The International Air Transport Association (IATA) has raised concerns that tighter regulations on US e-commerce imports from China, the world’s largest trade lane by volume, could significantly impact the global air freight sector, which has experienced robust growth since late last year.
China-based online platforms such as Temu and Shein are facing increased scrutiny from US and European regulators. These authorities are worried that online retailers are exploiting de minimis rules, which allow importers of goods valued under $800 in the US and under €150 in the EU to avoid certain duties and taxes.
Willie Walsh, IATA’s director-general, warned that imposing stricter conditions on e-commerce imports could reduce demand, affecting the entire air freight industry. “Increased costs and transit times for shipments under $800 may deter US consumers and pose significant challenges for growth on the Asia-North America trade lane, the world’s biggest,” Walsh noted in IATA’s latest monthly market update released Tuesday.
These potential challenges could stall the air cargo surge that began in the last quarter of 2023, driven by strong trade growth, booming e-commerce, and container shipping capacity constraints, which forced US and European shippers to turn to air transport.
IATA data indicates that global e-retail sales are projected to reach $6.3 trillion this year, a 10% increase year over year, with expectations to hit $8 trillion by 2027. The volume of parcels crossing borders has also surged, with 170 billion parcels transported in 2022, a number expected to grow by 50% by 2027.
More than 80% of these e-commerce packages are transported by air, significantly contributing to the tight capacity on aircraft from China, keeping rates high despite the additional belly cargo space from increased long-haul summer flights.
IATA is advocating for a special handling code for e-commerce freight to better identify the sector, emphasizing concerns over the rising risk of undeclared lithium batteries, drugs, and other contraband being carried as below-deck cargo on passenger flights.
Weekly air cargo spot rates from Shanghai to North America have averaged $5.57 per kilogram (kg) over the past two months, a 21% increase year over year, and were at $5.48/kg in the first week of July, according to the Baltic Air Index (BAI). Shanghai-North Europe spot rate levels averaged $4.12/kg a week over the same period, up almost 40% year over year, currently at $4.39/kg.
In addition to e-commerce demand, air cargo is being impacted by a modal shift from ocean shipping. Longer voyages around southern Africa to avoid militant attacks in the Red Sea and Gulf of Aden have tightened vessel space out of Asia, pushing rates close to pandemic levels seen in 2022.
Asia outbound volume rose 20% from January through May compared to the same period last year, with outbound volume from the Middle East and South Asia increasing by 22% during that time, according to Netherlands-based air cargo analyst WorldACD.
There has been no slow season since March, with rates remaining high compared to the same period last year, noted Kathy Liu, vice president of Taiwanese forwarder Dimerco Express Group.
“The continuously rising ocean freight rates on the Trans-Pacific eastbound route, driven by strong demand, are impacting the air freight market,” Liu said.
A key indicator for the air freight market out of China is the Caixin General Manufacturing PMI, a monthly survey of purchasing managers compiled by Journal of Commerce parent S&P Global. The latest June reading of the Caixin China General Manufacturing PMI came in at 51.8, the index’s eighth straight month in expansionary territory and its highest level since May 2021.
“Overall, the manufacturing sector kept improving in June, with supply, domestic demand and exports continuing to grow … manufacturers increased purchases with rising inventory and price levels,” said Wang Zhe, senior economist at Caixin Insight Group, in his analysis of the PMI results.
Airlines in Asia-Pacific saw a 17.8% year-over-year growth in demand for air cargo in May, while capacity increased by 8.4%, according to IATA. Cathay Pacific expects this demand to fill its available air freight capacity in the coming months.
“Market sentiment, particularly out of Hong Kong and the Chinese mainland, remains positive, and we will continue to adjust our freighter capacity to suit the needs of our customers,” said Lavinia Lau, Cathay Pacific’s chief customer and commercial officer, in a statement.
