannot be positive. It’s a tax. Taxes are never positive. On top of that we have slowing immigration and on top of that we have DOGE [the Elon Musk-led Department of Government Efficiency tasked with rapidly shrinking federal government programs]. That’s austerity. It’s got to be negative for the economy.

“We think growth is going to slow to 1.5% from 2.5% in the second half. The reality is we have a brew of sticky inflation, slowing growth and austerity in the government. So I’m actually pretty negative for the first time in a while. It’s definitely a period where I think the best [stock] gains have been had and it wouldn’t surprise me to see a significant correction,” he said at a recent investment conference.

The National Retail Federation also said the torrent of policy moves under consideration by the White House and Congress has blurred the economic outlook. “While deregulation and tax cuts could provide positive momentum, immigration restrictions and tariffs could be a drag on the economy and have adverse effects. Although recent economic data remains strong, we are concerned about the downside risks,” Chief Economist Jack Kleinhenz said in a news release. 

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

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