News / Tariffs and de minimis set air freight rates on a volatile course

© MartinBergsma

Airfreight rates are climbing as shippers rush to move goods before a  potential trade war and removal of the US de minimis exemption – but beware a possible rate collapse.  

Despite “volatile and fractious” markets in March, global air freight rates have been stronger again since last month, according to data recorded by TAC Index.

Its global Baltic Air Freight Index gained 7.1% over the four weeks to 31 March, to leave it up a “solid” 5.1% year on year. 

“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, TAC editor.  

The market consensus is that the root of the rate rise, particularly in the last two to three weeks, was a rush out of China to the US and to Europe to beat the impending tariffs imposed in the US. 

The index of outbound routes from Hong Kong gained 6.3% over four weeks to 31 March, now 1.4% above last year’s level. Outbound Shanghai rose 11.9% MoM, ahead by 3.4% year on year. 

But Mr Wilson warned that after 2 April, “trade volumes could get hit, and rates will then fall as a result of the new tariffs”. He noted that some sources had already seen spot rates starting to soften from this week, “although whether that pattern continues remains to be seen”. 

Judah Levine, head of research for Freightos, also reminded that as well as tariffs, the removal of the de minimis exemption on shipments from China to the US on 2 May would contribute to volatile air freight rates in the 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,” Mr Levine warned.  

He predicted a rush of “last-chance demand”, likely pushing rates up in the coming weeks, and then a “significant” plummet in volumes and rates from China-US as 2 May approaches. Redistributed capacity could then have a knock-on downward pressure on rates across other lanes. 

Industry consultant Brinkley Chan explained that ecommerce was “still rising globally”, and the erosion of China’s cost advantage in this sector – due to tariffs and 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 underscored that the unrelenting demand for speedy ecommerce could be air cargo’s answer to “preventing a complete rate collapse”. 

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.”