Overview of the De Minimis Exemption and Its Implications on Air Freight

The de minimis exemption, which allows for the duty-free import of low-value goods, has been a critical aspect of cross-border e-commerce. Recently, its temporary reinstatement has sparked discussions regarding its potential permanent removal by the administration of former President Donald Trump. An analysis from Xeneta on February 5 highlighted that such a move could have significant repercussions for air freight capacity, particularly between the United States and China, as well as other global trade routes.

Impact on Air Freight Capacity

Cross-border e-commerce shipments presently account for over 50% of air cargo capacity from China to the United States. The possible prohibition of import shipments under the de minimis entry could lead to increased costs, introduce cumbersome entry requirements, and ultimately create delays at customs. According to Xeneta, these changes could alter the entire landscape of e-commerce logistics.

Niall van de Wouw, Chief Airfreight Officer at Xeneta, noted that while the removal of the de minimis exemption might result in a slight increase in e-commerce product prices, they would still remain more affordable than purchasing equivalent products through U.S. retailers. However, operational disruptions resulting in delays could diminish the attractiveness of these goods to consumers, which may have a more profound impact than the pricing itself.

Consumer Demand Dynamics

Van de Wouw emphasized that merely blocking the de minimis exemption would not be sufficient to dampen consumer demand, asserting that it would take a more significant intervention to achieve that effect. He highlighted that China’s e-commerce sector was not built to exploit de minimis loopholes; rather, it has thrived due to a robust consumer demand for affordable and quickly delivered goods.

Moreover, he pointed out that major Chinese e-commerce players were well aware of the potential challenges posed by changes to the de minimis provision and have structured their business models accordingly. Even if the exemption were to be eliminated, these retailers would continue operating and shipping products. In this scenario, air freight rates might not experience immediate volatility, although the operational chaos at U.S. receiving ports is likely to escalate.

If consumers ultimately decide that the cost savings do not justify longer delivery times, the air cargo market could face downward pressure on global air freight rates. Van de Wouw remarked, “Let’s wait and see. Maybe nothing changes.”

Looking Ahead to 2025

Despite a modest 2% year-over-year increase in air freight demand observed in January, van de Wouw reported no revisions to Xeneta’s growth forecast for air cargo, which remains at 4% to 6% for 2025. The January results were particularly noteworthy given the earlier-than-usual Lunar New Year celebrations, which affected shipping volumes.

Key Metrics from January

Several key metrics from January illustrate the current state of the air cargo market:

• 2%: Year-over-year percentage increase in global air cargo volume.
• $2.65: Average spot rate per kilogram, representing a 17% increase year-over-year but an 11% decrease compared to the previous month.
• 57%: The global dynamic load factor, indicating the balance of cargo flown and available capacity.

  Van de Wouw attributed the slower growth in January not solely to the political landscape but also to the context of unusually high demand levels in January 2024. While apprehensions regarding trade wars and tariffs persist, he cautioned against premature conclusions.

  Navigating Trade Uncertainty
  

  Planning for the future remains challenging amidst trade uncertainties. Van de Wouw advised shippers against making hasty decisions or drastic changes to their logistics strategies. He underscored the importance of flexibility and patience in response to evolving market conditions.

  The implementation of tariffs by the United States, along with the subsequent reactions from trade partners such as China, Canada, and Mexico, marks only the beginning of negotiations. Van de Wouw characterized the situation as transactional, suggesting that a potential global trade war could emerge. However, he emphasized that former President Trump’s approach is one of negotiation, and the global community has a role in influencing the outcomes.

  In summary, while the potential removal of the de minimis exemption poses risks, the overall air freight market appears resilient. The focus on consumer demand, operational efficiency, and adaptability will be crucial as stakeholders navigate the complexities of international trade in the coming years.