From tariffs to transitions: Policy shifts set the tone for a volatile Q2

Overview of Current Market Conditions

As Q2 begins, the global air cargo market is exhibiting mixed signals. While the overall Baltic Air Freight Index (BAI00) dipped slightly by -1.07% from February to March, the picture beneath the surface tells a story of tariff-driven urgency, regional divergence, and a freighter supply system struggling to keep pace with shifting demand.

The Shanghai market was a clear standout in March, as BAI80 (Shanghai Outbound) rose by 2.94%, led by strong gains on routes to North America and Europe amid frontloading activity ahead of U.S. tariff changes. Conversely, European export hubs like Frankfurt and London Heathrow saw broad-based rate declines across most outbound corridors, especially to the U.S.

At the same time, the underlying freighter capacity situation remains tight. Aircraft supply growth is being held back by production aircraft delays and a limited conversion pipeline. With P2F feedstock shrinking and ACMI options stretched, even short-term demand spikes are straining operator flexibility.

Key Drivers of Market Dynamics

Production Delays

Freighter supply constraints are becoming acute. With Boeing’s 777-8F now delayed until 2028 and the A350F not expected before late 2027, the new-build freighter pipeline remains thin. Boeing’s 777F line is the only large production widebody still active, and its slots are largely spoken for, pushing operators toward conversions and older assets.

Conversion Headwinds

January saw only 41 recorded freighter aircraft transactions, down from 52 in December and three fewer than the same month last year. This reflects not only fewer feedstock aircraft available, especially 737-800s, A321s, and A330s—but also ongoing part shortages and mounting certification delays for new conversion programs.

Tariffs and Route Repositioning

Uncertainty surrounding U.S. trade policy has led to a pull-forward in demand. Carriers and shippers scrambled to frontload cargo in March ahead of the April 2 tariff hikes, especially on China, Mexico, and Canada. Spot demand for freighters spiked, particularly from China, Vietnam, and Taiwan to the U.S., and charter activity surged. But with policy details still shifting, forwarders are reallocating volume toward more stable corridors.

Short-Termism in Capacity Planning

With uncertainty around trade rules and ecommerce trends, forwarders are opting for spot market deals and short ACMI contracts. Carriers are repositioning aircraft into higher-yielding Asia lanes and away from soft U.S.-bound Europe corridors. Regional and Route-Specific Insights

Retention over retirement

The delay in bringing new freighters to market has forced carriers to extend the life of aging aircraft. Over 120 747-400Fs, MD-11Fs, and older 767s are still in service globally and scheduled to retire by 2027. However, operators are hanging on. Rising maintenance costs and fuel inefficiencies notwithstanding, these freighters are a critical bridge to an uncertain future. The active 747-400F fleet, for instance, remains this segment’s workhorse despite being a legacy type. Operators like UPS, FedEx, and several Asian carriers continue to rely on the 747 and MD-11 for heavy-lift capability—especially as large-widebody alternatives remain constrained.

Regional and Route-Specific Insights

Transpacific Rebounds—but Cautiously

The China–U.S. corridor stabilized with incremental improvements. BAI82 (Shanghai to North America) rose 3.00% MoM to $5.01/kg, while BAI84 (Shanghai–USA) gained 3.39% to $5.00/kg. Though far from a breakout, this suggests that pre-tariff demand helped lift average pricing. Still, the rebound lacks depth. Hong Kong–USA rates (BAI34) also ticked up by 0.70%, but outbound North America overall (BAI32) slipped 1.45%, suggesting limited staying power for the March rally.

China–Europe Sees Modest Lift

BAI81 (Shanghai–Europe) rose 2.53% to $3.95/kg, while BAI31 (Hong Kong–Europe) was nearly flat, up just 0.31% to $4.39/kg. These minor gains point to modest late-March recovery, possibly linked to tariff-related diversions. However, BAI25 (Frankfurt–China) dropped 12.23%, reinforcing that backhaul pricing remains weak and imbalanced.

Southeast Asia Gains Momentum

Singapore-origin lanes posted the strongest gains across the index in March. BAI60 (Singapore Outbound) jumped 14.76%, while BAI63 (Singapore–Southeast Asia) rose 14.67%, reflecting realigned intra-Asia flows and manufacturing migration from China. As Vietnam and Malaysia take on greater roles in global sourcing, this lane continues to strengthen. However, with Southeast Asia now part of the U.S. tariff conversation, risk is shifting eastward.

Transatlantic Shows Mixed Signals

March saw deepening softness across Europe–U.S. lanes. BAI44 (London–USA) fell 17.20%, while BAI24 (Frankfurt–USA) declined 10.98%. Broader Frankfurt outbound rates (BAI20) dropped 7.72%, and London Heathrow (BAI40) slipped 7.69%. Mainland Europe held up slightly better, with BAI22 (Frankfurt–North America) down just 2.87%, suggesting carriers may be reallocating lift away from U.K. corridors toward more resilient flows in Central Europe.

Despite some short-term excess capacity, particularly on transpacific routes as e-commerce demand softens, the overall freighter supply remains tight. Narrowbody freighters, like the 737-800BCF and A321P2F, also face supply constraints due to high conversion costs, engine shortages, and leasing challenges. Delays in new widebody freighters like the A350F and 777-8F mean airlines must rely on used 777 conversions, but regulatory hurdles and limited feedstock are slowing progress, and these programs have not been certified yet. Meanwhile, over 120 large freighters, including many 747-400Fs and MD-11Fs, are set to retire by 2027, raising concerns about whether replacements will arrive in time to meet demand.

This imbalance is driving up lease rates for mid-life freighters like the 767-300F and converted A330Fs. While airfreight rates have dipped across major lanes, the decline is moderate compared to container shipping, and some carriers are securing short-term ACMI deals to prepare for potential disruptions from tariffs or geopolitical shifts.

2025 Q2 Outlook: Balancing Growth and Operational Realities

March proved to be a month of regional divergence rather than broad recovery. While tariff-driven frontloading briefly boosted activity, the overall BAI fell 1.07%, and rate performance across major markets was mixed at best. Asia remains relatively firm, but European and U.S. outbound corridors are softening in tandem with a cautious demand environment.

Cargo Facts Consulting forecasts that the global freighter fleet will grow 2.1% annually to 3,874 units by 2044, but nearly 60% of these deliveries will simply replace aging aircraft. Without accelerated production or conversion volume, fleet expansion will not match shifting trade requirements.

Q2 may bring more volatility, particularly if new tariffs or retaliatory measures come into force. But unless ecommerce volumes rebound or a major geopolitical shock reshapes flows, the underlying supply-demand picture remains stable-to-soft. In this climate, carriers and forwarders are leaning into short-term flexibility, ACMI lift, and opportunistic chartering while long-term planning remains on hold. The message from March: capacity is still constrained, but demand isn’t running away either.