Global freight realignment: Ocean grows, air adapts

State of global freight Ocean freight is facing an oversupply problem. The global container fleet is expected to grow by 4.5% this year, reaching 32.7 million TEU (Twenty-foot Equivalent Unit), while demand is rising only 3%. This gap is fueling rate volatility. Airfreight, on the other hand, is seeing steady demand growth of 4% to 6%, driven by e-commerce and high-value goods. But with capacity expanding at just 3% to 4%, rates remain high on key trade lanes. Red Sea disruptions initially sent ocean freight rates soaring, with spot prices peaking at $4,816 per FEU (Forty-foot Equivalent Unit) for shipments to the U.S. West Coast and $6,264 per FEU for the East Coast — up 196% and 157% year over year, respectively. As conditions stabilized and new vessels entered the market, rates fell. By late February, the Drewry World Container Index had dropped 10% to $2,795 per 40-foot container. Airfreight rates remain strong, with trans-Pacific pricing at $5 to $6 per kilogram. Meanwhile, e-commerce logistics are shifting as new tariffs and customs rules push shippers to rethink their reliance on airfreight. As illustrated in Figure 1, the price ratio between air cargo and ocean freight shows that airfreight is now approximately 15 times more expensive than ocean transport. This disparity is a result of declining ocean freight rates and a persistent shortage of widebody freighter capacity, particularly on trans-Pacific routes, that is keeping rates stable. Figure 1 – Ratio of air cargo to containership transport pricing

Modal shifts in freight preferences and industry trends Rising costs, shifting tariffs and supply chain instability are forcing businesses to rethink their freight strategies. Many are moving away from air freight in favor of ocean shipping, particularly in e-commerce and retail. A major factor in this shift is the planned removal of the de minimis exemption for Chinese e-commerce shipments, which currently allows goods under $800 to enter the U.S. duty-free. Companies like Temu and Shein are already exploring bulk ocean shipping as an alternative. While the exemption was briefly removed and then reinstated, the U.S. government has confirmed it will be eliminated once a new system is in place, though no timeline has been set. This regulatory change is expected to significantly reduce trans-Pacific airfreight volumes. Nearshoring is also reshaping global freight patterns. With tariffs on Chinese imports rising, businesses are shifting production to Vietnam, India and Thailand. Mexico has also become a key alternative for U.S. companies, despite a new 25% tariff on imports from Mexico and Canada. Cross-border freight between the U.S. and Mexico remains strong, though Canada has introduced retaliatory tariffs, adding cost challenges for North American trade. As depicted in Figure 2, Mexico surpassed China as the leading U.S. trade partner in 2023, with Canada trailing closely behind, further emphasizing the shift toward nearshoring. Figure 2 – Monthly U.S. imports of goods: China vs. Mexico vs. Canada

Tariff developments, impact on global trade Rising tariffs on Chinese imports are reshaping global trade flows, with U.S. duties increasing from 10% in February to 20% in March. In addition, the 25% tariff on all imports from Canada and Mexico (excluding a 10% duty on Canadian energy) is introducing further cost burdens. These policies are compelling companies to rethink sourcing and shipping strategies, particularly for electronics, automotive components and consumer goods, industries heavily reliant on supply chains spanning China and North America. The elimination of de minimis exemptions stands as one of the most significant regulatory shifts, with far-reaching consequences for e-commerce logistics. Chinese e-commerce companies ship about $46 billion worth of small parcels to the U.S. annually under duty-free conditions. The removal of this exemption will result in higher shipping costs, more complex customs clearance procedures and a broader transition toward regional warehousing and bulk ocean freight. Meanwhile, the Red Sea crisis continues to disrupt major trade lanes, particularly between Asia and Europe. Although many vessels are still rerouting around the Cape of Good Hope, freight rates have begun to decline. Since Jan. 1, average spot rates from the Far East to northern Europe have fallen by 22%. Due to the current geopolitical instability in the region, companies remain cautious about fully resuming Suez Canal operations. If transit through the Red Sea normalizes, European ports may face temporary congestion, followed by downward pressure on rates as shorter routes reopen and vessel overcapacity re-emerges. Carrier strategies, future of shipping costs As more vessels enter service, the ocean freight industry is preparing for continued rate volatility. Analysts project that ocean freight rates could decline by 5% to 10% by mid-2025, contingent on how well carriers manage excess supply. Some, including Mediterranean Shipping Co ., have already begun suspending routes — such as its Asia-U.S. West Coast Mustang service — due to weak Pacific trade conditions. Carriers are increasingly resorting to blank sailings and slow steaming to counteract rate declines. In the airfreight sector, declining e-commerce shipments due to tariff adjustments are expected to free up capacity on trans-Pacific routes, potentially easing rates. Airlines are responding by reallocating freighter capacity to regions with stronger demand, such as Africa and Latin America. Additionally, some aging freighter aircraft may be retired earlier than anticipated as market conditions evolve. Market outlook, long-term trade flow projections The remainder of 2025 is expected to bring substantial adjustments to global trade flows. The decline in China-U.S. air cargo volumes, driven by tariff changes and regulatory reforms, is likely to accelerate the shift toward bulk ocean shipping and regional fulfillment centers. At the same time, manufacturing activity in Vietnam, Thailand and India is expanding, increasing freight movement from Southeast Asia. Despite new tariffs, nearshoring in Mexico and Canada is expected to persist as businesses aim to reduce dependence on long-haul trans-Pacific shipping. Latin American trade volumes remain robust, though retaliatory tariffs from Canada and Mexico could introduce additional cost pressures. Shippers are responding to market volatility by securing long-term freight contracts, as shown in Figure 3 , which details the evolution of air freight contract terms between 2022 and 2024. Many companies are also adopting hybrid logistics models, balancing ocean and air freight to optimize cost and delivery time. Figure 3 – Share of airfreight contract terms for shippers (2022 - 2024)

Changing landscape for global freight Airfreight demand is expected to rise 4% to 6% in 2025, but its mix is shifting. Removing the de minimis exemptions for Chinese e-commerce shipments will cut down on small parcels that have traditionally driven trans-Pacific air cargo. Demand for large widebody aircraft stays steady, driven by ongoing trade in high-value, oversized and time-sensitive cargo amid a continued shortage of widebody freighter capacity. While trans-Pacific air cargo rates, now around $5 to $6 per kilogram, might ease in some regions, widebody freighters will remain essential for high-margin cargo. The Asia-U.S. and Asia-Europe routes are crucial, with growing markets in Vietnam, Thailand and India. Additionally, logistics hubs in Dubai and Doha are taking on cargo once routed through China, reshaping global freight flows. The rest of 2025 will be defined by changing trade policies, evolving sourcing strategies and structural shifts in both ocean and air freight. Companies that adjust to these trends will be better equipped to handle the ongoing supply chain volatility.

Global freight realignment: Ocean grows, air adapts

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