Air Cargo Industry Shaken by Trump's New Tariffs on Chinese E-commerce
President Donald Trump's weekend order eliminating a duty-free exemption for low-value e-commerce shipments from China, Mexico, and Canada could upend business models for many companies engaged in international trade. Stakeholders suggest that the air cargo sector could experience the most significant impact.
Chinese and U.S. marketplaces like Shein, Temu, AliExpress, Amazon, and Shopify may face notable constraints in the short term.
Massive Impact on Cargo from China
The U.S. imported more than 2.5 million tons of cargo by air from China last year, with about 1.3 million tons of cheap e-commerce products potentially affected by the new tariffs, which start this Tuesday. The rest of this cargo is now subject to a new 10% tariff on Chinese goods, according to data from Netherlands-based air cargo consultancy Rotate.
Electronic retailers, logistics service providers, express carriers, customs brokers, and others are scrambling to understand the new rules and adjust operations accordingly. Trade professionals express confusion due to the broad announcement from the White House and limited guidance from U.S. Customs and Border Protection. The outcomes could change if President Trump revises his stance, as seen with a recent reprieve on tariffs for Canada and Mexico, or if companies discover effective coping strategies.
Shifting Trade Models
Companies were aware of impending changes following an earlier announcement by the Biden administration that cheap imports would lose duty-free status if subject to tariffs or national security restrictions.
Trump's use of rarely employed emergency economic powers to impose an all-encompassing ban, intended to curb fentanyl smuggling, contrasts with Biden's standard procedural steps for a regulatory change.
E-commerce's Role in Air Cargo
The de minimis provision under U.S. trade law exempts goods valued at $800 or less shipped to a single person per day from duty and taxes. Large online retailers, led by Shein and Temu, used this provision to avoid import taxes by shipping directly to consumers. This model heavily relies on airfreight. Chinese e-tailers kept freighters full by renting entire aircraft and reserving space to fulfill fast delivery promises.
In 2023, the e-commerce surge was crucial in rescuing the air cargo sector from a downturn, pushing it to 12% growth. E-commerce now comprises one-fifth of airfreight volume and more than 50% of cargo volumes out of Asia.
Potential Shifts to Ocean Shipping
"We can expect to see these companies begin shipping most items in bulk rather than single parcels," said Tony Pelli, director of supply chain resilience at BSI Consulting. This shift may reduce market speed and increase inventory held in the U.S., possibly leading to a permanent move from air freight to ocean shipping.
The surge in demand from Chinese e-commerce sellers squeezed traditional air cargo users, such as automotive, pharmaceutical, and electronics manufacturers, who struggled to find capacity at reasonable prices.
Industry Reactions and Future Uncertainties
Judah Levine, head of research at Freightos, predicts a sharp reduction in air cargo volumes from China to the U.S., leading to significant pressure on transpacific air cargo rates. "If airfreight demand lapses as expected, air cargo rates could plunge," said Anthony Pizza, vice president for business growth at SpeedX.
The Customs and Border Protection (CBP) processes over 4 million de minimis shipments daily. A significant drop could impact airfreight capacity and market yields.
Brian Bourke, chief commercial officer at Seko Logistics, remains optimistic about the sector's adaptability. While the announcement may bring temporary disruption, the industry is used to adapting to new regulatory environments.
Retooling Cross-Border E-commerce
Mexican Backdoor Option Closed: The executive order applies to the country of origin, closing the bypass through Mexico. New Mexican regulations also tighten rules on the IMMEX program, which facilitated a duty deferral for re-exported goods.
With these changes, companies might see a shift toward building more U.S.-based warehouses to support a traditional B2B2C fulfillment model. This approach involves consignment of goods, formal customs entry, duty payment, and subsequent fulfillment operations in the U.S.
Conclusion
The current uncertainty and projected cost increases may affect the low-cost appeal of cross-border shopping, altering the competitive landscape of e-commerce significantly. Nonetheless, businesses are rallying to adjust and find strategic ways to mitigate these new challenges.
