Examining the impact of tariffs on the air cargo industry

Tariff proposals and immediate impact The new United States administration of President Donald Trump has proposed tariffs of up to 60% on Chinese imports and 25% on goods from Mexico and Canada. These measures are intended to support domestic manufacturing and address geopolitical concerns. However, their impact on trade and logistics could be profound, particularly for sectors reliant on air cargo for the rapid transport of high-value goods. Mexico and Canada, as key trading partners ( Figure 1 ), are deeply integrated into U.S. supply chains, particularly for the automotive, electronics and machinery sectors. Mexico’s trading partner role has grown significantly, with $379 billion in U.S. imports year-to-date through September 2024, up 6.5% from the same period in 2023. Canada’s $309 billion in imports over the same period highlights its significance despite a 20% decline year over year. Air cargo is critical in supporting the high-value trade flows within these trilateral trade networks, particularly for time-sensitive shipments such as medical supplies, electronics and automotive components. Figure 1 - U.S. Freight Transportation with Canada and Mexico (2023)

Shipper behavior and demand surges Historically, tariff announcements have prompted shippers to expedite cargo movements to pre-empt cost increases. Judah Levine of Freightos noted that during earlier tariff cycles, this "pull-forward" behavior caused temporary spikes in air cargo volumes, followed by subsequent declines once the tariffs took effect. In 2019, similar tariffs on Chinese goods doubled freight rates temporarily, underscoring the volatility tariffs introduce. This pattern is expected to repeat if the proposed tariffs are implemented. Capacity for air cargo, already constrained by strong e-commerce demand and limited growth in freighter availability, could face further pressure. Spot rates may rise significantly, and forwarders who fail to secure capacity in advance could struggle to move goods during peak periods. Long-term trade and volume implications Tariffs typically prompt shifts in trade routes and sourcing strategies. As seen in earlier cycles, manufacturers may diversify away from China to other countries such as Vietnam or expand operations in Mexico to mitigate costs. Mexico’s growing role as a key sourcing destination ( Figure 2 ) underlines this trend, bolstered by significant foreign investments in its manufacturing capabilities. However, this transition requires substantial adjustments in logistics networks, which could challenge air cargo operators. Figure 2 - Monthly U.S. Imports of Goods by Customs Basis from China vs Mexico (in millions)

Canada’s high operating costs and relatively mature market make it less flexible in adjusting to tariff pressures. The integration of U.S. and Canadian industries, particularly in the energy and automotive sectors, could see disruptions in supply chains, especially for high-value goods that depend on air cargo. Capacity and rate challenges The air cargo sector faces a capacity crunch due to slower bellyhold cargo growth, aircraft production delays and persistent e-commerce-driven demand. Adding a tariff-induced surge to this mix could exacerbate these challenges. Block space agreements and long-term contracts may offer shippers some protection against rate volatility, but these options are limited for smaller players or those relying on spot market rates. E-commerce, which heavily utilizes air cargo, is particularly vulnerable. Stricter controls on the de minimis exemption could reduce the attractiveness of air freight for smaller, high-frequency shipments, potentially dampening demand in this segment. However, as Glyn Hughes of TIACA noted, shifts in global production patterns may create new opportunities for air cargo, even as existing flows face disruption. Sectoral impact analysis The tariff measures would disproportionately impact industries that are heavily dependent on air cargo (see Table 1 below): High value-to-weight goods : Electronics, pharmaceuticals and machinery dominate U.S. imports by air. As shown in 2023 data, electronics alone accounted for $393 billion in imports, with more than half sourced from China, Canada and Mexico. These sectors are highly sensitive to tariffs due to their reliance on speed and value preservation. Automotive components : The automotive industry’s just-in-time supply chains rely on seamless cross-border logistics. Tariffs on Mexico, in particular, could disrupt supply routes, forcing manufacturers to expedite shipments and further straining airfreight capacity. Apparel and e-commerce : Mexico and Canada are critical sources of apparel imports, with Mexico handling 82% of U.S. imports in this category. E-commerce’s focus on fast delivery will only amplify the need for reliable air freight services, adding further complexity to an already stressed logistics network. Table 1 - 2023 United States Import Data

Geopolitical risk The tariffs come amid broader geopolitical disruptions, including bans on flying in Russian airspace and instability in regions like the Red Sea. These factors have already extended flight routes and increased operational costs for U.S. carriers. A trade conflict with Canada and Mexico would further complicate this landscape, particularly if retaliatory measures are introduced. Regulatory changes A new bill introduced in the U.S. Senate seeks to close loopholes in the de minimis rule, which allows imports valued under $800 to enter the U.S. tariff-free. This rule has been heavily exploited by Chinese e-commerce giants like Shein , Temu and Alibaba , leading to a massive surge in low-cost shipments into the U.S., with volumes rising from 299 million in 2017 to more than 1 billion in 2023. The proposed Fighting for America Act aims to prevent foreign corporations from using the de minimis process to evade tariffs on goods. If passed, the legislation would impose stricter oversight on e-commerce shipments, potentially leading to longer processing times and increased cost for companies, especially retailers. There are already signs that some Chinese exporters and U.S. e-commerce importers are starting to build up inventories via ocean freight in anticipation of stricter rules and sudden changes. There could be a dramatic impact on air cargo, especially as general airfreight and express combined now account for 94% of de minimis shipments ( Figure 3 ) Figure 3 - US Air De Minimis Shipments 2019-2024YTD

Industry resilience and adaptability Despite these challenges, the air cargo industry has shown resilience in adapting to policy shifts. During earlier tariff cycles, carriers and forwarders successfully adjusted to changing trade patterns, albeit with some disruptions. This adaptability will again be critical as the sector faces the uncertainties of a second Trump administration’s trade policies. Flexibility will be key. Strategies such as diversifying sourcing locations, securing advance capacity agreements and investing in more efficient logistics networks will help mitigate the impact of tariffs. As Airforwarders Association Executive Director Brandon Fried recently highlighted, protectionist measures create both challenges and opportunities, particularly for those capable of adjusting quickly to evolving trade dynamics. Potential tariffs may introduce long-term problems The proposed tariffs on imports from Mexico, Canada and China could significantly disrupt air cargo operations, creating short-term surges in demand but introducing long-term challenges in terms of capacity, cost and trade flows. While some of the negative effects may be offset by shifts in trade patterns and industry resilience, the uncertainty surrounding these measures will undoubtedly test the sector’s adaptability. As stakeholders await further clarity, preparation and flexibility will be essential to navigating this evolving landscape.

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