Air Cargo Faces $22BN Revenue Hit When China Tariff Exemption Ends
By Eric Kulisch of FreightWaves
U.S. plans next month to cancel tariff-free access for low-value parcel shipments from China and Hong Kong, coupled with a new 145% tariff rate on Chinese imports, could bleed more than $22 billion in revenue from the air cargo sector over three years and put thousands of online sellers with direct-to-consumer fulfillment models out of business, according to an e-commerce and logistics consulting firm.
Derek Lossing, the founder of Cirrus Global Advisors, has previously said the Trump administration’s recent trade actions against China would “decimate” air cargo out of China because demand for products on the Temu and Shein platforms would plummet. His Seattle-based consultancy has now quantified the downstream effects of the changes on the air cargo sector.
The Cirrus Global Advisors model shows the airfreight industry revenue could contract $22 billion if the White House maintains tariffs at 125% for a substantial period of time, based on assumptions about lower consumer demand, excess airline capacity and downward pressure on yields. Large cargo airlines and freighter forwarders, like Atlas Air and Kuehne+Nagel subsidiary Apex Logistics, with heavy exposure to large Chinese marketplaces, as well as Amazon and smaller online brands, are expected to experience downward pressure on revenues, Losing said in a phone interview.
The estimate was made before the U.S. clarified that China tariff rate was actually 145%, to include a previous tariff, but it’s unclear if the higher rate would further drag down industry revenue.
E-commerce shipments account for an estimated 50% to 60% of China-U.S. air volumes and an estimated 20% of global air cargo volumes, according to logistics providers and the International Air Transport Association. Experts agree that dozens of widebody freighters are dedicated to hauling e-commerce shipments across the Pacific each day from China, but Lossing said he believes an estimate of 100 such aircraft by Netherlands-based consultant Rotate is high.
Total air cargo revenue on the China-U.S. trade lane will decrease more than 30% because of the lower volumes caused by the new U.S. trade policies and the lower yields that will follow, Lossing, a former Amazon logistics executive, predicted.
When the Biden administration last fall proposed tighter rules for a subset of Chinese goods to qualify for de minimis, a program that allows the duty and tax-free entry of shipments with an aggregate value of $800 or less per person, per day, Cirrus Global Advisors estimated the impact to global air cargo revenue at $3 billion over three years. The estimate for revenue loss has steadily increased with Trump’s aggressive posturing against China before and after his inauguration, culminating with a complete ban of all Chinese goods from duty-free treatment, effective May 2. Starting next Friday, retailers will need to file formal customs entries, which require much more information and time than the fast-track de minimis process, to clear individual shipments
U.S. Customs and Border Protection says lax data requirements for de minimis shipments makes it difficult to screen for entry of illicit and unsafe goods. Trump canceled de minimis on the grounds that it enables smuggling of the opioid fentanyl and cheap imports that undercut U.S. retailers and manufacturers.
Limiting de minimis when tariffs were relatively low was mostly considered an inconvenience for large Chinese marketplaces like Temu, Shein and Alibaba because their prices are so low consumers likely wouldn’t change their shopping habits if a piece of clothing increased in price by $2 or $3. But the imposition of 145% tariffs has blown up the model of fulfilling orders in China and shipping them by air directly to the customer’s residence, which was cheaper and faster than shipping in bulk by ocean to a U.S. warehouse for pick, pack and delivery.
Temu, a hugely popular market for cheap goods, and fast-fashion brand Shein last week notified customers on their websites that they will raise prices starting April 25 in response to new trade rules and rising tariffs. The South China Morning Post reported that Temu has already sharply reduced online advertising in the U.S. Despite this, both sites have seen a spike in orders recently as shoppers try to get goods before the tariffs kick in.
In addition to higher prices from tariffs, digital markets could lose sales as new customs clearance requirements create friction for customers during checkout, Lossing predicted Friday on LinkedIn.
“How comfortable will U.S. online consumers be to provide more, personal sensitive information to shop on a Chinese website, to facilitate a customs declaration for a B2C shipment,” he wrote. If e-commerce hassles and privacy concerns deter consumers from completing purchases the decline in cross-border parcel volumes and air cargo revenues could be even greater than currently forecast.
The Cirrus model, like others, assumes that the steep drop in China e-commerce shipments to the U.S. will significantly reduce demand for freighter aircraft. Airlines will respond by accelerating the retirement of older aircraft and relocating assets to other markets, resulting in excess capacity there and lower average freight rates. The degree to which express carriers and freighter operators reduce flight schedules or remove aircraft from China service will depend on how much consumers pullback from shopping.
And If the European Commission follows through on intentions to remove the de minimis exemption for goods valued below $170 and impose a customs handling fee on individual B2C packages the harm to cross-border e-commerce players, including all-cargo airlines, could be severe, Losing told FreightWaves.
“That’s kind of the one-two punch that actually would potentially push the revenue loss for air cargo over our current estimate,” he said.
And the potential damage to the industry could spread if the Trump administration, as threatened, eliminates de minimis benefits across all nations once systems are in place to collect tariffs from millions of extra shipments per day. But the harm could also be less severe if the President follows a pattern of quickly undoing policy pronouncements and relaxes the tariffs or de minimis rules.
Small online sellers at high risk
The crackdown on Chinese e-commerce shipments poses an existential threat for many small-and-medium e-tailers with storefronts selling goods directly from China, as well as logistics providers that handle customs clearance and last-mile delivery for B2C shippers, said Lossing.
Large Chinese marketplaces were already preparing for more restrictive de minimis rules by building millions of square feet of U.S. warehouses the past couple of years to support a more traditional B2B2C fulfillment model, logistics executives said. Temu, for example, will consign goods to its U.S. entity, clear them via a formal customs entry, pay duty and truck them to a fulfillment center, where they will be stored, picked, packed and delivered.
Another reason for consolidating air or ocean shipments on one customs entry is to reduce the cost for customs brokerage and merchandise processing fees paid to the government per shipment. The cost for customs brokers to file entries will shoot up from 10 cents to $3 per package once the special de minimis pathway is eliminated.
The National Foreign Trade Council calculates that without de minimis the average $50 package would require about $31 in paperwork, a brokerage fee of $20, plus tariffs and taxes, which would more than double the delivery cost.
In addition to significantly higher import costs, air shipments are expected to take longer for CBP to process under the standard entry process.
Lossing said there are tens of thousands of small companies in China that sell on Amazon and other platforms that won’t be able to pay the 145% tariff and don’t have the resources to use a traditional containerized export model. And many customers will switch to countries like Vietnam, where tariffs are lower, for their online orders.
He shot down arguments that the direct-to-consumer model for e-commerce from China is still viable because it allows merchants to defer tariffs until the actual time of sale versus paying them at a U.S. port of entry and it avoids the risk of having cash tied up in unsold inventory while paying for warehousing.
On LinkedIn he challenged the assertion on Bloomberg Television by Izzy Rosenzweig, CEO of e-commerce logistics provider Portless, that the benefits of fulfilling individual orders from China to U.S. residents still made economic sense. Rosenzweig said Shein has plenty of margin to absorb higher import costs, while Temu’s goal is to fulfill 80% of its orders in the domestic U.S.
“There are some pretty significant data points that show that the China D2C model will not survive at these tariff rates and de minimis closure. I guess only time will tell what happens….The only upside we see for the China-US e-commerce model is air freight rates are set to drop 30%-40% on the trade lane, bringing the cost per parcel down over $1 per unit,” Lossing posted.
Aaron Rubin, founder and CEO of ShipHero, a warehouse management software provider for e-commerce brands, said on LinkedIn that FedEx is charging an additional 45 cents per pound on airfreight from China because so many companies are running sales to liquidate their Chinese products for de minimis expires on May 2.
New tariffs, higher shipping rates and customer friction together “will force all companies to create and implement B2B2C clearance models because asking for sensitive customer information at checkout is a nail in the coffin” for direct-to-consumer fulfillment, Lossing said on LinkedIn.
Tyler Durden
Mon, 04/21/2025 – 21:25
