Carriers such as Cathay Pacific, China Southern, Air China, and Korean Air have previously benefited immensely from the booming e-commerce volumes flowing from China to the U.S., fueled by the rapid growth of fast-fashion retailers like Shein and PDD Holdings' Temu. These low-value, high-volume shipments had become a crucial component of their cargo operations.
While a recent trade war detente between Washington and Beijing on Monday led to a temporary reduction in reciprocal tariffs (from over 100%), prompting some U.S. firms to resume orders from China, the suspension of the "de minimis" duty-free access for these low-value shipments from China and Hong Kong into the United States remains in effect. Industry experts warn that this suspension could weaken demand in the longer term.
Marco Bloemen, managing director of air cargo consultancy Aevean, noted that overall air cargo capacity is beginning to recover following Monday's agreement. However, he cautioned, "But on the e-commerce side, though, volumes have been temporarily affected."
This sudden contraction in cargo demand for U.S.-bound shipments, coupled with uncertain prospects for a strong rebound, presents significant headwinds for airlines in Asia. These carriers are already navigating a landscape marked by falling passenger air fares and growing concerns about a potential global recession.
Cargo operations constitute a substantial portion of the overall revenues for airlines like Cathay Pacific and Korean Air, accounting for around a quarter of their total earnings. Notably, cargo yields and revenues at several Asian airlines experienced significantly faster growth than their passenger segments in the past year, highlighting the importance of this sector.
Analysis by Aevean revealed the sheer scale of the impact. In the previous year, low-value e-commerce shipments totaled 1.2 million tonnes, representing a staggering 55% of all goods shipped from China to the United States by air. This is a dramatic increase compared to just 5% in 2018, illustrating the rapid growth of this specific cargo segment.
Bolstered by robust air freight demand out of Asia since the pandemic, major freight carriers based in the region, including Hong Kong's Cathay Pacific, Singapore Airlines, and Taiwan's China Airlines, have invested in large, new freighter aircraft to serve these busy trade routes.
However, with the "de minimis" exemptions appearing unlikely to be reinstated, companies like Shein and Temu are increasingly exploring alternative shipping methods. These fast-fashion giants are reportedly shifting towards bulk shipments via sea to the U.S. or establishing warehousing locations to reduce their reliance on individual air cargo shipments directly to consumers. Reuters reported on Thursday that Shein is leasing a large warehouse in Vietnam, a move that could mitigate its exposure to the volatile U.S.-China trade relationship.
Cathay Pacific, operating from the world's largest cargo airport, had already anticipated this downturn, warning last month of an expected weakening in air cargo demand between mainland China and the U.S. as tariff changes took effect. The airline did not immediately respond to a request for comment.
Data from air cargo consultancy Rotate starkly illustrates the immediate impact. Between the May 2nd "de minimis" suspension and the May 13th detente, operators flew 26% less freight capacity from China and Hong Kong to the United States compared to the same period last year. Furthermore, capacity was down by 30% compared to the average of the preceding four weeks.
South Korea, a significant cargo hub that has also benefited from the surge in e-commerce originating from China, experienced a substantial 22% fall in U.S.-bound capacity during the same May 2nd to 13th timeframe. Korean Air had previously acknowledged the potential for increased volatility in air freight demand as tariffs were implemented.
These declines represent a significant reversal of previous trends. Over the preceding 12 months from China, air freight capacity had been on average 15% higher than the prior year, and capacity from South Korea had been 14% higher.
U.S.-based Atlas Air, which operates the largest capacity on the Greater China to U.S. route, also saw a significant impact, with a 28% fall in capacity from May 2nd to 13th compared to the previous year, according to Rotate data. Cathay Pacific experienced a 2% drop, while Chinese state-owned China Southern's capacity fell by a substantial 30%.
For airlines with dedicated freighter aircraft, cargo operations served as a crucial lifeline during the pandemic when international passenger flights were largely grounded. Several Asia-Pacific airlines, in financial reports covering the period before the recent tariff changes, indicated their intention to shift capacity to other routes to mitigate the effects of fluctuating demand.
Asia-focused freight forwarder Dimerco reported this month that several scheduled freighter services on the China-U.S. corridor had been cancelled, with some capacity being rerouted to markets like Mexico and Latin America. Aevean's Marco Bloemen estimated that roughly 70 freighters were temporarily taken out of service on Transpacific routes, with some being redeployed in other markets.
Countries in Southeast Asia could potentially benefit from this shift if manufacturers choose to produce or ship goods to the United States from alternative locations to China, although many of these countries are also facing new tariffs. Singapore Airlines CEO Goh Choon Phong acknowledged this potential, stating on Friday that shifts in trade flows might create new opportunities. However, he also cautioned, "Issues associated with tariff changes are not likely to deliver a shock quite the same as COVID-19, but it does mean it will be a lot more uncertain."