Infamously, the day the de minimis exemption ends for China and Hong Kong exports to the US valued at $800 or less – followed, in all likelihood, by a severe downturn in volumes between the countries.
From today, these low-value products will now be subject to 145% in new tariffs, with shipments sourced from postal services paying a different, 120%, duty on the value of the goods or a $100 flat fee, which will increase to $200 on 1 June.
“The most critical date confronting a lot of carriers out of China, including Hong Kong, is 2 May,” said Richard Forson, CEO of Cargolux. “And that will have a significant impact, I believe, on the cross-border ecommerce currently being flown from Asia into the United States.
“Ecommerce accounts for quite a significant portion of the additional capacity that was put into the market at the end of last year. So it’s very uncertain, from our perspective.”
“This is not about one industry being affected. This is about major trade lanes being affected, and we haven’t seen anything on this scale before,” said Niall van de Wouw, chief airfreight offcier for Xeneta. “The de minimis change in the US is going to disrupt the market, and we’ll see its impact in the May numbers.
“I would say, be prepared for a logistical mess.”
Estimates by Cirrus Global Advisors indicate a $22bn revenue loss for air cargo. Cirrus founder Derek Lossing said: “The question on rates is always how fast the airlines react. If the airlines are effective in managing capacity, the rate won’t crater, but we think, long-term, the rate will decline. We can see a 30% reduction in rates on the transpacific as a result of this.
“Our modelling says that a lot of ecommerce is going to dry up, especially, for example, if a $12 dress becomes $26.”
Already, according to Cirrus, eastbound departures from Anchorage to the US are down by at least seven freighters a day, with Chicago down 10 freighters, week on week to 29 April, and JFK down six. Miami, however, saw an additional four services.
“Freighter operators have started repositioning aircraft away from China-US routes, anticipating a sharp drop in ecommerce flows,” noted the Baltic Exchange today.
“Dimerco and Cirrus Global Advisors report freighter cancellations and demand declines of up to 50% year on year. As a result, aircraft are being redeployed to growing lanes in Latin America and intra-Asia, especially out of Singapore, Vietnam, and Mexico.
“With ecommerce comprising more than 50% of China-US air cargo, freighter demand is set to shrink.”
Rotate’s live capacity database shows a 6% capacity decline from China to the US, week on week, to 27 April; World ACD said that, year on year, tonnages from China and Hong Kong to the US were 15% lower in week 17.
TAC Index, meanwhile, explained: “There were some expectations air freight rates might rise ahead of that [2 May] deadline if ecommerce shippers, for instance, rushed to move more product before the deadline.
“However, there was little evidence of that in the latest TAC air freight rate data, with sources reporting spot rates remained weak.
“Sources also reported that some big shippers had already built up significant inventories of one to three months ahead, allowing a little time to cushion the blow of higher tariffs [on goods] from China in particular, while they developed alternative supply chain solutions.”
TAC Index’s Hong Kong outbound lane dropped 3.1% in the month to 28 April, while out of Shanghai it fell 3.5%, month on month.
And it’s not just declining rates that will add to the woes – processes will become more complex.
“Previously, goods valued under $800 could enter duty-free; under the new rules, shipments will be subject to all applicable duties, which shall be paid in accordance with applicable entry and payment procedures,” said Scan Global Logistics.
“Customs duties aside, all shipments will, as of 2 May, be subject to a standard customs clearance process, this in itself presenting an administrative nightmare.”
It added: “Ecommerce volumes from China to the US have been the number-one driver of demand in recent years, and the new policy is widely expected to significantly impact available capacity. Unlike the potentially reduced tariffs, the de minimis decision is expected to remain in effect, even if some form of resolution in the trade war between the US and China presents itself.”
