Tariffs and de minimis rules send air freight rates soaring

Global air freight rates are soaring on concerns about tariffs and changes to US ‘de minimis’ policy, but the market could face a sharp decline in just a few weeks.

Air freight cargo

Air freight (Photo: Freepik / Phaata)

Air freight rates are rising as shippers rush to move goods amid the threat of a trade war and the US’ removal of de minimis tariff exemptions – but experts warn of a possible price collapse ahead.

Despite a “volatile and fractious” market in March, global air freight rates have continued to rise sharply since last month, according to data from TAC Index.

The global Baltic Air Freight Index rose 7.1% in the four weeks to March 31, taking the year-on-year growth to 5.1% – a remarkable result.

“This was an impressively strong performance compared with last year when air freight rates were surging due to the boom in e-commerce… Higher rates combined with lower fuel costs should thus be boosting margins for carriers,” said Neil Wilson, editor of TAC.

The market’s overall assessment is that the main reason for the price increase – especially in the last two to three weeks – has been the rush of cargo from China to the US and Europe to avoid new tariffs imposed by the US.

The index for rates on routes from Hong Kong rose 6.3% in the four weeks to March 31, up 1.4% from the same period last year. The Shanghai route increased by 11.9% month-on-month, up 3.4% year-on-year.

However, Wilson warned that after April 2, “trade volumes could get hit, and rates will then fall as a result of the new tariffs.” He said some sources had noted that spot rates had started to cool off this week, “although whether that pattern continues remains to be seen.”

Judah Levine, head of research at Freightos, also noted that in addition to tariffs, the US’s removal of “de minimis” exemptions for goods from China on May 2 will add to the volatility of the air freight market next month.

“There have been multiple reports of cancelled China-US BSAs, cancelled charters, carriers shifting capacity elsewhere and other signs and expectations of volume decreases resulting from a drop in ecommerce volumes in anticipation of de minimis changes,” he said.

“And if adequate customs systems are actually not in place yet, shippers could also face significant delays in customs warehouses,” Levine added.

He predicted a “last-chance demand” that would push rates up sharply in the coming weeks, followed by a “significant” drop in China-US volumes and rates as May 2 approaches. The reallocation of capacity could put downward pressure on rates on other lanes as well.

E-commerce was “still rising globally,” said transport consultant Brinkley Chan, and the erosion of China’s cost advantage in the sector due to tariffs and changes in de minimis “may well lead to the movement of production to other regions such as Europe and South-east Asia.”

“That could also affect the level of freight activity – perhaps as soon as May or June,” he added.

Freightos also noted that the growing demand for fast delivery in e-commerce could be a lifeline for air freight in the face of a complete collapse in freight rates.

TAC agreed: “Some market developments appear to be secular trends with such momentum that they will continue regardless – if perhaps in different ways – whether or not tariffs and other trade barriers impact costs.”

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