Trump presidency could curb e-commerce air cargo
07 / 11 / 2024
Photo: Markus Mainka/ Shutterstock
A crackdown on e-commerce shipments could see the air cargo industry lose valuable volumes in the dawn of a new era of presidency in the US.
Judah Levine, head of research at Freightos, said there’s a strong possibility that a new government led by the soon-to-be president Donald Trump will, like the Biden Administration planned, act to close a de minimis exemption for imports into the US with a value of less than $800. This exemption allows goods to be imported with no duties applied and with less customs scrutiny.
Policy changes affecting the cost and speed of shipments may threaten the viability of sending e-commerce goods by air, he said.
Under the current plans from the Biden administration, goods that are subject to Section 301, Section 201, or Section 232 trade enforcement actions will no longer be eligible for the de minimis exemption, pointed out Levine.
“I think it’s very plausible that a Trump administration would take some kind of similar measure as well. So if we talk about impact on air cargo, I would think the most likely impact would be changes to the de minimis rules, especially for Chinese imports.”
He added: “We could see a big impact on air cargo with possibly a big drop in volumes.”
As well as costs, there would be more of an administrative burden and longer door-to-door shipment times, which would make airfreight less appealing because shippers would lose some of the speed advantage.
“De minimis packages can go through customs very quickly, so you could ship something from China to the US, and it could be with the consumer within seven to nine days, whereas, if it comes in with regular reporting requirements, it could take a week or so just to go through customs.
“So you’d be talking two to three weeks in terms of delivery times, which was probably isn’t so palatable to a lot of e-commerce consumers.”
Regarding costs, he further pointed out: “De minimis packages have very minimal reporting and customs filing requirements, which means they have very low reporting and customs filing costs.
“Not only are you paying the tariffs, which are currently 7-25% but could be higher under Trump, but tariffs might not be the biggest cost. If these are low-value goods, those filing costs would rise from around approximately $15 to $50 which would really challenge the business model of moving something by air.”
It’s clearly too early to determine exactly what measures may be taken and what the impact will be. Xeneta recently said that demand for e-commerce is set to continue, regardless of a government crackdown, while Brandon Fried of the AirForwarders Association also recently remarked that maintaining the current de minimis threshold is essential for sustaining growth in air cargo.
Looking at the action that shippers may take to modify their supply chains in the event of the above, Levine said that shippers may pull forward shipments, creating a supply chain surge and it’s also possible there could be a reduction in e-commerce volumes on the Asia-Europe trade lane.
“I think it is entirely possible that it will significantly reduce the volume of e-commerce packages that will go by air cargo. E-commerce companies are shipping very large volumes so I think they’ll be highly motivated to kind of adjust their strategy.”
That said, many e-commerce companies secured capacity well ahead of the fourth quarter, although Xeneta recently urged shippers to take stock of the market and delay their 2025 tenders until after the fourth quarter peak.
Another step that e-commerce platforms are already taking is to build up inventories near to the end destination to remain price competitive.
“These platforms have already started building up warehousing and inventories in places like Mexico, and to a lesser extent in Canada,” said Levine.
In particular, he said: “There’s been a big increase in ocean volumes from China to Mexico.”
He added: “There’s also been reports about growing domestic fulfilment investment by these platforms in the US.”
Meanwhile, in his former period as president, Trump imposed steep tariffs on goods imported from China. During the 2018-19 China-US trade war, tariffs reached a peak of over 25%.
This resulted in an initial boost to air cargo as companies looked to move goods before the imposition of tariffs but then a quieter 2019 as goods became more expensive for consumers.
Now, based on what Trump said during election speeches, there could be tariffs of 10% on most of the $3trn worth of annual US imports and up to 60% tariffs on all imports from China.
Tariffs themselves are more likely to hit the oceanfreight market, Levine said. This is of course because the majority of goods are shipped by ocean and shippers may be keen to front load goods, putting pressure on capacity.
Outside of e-commerce, if there was the right combination of urgency with impending tariff implementation, high demand and reduced capacity on container ships due to this demand, then shippers may turn to airfreight.
But perhaps the more moderate-sea-air solutions would be preferential in this case due to cost, although larger volumes make it more unlikely.
“If there’s really a lot of pressure on ocean capacity, then you could see some ocean to air shift. But I would think that the timeframe has to be right, and it has to be that these are goods that importers need.
“Usually, when you see an ocean to air shift, it’s really that importers need goods right now and they don’t want to wait, so it’s possible that close to the time of the actual rollout, you’ll see that, but I do think the big impact will be in ocean.”
He added: “It’s possible that we’ll see an increase in sea-air. But again, because of the volume difference, for shippers large enough that they’re bringing in multiple containers worth, it’s not really feasible to shift all of those to air. It makes using air cargo less likely.”
