US import tariffs and the introduction of the de minimis rule have begun to weigh on air cargo traffic and drive changes in individual trade lanes, according to Xeneta, the freight rate benchmarking and market analytics platform.

Data presented at a recent webinar, entitled, ‘Flying into Uncharted Territory: Air Freight Rides Another Wave of Uncertainty’, highlighted depressed demand on the previously buoyant Middle East/Central Asia to North America corridor and in particular, the India outbound leg.

A year ago, India-U.S. air freight traffic was enjoying strong tailwinds to a backdrop of threats to ocean shipping in the Red Sea from Houthi militia.

Now, however, despite such threats remaining, Indian outbound volumes have taken a hit from the introduction of 50% U.S. import tariffs, Xeneta ‘dynamic load factor’ for September showing a decline of 10% year on year to 65%, Wenwen Zhang, the platform’s Lead Airfreight Development Analyses, observed.

‘Feast or famine’

Niall van de Wouw, Xeneta's Chief Airfreight Officer added: “Imagine you're a player in the Indian market to the U.S. A year ago, because of the Red Sea situation, air freight volumes were going through the roof and so were rates.

One year later and the market tanks because of the import tariffs. How do you try to navigate in such an environment.? It's either ‘feast or famine’ - over which you have zero control. It’s a trade lane into the U.S. with a lot of instability at present.”

‘US +1’

Also participating in Xeneta’s webinar was TIACA’s Director General, Glyn Hughes, who noted that over the last few years a lot had been heard about China +1; diversification from a production perspective, notably in South East Asia, to reduce supply chain risks.

“We're now hearing much more about the U.S. +1 from a consumption perspective” - as a consequence of President Trump’s policy. And I think this is something that was really kicked off by India’s Prime Minister, Narendra Modi, in his reaction to the country being hit with heavy U.S. tariffs.

“He said: ‘We’re not going to buckle. We’re not going to change our oil purchasing arrangements.’ He vowed to India’s producers and manufacturers that new, alternative markets would be found.”

‘Too risky?’

One aspect of moving freight to the U.S. market of growing concern to shippers, is the potential volatility surrounding tariffs, according to Hughes.

“Some might conclude that it’s just too risky, given that all of a sudden your freight, whether shipped by either air or ocean, could be hit with import duties of 25%, 40% or 50%, making it uneconomic to produce and ship.”

Diversification of consumer markets

Just as he thinks that there is going to be a lot more production shifts from China to parts of Southeast Asia, so Hughes’ expectation is of greater diversification in consumer markets.

“Over the next two to three years, we might see a much bigger focus on the part of shippers to move product to emerging economies and build up consumption relationships there. Certainly the prospect of many more areas of production and also of consumption could be really good for air cargo’s own development.”

Massive shift in e-commerce demand

With average U.S. tariffs on Chinese goods currently estimated to stand at 57.6%, one might have expected the load factor to have been negatively impacted on the premier trade lane for air cargo – Asia Pacific-North America.

However, as Xeneta’s data illustrates, in September it increased, albeit very slightly, year-on-year, to 87% - a solid indication that a ‘seller’s market’ continues to prevail.

Nevertheless, it was accompanied by some double-digit spot rate erosion.

What marks out airlines operating on this trade lane is their agility in adjusting capacity, particularly of late, in shifting a significant amount of U.S. inbound maindeck space to Europe to accommodate shifts in market dynamics for Chinese e-commerce goods – notably from online fashion brand Shein and counterpart Temu – in response to the introduction of the de minimis rule.

“Basically, we have witnessed a massive shift in volumes from the U.S. to Europe and the transfer of millions and millions worth of dollars of spend from one part of the world to another. And to be frank, I didn't think these e-commerce behemoths would be able to pull it off,” Van de Wouw mused.

“I've seen individual country statistics which reveal that in France, for example, Temu’s amount of activity more than doubled and that it was similar picture in some other European countries.”

For his part, Hughes highlighted the “phenomenal” and “amazing” performance air cargo in adapting to the situation.

“The fact that the spot rates on these trade lanes have maintained such consistency despite what it looks like a 50% reduction in volume (to the U.S.) and nearly 100% growth in another (to Europe), shows that capacity moved just as quickly as the shift in e-commerce traders’ marketing budgets.”