Industry data shows that since the United States canceled its tax-free policy for small parcels earlier this month, air cargo volume between China and the U.S. has dropped by nearly one-third, dealing a heavy blow to the primary source of income for major Asian airlines.
With the rapid growth of small parcel business between China and the U.S., especially driven by fast fashion retailers such as Shein and Temu exporting from China to the U.S., the business of airlines such as Hong Kong’s Cathay Pacific, China Southern Airlines, Air China, and Korean Air has been on the rise.
According to a report by Reuters on May 16, based on data from aviation freight consulting firm Rotate, from May 2 when the U.S. small parcels ban took effect to May 13 during the period of tariff relief between the U.S. and China, air cargo capacity from mainland China and Hong Kong to the U.S. decreased by 26% compared to the same period last year, and by 30% compared to the average capacity of the previous four weeks.
As a key cargo hub, Korea also benefited from China’s e-commerce export business to the U.S. However, during the period from May 2 to 13, air cargo capacity from Korea to the U.S. decreased by 22%.
This decline has reversed the trend of average annual growth of 15% for Chinese aviation capacity and 14% for Korean aviation capacity over the past 12 months.
Rotate’s data shows that Atlas Air, headquartered in the U.S., is the largest airline in terms of capacity on routes between Greater China and the U.S., but its capacity from May 2 to 13 was down by 28% compared to the same period last year. Cathay Pacific saw a 2% decrease in capacity, while China Southern Airlines saw a 30% decrease.
During the pandemic, with almost all international passenger flights grounded, cargo became a lifeline for these airlines. Several Asia-Pacific airlines indicated in their financial reports before the tariff took effect that they would seek to transfer capacity to other routes to address demand fluctuations.
Industry experts predict that the outlook for tariffs is bleak and may weaken long-term demand for the aviation industry.
Although the U.S. and China have decided to ease the trade war by temporarily reducing tariffs significantly, the agreement has a 90-day limit. Meanwhile, the U.S. has also reduced tariffs on small parcels from mainland China and Hong Kong to the U.S., but tariffs are still being imposed.
Analysis by aviation freight consulting firm Aevean shows that in 2024, the volume of small e-commerce parcel cargo was about 1.2 million tons, accounting for 55% of goods shipped by air from China to the U.S., compared to only 5% in 2018.
However, as the U.S. is unlikely to fully restore its small parcel exemption policy, companies like Shein and Temu are beginning to seek more ocean freight, shipping products in bulk to warehouses in the U.S. or other countries rather than directly delivering individual goods to consumers by air.
Reuters reported on Thursday (May 15) that Shein is leasing a large warehouse in Vietnam, a move that could reduce its risk of being affected by unpredictable tensions in U.S.-China trade relations.
Marco Bloemen, Managing Director of Aevean, told Reuters that since the U.S.-China agreement was reached, air cargo capacity has started to recover, but e-commerce transaction volumes are still being affected in the short term.
The decrease in U.S. cargo demand has presented challenges for Asian airlines, which are simultaneously dealing with lower passenger ticket prices and concerns about a global economic downturn.
Cargo revenue accounts for approximately a quarter of the total revenue for Cathay Pacific and Korean Air. Last year, the growth rate of cargo revenue and income for most Asian airlines was significantly faster than that of passenger revenue.