Air cargo shrugs off seasonality to ride wave of e-commerce demand

Barring changes to import duty rules in the US and Europe, e-commerce platforms will keep driving up air cargo volumes while soaking up capacity and pushing up rates for the foreseeable future — even if consumer demand falters.

The enormity of sales driven by Chinese retail marketplace platforms such as Temu, Shein, Tmall and Taobao as they connect with an exploding consumer base is creating a new dynamic for an air cargo industry accustomed to seasonal patterns, not a perpetual peak season. In the short term, the entrants are crowding the market, but rising rates and tight space may spur other shippers to consider lower-cost — but slower — transport modes in the long term.

"Even with sluggish GDP growth, you see these massive air freight volumes because there's a new business model that consumers are tapping into," Niall van de Wouw, chief air freight officer at rate benchmarking platform Xeneta, told the Journal of Commerce.

Two of the more visible Chinese cross-border e-commerce marketplaces, Temu and Shein, offer inexpensive products made to order and exclusively use air freight to transport huge numbers of packages to the major markets of the US and Europe. Industry estimates suggest e-commerce accounts for 20% of global air freight volume, with the volume exported from China alone enough to fill 50 to 80 freighter aircraft every day.

Van de Wouw said even with economic conditions and inflation slowing consumer spending, it is becoming less relevant how much people were spending on goods as opposed to the way in which they were spending.

"If you spend £100 on the high street [downtown], there is a 95% chance the goods you are buying will have come in by ocean," he said. "But if you spend £80, or 20% less on the online platforms, it might be that 95% of it is by air freight."

A market update by Australia-based consultancy Trade and Transport Group found overall international air cargo tonnage handled at Asia-Pacific airports was up almost 14% from January through July. Most of that growth in volume was in China, which was up 32% year over year in the first seven months of 2024; Hong Kong volume was up 24% in the same period. Other locations in Northeast Asia did not see the same level of growth.

"One of the key drivers behind the recent strong performance in global international air cargo has been an increase in cross border e-commerce traffic rather than a recovery in traditional manufacturing-driven supply chain cargo," the consultancy found.

Regulatory crosshairs center on online platforms

A potential threat to the e-commerce bull run is the growing regulatory scrutiny into business-to-customer (B2C) online platforms, with calls to lower de minimis value thresholds in the US and Europe that allow the platforms to avoid import duties. Other suggestions from regulators include imposing a tax on certain commodities that are purchased online.

But even if legislation lowers the de minimis levels, cross-border e-commerce is here to stay and will continue to grow, van de Wouw said.

"There are millions of US consumers who are not forced, but voluntarily buy stuff on these platforms," he said. "The Chinese companies aren't pushing packages into the US; they are being pulled in by consumers. While a lot of the regulatory focus is on the online platforms avoiding tax, that is a result of their business model, not a founding principle of their business."

Brian Bourke, CCO at SEKO Logistics, said stiffer regulations may cause changes in air cargo, but he agreed that the general growth trend of cross-border e-commerce would continue regardless.

"This is all very fluid and all in flux," Bourke told the Journal of Commerce. "A lot of this demand is driven by the Internet and smartphones and those things aren't going away. And the rising middle class around the world isn't going anywhere, either."

While the cross-border e-commerce boom has been highly beneficial for airlines, forwarders have not been able to capitalize on the huge volume out of China that is filling much of the available air freight capacity. For instance, despite being one of the world's largest global forwarders, Kuehne + Nagel's e-commerce volume was "in the single digits," a spokesperson said.

Similarly, DSV CEO Jens Lund said in a July 24 earnings call that the forwarder is "not very present" in the e-commerce market, despite the Denmark-based company being among the top five global air freight forwarders by volume.

The forwarder involvement comes down to a question of value-add, according to Glyn Hughes, director general of The International Air Cargo Association (Tiaca). Hughes said forwarders have established sophisticated systems to deal with complex border management procedures and compliance to move large volumes, mostly on a business-to-business (B2B) basis.

"The e-commerce shipments are mostly general cargo that often falls under di minimis levels, so border management is less of an issue," he told the Journal of Commerce. "Most e-commerce shipments comprise hundreds, if not thousands, of individual consignments that need some form of final-mile solution.

"Considering the low-cost aspect associated with the original online purchase is often guided by the e-platform in the first place, the value-add by a forwarder is limited," Hughes added.

'Weaponizing' supply chains

Lund noted during DSV's earnings call that "many of these e-commerce companies have a direct relation with some of the carriers because they would produce certain fixed volumes in certain areas."

Bourke described that as Chinese platforms using their large volume of cargo to bypass forwarders and contract directly with airlines, a process he called "weaponizing" their supply chains.

"The Chinese marketplaces recognize that companies don't compete, supply chains compete," he said. "But there are always opportunities for forwarders — if we don't have one leg of a supply chain, we might have the other two and we are always there to fill in any gaps."

Bourke noted as an example that many forwarders were focused on serving specialized vertical markets and said that trend would continue, regardless of the volume being generated by e-commerce.

"Changing global regulations pose challenges, but whether it's pharmaceuticals, chemicals, e-commerce, biotechnology or medical devices, all require specific expertise and if it aligns with your company's strategy, it will make sense," he said.

Marc Meier, managing director for air and sea logistics in Europe, the Middle East and Africa for Germany-based forwarder Dachser, said the Chinese online marketplaces operated their supply chains directly, a strategy that leaves little room for a forwarder.

"We do not like it but given the current market conditions we do not really have a choice," he said.

"Regarding European customs and last-mile capabilities, you need to be able to produce [services] with very low costs as these shipments are smaller and lighter than the European average," Meier added. "For that you need an automated customs process and high-speed sorting facilities. As far as I know, only DHL and Hermes have those capabilities."

Meier did not believe the Temu-Shein model would last, with regulatory changes likely to make it unviable. But he was confident that e-commerce as part of global air freight would continue its growth trajectory and that more sustainable business models would emerge.

To snare a greater share of the cross-border market, Dachser is investing in its own asset-free e-commerce solution called Global Sky Express that will offer long-haul transport, customs clearance and optimized last- and first-mile solutions.

While forwarders puzzle over how to capture more of the B2C business, any conversation around e-commerce and how long air freight can depend on its volume always comes back to the growing regulatory attention being placed on Chinese imports. The US de minimis value threshold is set at a generous $800, but van de Wouw said even if that level was reduced to $150, most products being ordered online would still fall below the benchmark.

"Temu and Shein have tapped into a rich vein of business," he noted. "They are catering to millions of consumers in the US and Europe and if they don't supply them, somebody else will step in. Trade follows the path of least resistance, and someone will find a way to link the consumers in Europe and the US to these manufacturers in China."

The only caveat, van de Wouw said, was whether the online platforms would be financially sustainable in the long term, "but there is no visibility on that."

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.