While international trade continued to flow in May and global air cargo volumes rose +6% year-on-year, market sentiment and concerns over what comes next saw airfreight spot rates decline for the first time in a year, according to Xeneta’s latest market analysis.
Midway through the month, the global air cargo market appeared to have dodged a perfect storm as the US-China 90-day tariff truce began on 14 May after the escalating retaliatory tariffs since April. The US administration lowered its additional tariffs on China from 145% to 30%, while China responded by decreasing its tariffs on the US to 10%.
This welcome news came too late to reverse a softening in freight rates. The global air cargo spot rate fell -4% year-on-year in May to USD 2.44 per kg - the first such decline since April 2024. This could, in part, also be attributed to nearly 20% year-on-year declines in jet fuel costs. More downward pressure may lie ahead, said Xeneta’s Chief Airfreight Officer, Niall van de Wouw.
“Market fundamentals are holding up, but the drop in rates is likely a reflection of declining sentiment and concerns, particularly among airlines, over what will happen once more stability returns to international trade and there is less of a push for the security of airfreight. Whatever worse trade conditions take away from overall trade, this uncertainty gives a bit back to airfreight,” he said.
“This climate is reducing trade and airfreight is getting a temporary piggyback on this uncertainty through an increase in ‘emergency shipments’ but that will not continue.
It’s difficult to relate the +6% growth in demand in May to increased e-commerce or increasing trade at a time when companies overall are becoming more conservative,” van de Wouw said.
The slower growth in airfreight volumes and rates over the last 5-6 months, he said, reflects growing sentiment “that it doesn’t look good for trade”.
“At the moment, the climate might be positive on certain lanes to airfreight demand, but there will be a time when there’s an agreement on tariffs – and I don’t expect the end result to promote trade and will, therefore, hamper airfreight.
Rates on a downward trajectory
Van de Wouw continued: “More visibility and more clarity in the market will not benefit airfreight, in my opinion. We’ve seen very short upticks in rates, but in the overall trend in recent months shows rates on a downward trajectory, and I think there is room for more decline for a longer period of time. The sentiment over what’s coming is reflected in falling rates.”
Airlines, he feels, will be trying to hold onto their volumes in this very uncertain environment and willing to “pay a little bit for that security”.
“The dynamics of fear-of-missing-out (FOMO), which we saw play out in 2023, may well be back because the moment the balance changes even a little bit, it can have a much bigger impact than that small change would seem to indicate,” van de Wouw commented. “So, the moment flights become less full, airlines might just want to settle their rate negotiations a little bit quicker and more keenly – and I think we’re seeing that starting to play out in the negotiation of rates at a global level.”
Global demand just 1 percentage point higher month-on-month in May will also have been impacted by the shockwave of April’s de minimis announcement. This saw the sudden removal of the de minimis threshold for shipments from China and Hong Kong into the US.
Just a few weeks on, some calm has returned to the market. The US has lowered tariffs on Chinese and Hong Kong low-value e-commerce shipments to 54% or a flat fee of USD 100 for parcel shipments. Cross-border e-commerce giants, like Temu and Shein, however, are expected to face the general 30% tariffs as they traditionally use commercial airlines for international air freight before using local postal networks for last mile deliveries. This indicates that they may still retain a competitive advantage if the incremental taxes are +40-50% as per Xeneta’s prior analysis.
For the air cargo industry, a lot is riding on the outcome. In 2024, e-commerce volumes accounted for about 50% of China to US airfreight volume.
Supply chains are a mess
The speed of changes to the trading environment presents another hurdle the airfreight industry is being forced to overcome, van de Wouw said. “It’s very frustrating when the plans you’ve made become completely obsolete a few weeks down the line because things change again, but that’s the current reality. Trade is not benefitting right now, airfreight is. Supply chains are a mess and with all this disruption, we’re seeing goods moving by airfreight that typically wouldn’t be flown. That’s due to the uncertainty.
“Tariffs are of a different overall magnitude in terms of financial impact compared to the cost of using airfreight instead of ocean – this is the clearest business case you can have right now for moving goods by air if you avoid tariffs as a result. This market environment gives, and it takes,” he added.
The airfreight market must be prepared for more surprises, he said: “This US tariffs are not a longer-term process that you can see coming, and therefore anticipate. This hits you in the face from one day to the next. It’s not the result of legislation which has taken months, quarters, or years to be developed and approved.”
And, the market may yet still feel the full force of consumer sentiment amidst rising prices, which, van de Wouw says, is likely being “masked by the focus on trade disruption”.
China to US spot rates bounce back
By the week ending 1 June, China to US spot rates rose +14% to USD 4.31 per kg, up from their low point in the week ending 11 May prior to the reduction in tariffs. Spot rates on this lane have now recovered above those from China to Europe, which stood at USD 4.11 per kg. Despite the recent uptick, however, China to US seasonal rates continue to trend downwards from their early April peak (prior to Liberation Day in the US), signaling ongoing caution in the mid-term market outlook.
Prior to the implementation of the de minimis tariffs into the US, China customs reported that low-value and e-commerce shipments from China to the US surged +30% year-on-year in April, outperforming a modest +6% growth observed in the first quarter. However, the 30% surge was behind China’s overall cross-border e-commerce sales, which climbed 45% year-on-year in April. This indicates China’s cross-border e-commerce sales managed to divert elsewhere.
Global air cargo capacity rose a modest +2% year-on-year in May as airlines increased passenger belly capacity for the North hemisphere’s summer season.
However, global air cargo dynamic load factor remained subdued, remaining flat at 57% for the fifth straight month in May. Dynamic load factor is Xeneta’s measurement of capacity utilization based on volume and weight of cargo flown alongside available capacity.
Most lanes saw rate declines after frontloading
At the corridor level, most backhaul trades saw year-on-year spot rate declines in May, particularly on the Europe–Northeast Asia route, where rates dropped -20% due to ongoing trade imbalances. In contrast, spot rates on fronthaul trades remained above the levels from a year earlier.
Although the majority of trades experienced seasonal month-on-month declines and ebbing volumes following frontloading, rates still held above last year’s figures. Notably, despite the recent US trade tensions, air cargo spot rates from Northeast Asia to North America remained resilient, standing +7% higher year-on-year at USD 4.53 per kg. Southeast Asia to Europe spot rates declined -9% to USD 2.92 per kg.
Demand surge before tariff truce ends?
As the 90-day tariff truce nears its end, on 9 July for most countries and 13 August for China, a short-term surge in cargo demand is likely, driven by mounting concerns over a potential breakdown in trade talks or new duties, such as the recent US threat of a 50% tariff on goods from the EU.
The ocean container shipping market may shed some light on what is to come for airfreight, due to its longer lead times from point-of-order to final delivery. From 1 June, 40ft container freight rates from China to the US West Coast jumped to more than USD 6000 per FEU despite a considerable reduction in blank sailing by carriers.
More uncertainty lies ahead
On top of this is the uncertainty caused by US Court of International Trade’s ruling that the tariffs imposed by President Trump were unlawful. While the tariffs remain in place during the ensuing legal battle, this casts further concern over what’s to come for global trade.
Additionally, the EU plans a €2 fee on small parcels entering the bloc. The fee will apply to parcels valued under €150 sent directly to consumers from outside the EU. Parcels routed through EU-based warehouses will incur a reduced fee of €0.50, which could favor global companies with large logistics operations.
Given average order values at around €35 for Temu (source: Backlinko), the €2 fee is to inflate the price by 6%, which may still see it maintain its competitiveness in the EU market.
“The sentiment we saw in May may be preluding market fundamentals, leading to less demand, falling rates, and lower load factors. But one thing is clear; the airfreight market will get through this. We just don’t know how long it will take. Industry professionals are going to need a lot of energy to work in this environment, but it’s also a time to be respectful of all stakeholders.
“At the end of the pandemic, what I call the ‘emotional bank account’ between shippers and freight forwarders had a zero balance, because there was so much frustration left and right. In the current climate, it’s important to think longer-term and to protect relationships because the challenges being faced today will pass,” van de Wouw said.
Ends
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