Global News No sign of air freight demand easing as ‘slow’ summer nears

The more than six-month long bull market for air cargo, thanks to relentless North American e-commerce demand, is showing no signs of letting up as the traditionally slower summer months approach, according to forwarders and analysts.

The air cargo rally that began late last year is set to extend through the traditionally quiet summer months and into a potentially even more robust peak season, as a modal shift from ocean to air to mitigate the effects of Red Sea disruption on container shipping is combining with a huge increase in volumes from Chinese e-commerce marketplaces.

“If e-commerce wasn’t there, then we would have overcapacity, but e-commerce is just hoovering up all the available capacity in the market,” Jan Kleine-Lasthues, COO for air freight at Hellmann Worldwide Logistics, told the Journal of Commerce Friday.

Kathy Liu, vice president of global sales and marketing at Dimerco Express Group, said in a recent report that the surge in demand for air cargo out of China to ship e-commerce and e-cigarettes is absorbing more than half the available outbound capacity, particularly in the southern regions.

“In addition, Temu has initiated sea-air routes via Taiwan, Japan and Korea into the US, altering traditional trade patterns,” Liu noted. “Consequently, freight rates from these alternative routes are now exceeding those from mainland China — an unusual occurrence.”

The scale of demand for e-commerce is staggering, especially in the US, which has a generous de minimis threshold that exempts imported goods valued at up to $800 from duties and taxes. In the European Union, shipments of €150 and below are exempt from duties, although they are always subject to a value-added tax, regardless of the value of goods.

US Customs and Border Protection (CBP) estimates that 2.5 million low-value, de minimis shipments arrive at its facilities every day for targeting, review and potential physical examination. In 2023, CBP processed more than 1 billion de minimis shipments worth more than $50 billion through postal, express and non-express facilities; in January alone, CBP had already processed half a billion de minimis shipments.

A global forwarder based in Europe who asked not to be identified said 30 to 40 freighter aircraft were leaving China every day filled with e-commerce products for destinations around the world.

“If another e-commerce company were to import their goods by sea freight and do the picking and packing and shipping to the customer from a warehouse in Europe, they would be paying all the duties and taxes,” the source told the Journal of Commerce. “That’s why air freight for China’s e-commerce companies makes sense. Maybe they pay 50 cents more for the transport because they fly everything instead of putting it here in stock, but they save far more on duties and taxes.” Increased regulatory scrutiny While the lack of taxes combined with low-cost shipping via the postal service has allowed US consumers to benefit from cheap imported goods, resulting in the exponential growth of the market, there is growing pushback from US and European lawmakers and trade organizations.

The European Commission, for example, is reviewing the underlying business model of online marketplaces such as Temu and Shein and whether it contravenes the Digital Services Act. In the run up to the US presidential elections in November, legislators are calling for tougher tariffs against Chinese companies exporting to the US.

Some industry organizations in the US are also riled up over the incoming flood of e-commerce and the shipments falling under the de minimis threshold. Kim Glas, president and CEO of the National Council of Textile Organizations, told the US Trade Representative’s Office last week that “unchecked foreign predatory trade practices” had forced the closure of 14 textile factories in recent months.

“One of the most important actions Congress and the Biden administration can take to counter these illegal trade practices is to close the de minimis loophole,” Glas said, calling on legislation to be passed “immediately to completely close it.”

John Manners-Bell, founder and CEO of consultancy Transport Intelligence, warned that although e-commerce volume has become critical to the success of the air cargo sector, there was a real threat that laws proposed in the US — with backing from across the political spectrum — could undermine the growth of the industry.

“During a period of economic downturn, [e-commerce] has provided a lifeline to the air cargo sector,” he wrote in a report this week. “However, given US politicians’ appetite for shutting down Chinese platforms, with TikTok presently in the crosshairs, there is no guarantee that this buoyant market will continue forever.” Rates remain elevated While it lasts, however, the sustained demand is keeping trans-Pacific air freight rates well above prior-year and pre-pandemic levels. According to Wenwen Zhang, air freight analyst at rate benchmarking platform Xeneta, following a dip in March after the Lunar New Year, the eastbound corridor from Northeast Asia to the US has seen spot rates rebound more than 30% year over year.

“Air cargo rates from prominent e-commerce origins — Southern China and Hong Kong — have been elevated since the end of last year’s peak season,” she wrote in a market update Friday.

During the first week of May, general cargo spot rates to the US from Southern China and Hong Kong reached $5.24 per kilogram (kg) and 4.23 per kg, respectively, approximately 85% higher than in the same period of 2019, Xeneta data shows.

Average Shanghai-North America air cargo spot rates assessed by the Baltic Air Index of $5.31 per kg this week have not fallen below $5 per kg since last October.

Trade between South Asia and Europe is also expected to see continued strong demand through the end of the year, having been significantly affected by the diversion of container ships around southern Africa.

“The expectations are for a strong peak season out of Asia but also out of the Indian subcontinent,” Hellmann’s Lasthues said. “These are the two markets where we expect an extremely strong peak season, and this is also the information we are getting from our customers, especially in the fashion industry.”

The high demand into May is reflected in outbound volume from Middle East/South Asia (MESA) origins. In weeks 17 and 18 (April 28 through May 5), MESA air exports increased 26% compared with the previous two weeks, according to Netherlands-based air freight analyst WorldACD. Because of the shorter transit times, air cargo rates and volumes are typically measured in weeks.