News #102 - Air cargo coming to terms with de minimis end

The proposed removal of the de minimis exemption may lead to increased delivery times and price hikes of up to 50% for items that continue to be shipped via air.

The exemption, which allows imports valued under $800 to bypass additional duties, will temporarily remain in effect for products originating from China, Canada, and Mexico. This policy persists despite the implementation of U.S. tariffs on imports from these countries. Initially slated for termination under the tariff orders issued by former U.S. President Donald Trump, the de minimis exemption was extended when Trump amended the orders to ensure duty-free imports remained available until the necessary systems for revenue collection were established.

Once the U.S. Secretary of Commerce notifies the President that these systems are in place, the de minimis exemption will cease for all three nations.

The impending termination of de minimis eligibility, particularly for Chinese imports, is expected to significantly reduce the influx of e-commerce shipments arriving in the U.S. by air. These shipments have been a major factor in sustaining high air cargo rates and keeping aircraft capacity filled since late 2023.

According to Freightos, this policy change may not only increase delivery times but could also lead to price increases of up to 50% for products that continue to be transported via air freight.

Judah Levine, Head of Research at Freightos, noted: "Platforms such as Temu and Shein have already initiated efforts to reduce their reliance on de minimis and air freight. More than one-third of Temu’s U.S. orders are reportedly fulfilled from domestic inventory. Nevertheless, these companies are scrambling to adapt by increasing prices, encouraging sellers to expand U.S.-based inventories, and incentivizing manufacturing shifts to Vietnam and other alternative markets outside China."

The temporary extension of the de minimis exemption for Chinese goods was intended to provide the U.S. Customs and Border Protection (CBP) with additional time to handle the anticipated surge of formal entry parcels. However, it may also help regulate e-commerce air cargo volumes to a more manageable level.

"Reports indicate that some e-commerce companies have already begun canceling freighter flights. While China-U.S. air cargo rates have not yet collapsed, Freightos Air Index data reveals that rates have fallen below the $5/kg mark for the first time since August of last year. Prices are currently 7% lower than the previous week, even though rates typically rise after Lunar New Year. This trend suggests that air cargo rates may continue a gradual decline until the de minimis exemption is officially revoked, at which point a sharper drop may occur."

Had the de minimis exemption been removed immediately, over one billion e-commerce packages valued below $800 from China would have required additional documentation and duty payments.

Derek Lossing, Founder of Cirrus Global Advisors, emphasized the significant impact on global air cargo: "We anticipate a reduction of up to 60% in China-U.S. e-commerce demand by the second half of Q2. This will force freighter operators to reassess and reallocate capacity across different global markets."

According to Rotate’s analysis, e-commerce shipments from China account for approximately 30% of Transpacific air cargo capacity.

E-commerce continues to be a major driver of air freight dynamics, notes Catherine Chien, Vice President of Digital Marketing at Dimerco Express. "In 2023, air freight rates surged following the Chinese New Year, with no significant slack period expected in 2024. However, since the Trump administration’s recent announcements regarding e-commerce policies, market activity has decelerated in both the U.S. and Europe since January 20."

"This slowdown has triggered the cancellation of several e-commerce charter flights, disrupting the equilibrium between supply and demand. While e-commerce remains a crucial segment, we foresee a shift from a direct B2C model to a B2B2C strategy."

Global air cargo demand, measured in cargo tonne-kilometers (CTK), increased by 3.2% year-on-year in January, marking the 18th consecutive month of growth. Available cargo tonne-kilometers (ACTK) rose by 6.8%, as reported in the latest data from the International Air Transport Association (IATA).

"Although the growth rate has moderated compared to the double-digit increases seen in 2024, yields remain higher than in January 2024. However, they declined by 9.9% compared to December. Cargo load factors also dropped by an average of 1.5 percentage points, reflecting evolving market conditions."

The Asia-North America trade route, a vital link in global supply chains, recorded a 6.1% increase in demand, extending its growth streak to 15 months. Meanwhile, the Europe-Asia corridor saw a 3.2% increase, marking 23 consecutive months of expansion. The North America-Europe trade lane exhibited the strongest growth among major routes at 9.7%, driven by robust transatlantic trade.

According to the latest weekly report from WorldACD Market Data, air cargo tonnages from Asia Pacific origins have continued to recover toward pre-Lunar New Year levels, with rates gradually increasing and remaining above last year’s figures.

"Following a 20% rebound in week 7 from the Lunar New Year dip, chargeable weight flown from Asia Pacific origins increased by an additional 6% in week 8 (February 17-23), nearing mid-January levels, based on over 500,000 weekly transactions recorded by WorldACD."

Asia Pacific to Europe tonnages rose by another 5% following a 30% rebound in the previous week. China-Europe tonnages saw an additional 5% increase. "Japan-Europe demand rebounded strongly with a 19% week-on-week (WoW) increase, approaching its highest level this year. Other notable WoW tonnage gains included South Korea (+7%), Vietnam (+8%), and Thailand (+18%)."

As logistics strategies evolve, a transition from the B2C to the B2B2C model is expected to reduce air freight demand while increasing ocean freight utilization, Chien of Dimerco added. "Discussions with airlines indicate that while overall e-commerce demand is unlikely to decline significantly, air freight volumes will not continue expanding as the industry adapts to a more diversified logistics model."

Source: https://www.stattimes.com/air-cargo/air-cargo-coming-to-terms-with-de-minimis-end-1354647

Share this article