Early 2025: Tariffs, risks, and trade shifts

Overview of Current Market Conditions The global air cargo market began 2025 with softening rates following the peak season, yet underlying volatility remains high as geopolitical risks and tariff uncertainty influence demand. The Baltic Air Freight Index fell by -3.7% week-on-week (WoW) as of January 6, reflecting the seasonal post-holiday decline in volumes, but it remains +25.9% higher year-over-year (YoY). Despite this expected easing, the market remains unusually active for January, as shippers have front-loaded inventory to avoid the impact of new U.S. tariffs on Chinese imports, expected later this month under the incoming Trump administration. The Red Sea shipping disruptions are also causing supply chain dislocations, increasing air freight demand on select trade lanes, particularly for high-value goods moving from Asia to Europe. Spot rates on key transpacific routes have softened despite the last-minute rush to beat tariffs, suggesting that capacity remains balanced. The BAI82 index (Shanghai to North America) declined -0.33% WoW to $6.13 per kg, while the BAI84 index (Shanghai to the U.S.) dropped 0.37% to $6.00 per kg. Similarly, BAI32 (Hong Kong to North America) fell 0.75% to $6.16 per kg, marking a correction from December’s elevated levels. Meanwhile, European export markets showed mixed trends, with BAI20 (Frankfurt outbound) surging by about 20% WoW, supported by increased transatlantic demand, while BAI40 (London Heathrow outbound) declined though it remains +19.4% YoY. While rate softening was expected, the long-term impacts of tariffs, shipping disruptions, and labor uncertainties at U.S. ports could shift air cargo dynamics in the coming months. Key Drivers of Market Dynamics Tariff Pressures and Trade Policy Shifts The most immediate market influence is the anticipated implementation of new U.S. tariffs on Chinese imports, prompting a pre-tariff surge in shipments as companies seek to move goods before duties increase. This has created temporary bottlenecks in certain air freight corridors, particularly for electronics, textiles, and machinery moving from China to the U.S. However, despite this short-term rush, rates have not spiked as dramatically as in previous pre-tariff scenarios, indicating ample capacity across major freighter operators. The BAI84 (Shanghai to the U.S.) decline of -0.37% suggests that the market has absorbed much of the demand spike without major disruptions Beyond immediate rate movements, the long-term impact of tariffs could fundamentally reshape trade flows, accelerating the relocation of manufacturing from China to Southeast Asia and Mexico. This shift is already reflected in growing air cargo demand on intra-Asia and Asia-Latin America lanes, where businesses are adjusting supply chains to mitigate tariff exposure. Red Sea Disruptions and Their Impact on Air Cargo The continued instability in the Red Sea region, with attacks on commercial vessels forcing ocean carriers to reroute shipments around the Cape of Good Hope, has led to prolonged transit delays and increased shipping costs. While this has primarily affected ocean freight rates, some high-value cargo has shifted to air freight, particularly for time-sensitive shipments from Asia to Europe. Despite this shift, air freight rates on Asia-Europe lanes have remained stable or slightly declined, reflecting a balance between demand and capacity availability. The BAI81 (Shanghai to Europe) index fell slightly to $4.21 per kg (-0.42%), suggesting that, while some maritime freight is being converted to air, it has not yet caused significant rate inflation However, increased competitiveness of air cargo due to Red Sea disruptions may wane, particularly if maritime security improves or shipping companies successfully introduce additional vessel capacity. Potential U.S. Port Strikes and Supply Chain Disruptions Adding to supply chain uncertainty, labor negotiations at major U.S. East Coast and Gulf Coast ports remain unresolved, raising the risk of a port strike in early 2025. If a strike occurs, it could force more cargo onto air freight, as seen during the October 2024 disruptions, which triggered a 12% month-over-month increase in air cargo volumes from Europe to North America Air freight trends suggest that transatlantic demand remains strong, even without an imminent strike. The BAI20 index (Frankfurt outbound) surged almost 20% WoW, reflecting high European export activity, while BAI42 (London Heathrow to North America) held steady. If port congestion worsens, rates on these lanes could rise sharply, particularly for automotive and aerospace shipments that depend on fast, reliable delivery. Regional and Route-Specific Insights Asia-North America: Tariff-Driven Volatility Rates on transpacific lanes remain above 2024 levels, though they moderated slightly in early January despite the pre-tariff rush. The BAI82 (Shanghai to North America) fell to $6.13 per kg (-0.33%), while the BAI84 (Shanghai to the U.S.) declined to $6.00 per kg (-0.37%). Europe-Asia: Minimal Rate Movement Despite Shipping Disruptions The Red Sea crisis has not yet significantly impacted air freight rates on Asia-Europe routes, with BAI81 (Shanghai to Europe) easing. However, further shipping delays could tighten air cargo capacity in the coming weeks. North America-Europe: Transatlantic Demand Holding Strong European outbound air freight activity remains robust, largely driven by high-value industrial cargo heading to the U.S.. Meanwhile, BAI42 (London Heathrow to North America) remained stable, suggesting steady demand. 2025 Outlook: Challenges and Opportunities The early 2025 air cargo market remains highly dynamic, with tariff uncertainty, Red Sea shipping disruptions, and labor concerns shaping trends. Capacity constraints, particularly in freighter aircraft availability, will likely keep upward pressure on rates in certain lanes, even as post-holiday demand softens. Meanwhile, the ongoing transition in global trade patterns, driven by shifts in sourcing strategies and evolving consumer demand, is adding another layer of complexity to market conditions. Despite recent rate softening, fundamental demand drivers remain strong, Cargo Facts Consulting forecasts that global air cargo traffic will grow between 4 and 5% in 2025, following an estimated 12% full year expansion in 2024. This sustained growth in 2025 will be supported by e-commerce resilience, high-value cargo shipments, and regional manufacturing shifts away from China towards Southeast Asia and Mexico, creating new air cargo demand corridors Shippers should anticipate further volatility through Q1 2025, particularly as tariff-driven shifts in manufacturing affect global trade flows. The potential for labor disruptions at U.S. ports, continued Red Sea instability, and regulatory changes in e-commerce taxation all pose additional risks to supply chains. Additionally, fluctuating fuel costs and tightening environmental regulations could influence long-term pricing strategies, forcing carriers and forwarders to reassess capacity deployment and contract structures. Meanwhile, freighter supply constraints are expected to persist, as conversion feedstock remains limited and new freighter deliveries are insufficient to meet demand growth. The Boeing strike and 777-200F delivery delays in 2024 impacted available capacity last year, and narrowbody and widebody freighter retirements will continue tightening supply. With over 120 large widebody freighter aircraft set to retire in the next few years, capacity shortages could worsen rate volatility on high-demand routes. Conclusion While January saw the expected post-holiday rate decline, underlying market forces remain strong, driven by geopolitical risks, shifting trade policies, and structural supply chain adjustments. The coming months will test the resilience of global air freight networks, as shippers, forwarders, and carriers navigate evolving challenges in 2025. As supply chain stakeholders adjust to new realities, those with flexible strategies, diversified sourcing options, and robust risk mitigation plans will be best positioned to navigate the uncertainties ahead.

Early 2025: Tariffs, risks, and trade shifts

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