Airfreight in the United States is seeing robust growth, as companies look for an alternative to high trucking rates and freighters move into smaller markets.
From an overall industry perspective, the airfreight industry is coming off a good year, with healthy growth in volumes and rates. This growth was a welcome change for a sector that was essentially stagnant for much of the past decade. In 2017, however, robust growth drove rates up by double digits. The shipping consultants Drewry reported average rates hitting highs over US$3.00/kg in late 2017, which put rates at their highest level in five years.1 The key question for shippers and industry players alike is whether this represents a true turnaround or just a temporary blip.
Not an island ...
Article Figures
[Figure 1] Freighter volume growth rates for key airports (2012-2017)Enlarge this image
[Figure 2] Seasonally adjusted imports of consumer packaged goods (CPG)Enlarge this image
When answering that question, it's important to realize that the U.S. airfreight market doesn't operate in a vacuum. It is clearly affected not only by the passenger side of the business but also by market dynamics in other modes of transportation. Indeed, the industry's current growth is partly being driven by the fact that road-freight pricing is at historic highs and truck capacity is tight.
As a result, transporting product from large, coastal gateways such as New York, New York, and Los Angeles, California, to the middle of the country by truck is much more expensive than it was a few years ago. This shift changes the dynamics of the total cost to deliver and is causing shippers to view air freight much more favorably. At the same time, the increasing importance of e-commerce and its dependence on fast delivery times are also pressuring shippers to look to cargo airlines to support critical locations like Ohio, Kentucky, and Indiana with faster service and lower cartage costs.
While demand is up for airfreight to smaller markets, passenger airlines are mostly focused on chasing passenger revenue, which has also been growing robustly. As a result, they are adding larger planes and more routes to key demographic areas and not smaller markets. This has created an opportunity for cargo airlines—those that operate freighters and don't cater to passengers—to build market share in smaller markets that are less-well-served by passenger routes. As a result, international freighter capacity has grown in markets like Dallas, Texas; Cincinnati, Ohio; and Boston, Massachusetts; at a much faster rate than in more traditional air hubs like Los Angeles; Miami, Florida; and New York (see Figure 1). The growth of nontraditional air hubs is possible because, especially over the past year, the heavyweight airfreight industry has experienced a significant rebound in cargo volumes due to general economic growth.
The strong growth in passenger traffic has also played a role in airfreight capacity the past year. Simply put, demand growth exceeded capacity growth from 2016 through 2017. But in the second quarter of 2018, this trend reversed. And since then, growth in airfreight capacity has continued at a rapid pace, but the growth of airfreight volumes has slowed. The International Air Transport Association (IATA) reports that, at the industry level, total capacity increased around 6 percent.2Â Capacity growth now exceeds the 4-percent demand growth rate expected in the market for 2018.3
The tariff effect
Whether or not airfreight will continue to see increased demand and rising rates will depend on the impact of the growing number of tariffs and the increasingly likely trade wars. We expect that demand will be tamped down when tariffs begin to hit electronics and other air-focused commodities.
In fact, we might already be seeing the effects. If you look at the U.S. Census data for imported consumer packaged goods (CPG) over time, you see a large buildup in demand that peaks in Q1 of 2018 (see Figure 2) and then sharply drops. Imports, while still robust by recent standards, have already fallen away from their 12-month peak, and seasonally adjusted volumes are down some 27 percent in May 2018 relative to February highs. Based on increased prices driven by tariffs, volumes could be poised to continue that downward slide. If that trend continues, the airfreight market could be even tougher than economists have predicted for carriers and forwarders.4
And yet, airfreight can be a valuable tool to respond to a dynamic marketplace. As new tariff increases are announced, shippers will scramble to get product distributed ahead of implementation. The punishing level of tariff rates is high enough that shippers will choose to ship by airfreight instead of by ocean—which is less expensive but slower and less predictable—just to make sure that products are already in the country before the tariffs go into effect. As the government continues to announce new tariffs, shippers can expect to see temporary airfreight capacity crunches, which will, in turn, impact pricing and service levels.
Given these trends, industry experts like Drewry expect further rate level increases. But the uncertainty ahead, especially in terms of international trade, means both shippers and carriers can expect their fair share of challenges in servicing their customers. Demand spikes and lulls will drive service levels in terms of booking availability and rate variability. But despite economic and political volatility, shipping growth is here to stay, and by moving into smaller and more widespread markets, the airfreight industry seems poised to take over more share.
Facing an evolving supply chain landscape in 2025, companies are being forced to rethink their distribution strategies to cope with challenges like rising cost pressures, persistent labor shortages, and the complexities of managing SKU proliferation.
1. Optimize labor productivity and costs. Forward-thinking businesses are leveraging technology to get more done with fewer resources through approaches like slotting optimization, automation and robotics, and inventory visibility.
2. Maximize capacity with smart solutions. With e-commerce volumes rising, facilities need to handle more SKUs and orders without expanding their physical footprint. That can be achieved through high-density storage and dynamic throughput.
3. Streamline returns management. Returns are a growing challenge, thanks to the continued growth of e-commerce and the consumer practice of bracketing. Businesses can handle that with smarter reverse logistics processes like automated returns processing and reverse logistics visibility.
4. Accelerate order fulfillment with robotics. Robotic solutions are transforming the way orders are fulfilled, helping businesses meet customer expectations faster and more accurately than ever before by using autonomous mobile robots (AMRs and robotic picking.
5. Enhance end-of-line packaging. The final step in the supply chain is often the most visible to customers. So optimizing packaging processes can reduce costs, improve efficiency, and support sustainability goals through automated packaging systems and sustainability initiatives.
That clash has come as retailers have been hustling to adjust to pandemic swings like a renewed focus on e-commerce, then swiftly reimagining store experiences as foot traffic returned. But even as the dust settles from those changes, retailers are now facing renewed questions about how best to define their omnichannel strategy in a world where customers have increasing power and information.
The answer may come from a five-part strategy using integrated components to fortify omnichannel retail, EY said. The approach can unlock value and customer trust through great experiences, but only when implemented cohesively, not individually, EY warns.
The steps include:
1. Functional integration: Is your operating model and data infrastructure siloed between e-commerce and physical stores, or have you developed a cohesive unit centered around delivering seamless customer experience?
2. Customer insights: With consumer centricity at the heart of operations, are you analyzing all touch points to build a holistic view of preferences, behaviors, and buying patterns?
3. Next-generation inventory: Given the right customer insights, how are you utilizing advanced analytics to ensure inventory is optimized to meet demand precisely where and when it’s needed?
4. Distribution partnerships: Having ensured your customers find what they want where they want it, how are your distribution strategies adapting to deliver these choices to them swiftly and efficiently?
5. Real estate strategy: How is your real estate strategy interconnected with insights, inventory and distribution to enhance experience and maximize your footprint?
When approached cohesively, these efforts all build toward one overarching differentiator for retailers: a better customer experience that reaches from brand engagement and order placement through delivery and return, the EY study said. Amid continued volatility and an economy driven by complex customer demands, the retailers best set up to win are those that are striving to gain real-time visibility into stock levels, offer flexible fulfillment options and modernize merchandising through personalized and dynamic customer experiences.
Geopolitical rivalries, alliances, and aspirations are rewiring the global economy—and the imposition of new tariffs on foreign imports by the U.S. will accelerate that process, according to an analysis by Boston Consulting Group (BCG).
Without a broad increase in tariffs, world trade in goods will keep growing at an average of 2.9% annually for the next eight years, the firm forecasts in its report, “Great Powers, Geopolitics, and the Future of Trade.” But the routes goods travel will change markedly as North America reduces its dependence on China and China builds up its links with the Global South, which is cementing its power in the global trade map.
“Global trade is set to top $29 trillion by 2033, but the routes these goods will travel is changing at a remarkable pace,” Aparna Bharadwaj, managing director and partner at BCG, said in a release. “Trade lanes were already shifting from historical patterns and looming US tariffs will accelerate this. Navigating these new dynamics will be critical for any global business.”
To understand those changes, BCG modeled the direct impact of the 60/25/20 scenario (60% tariff on Chinese goods, a 25% on goods from Canada and Mexico, and a 20% on imports from all other countries). The results show that the tariffs would add $640 billion to the cost of importing goods from the top ten U.S. import nations, based on 2023 levels, unless alternative sources or suppliers are found.
In terms of product categories imported by the U.S., the greatest impact would be on imported auto parts and automotive vehicles, which would primarily affect trade with Mexico, the EU, and Japan. Consumer electronics, electrical machinery, and fashion goods would be most affected by higher tariffs on Chinese goods. Specifically, the report forecasts that a 60% tariff rate would add $61 billion to cost of importing consumer electronics products from China into the U.S.
Shippers are actively preparing for changes in tariffs and trade policy through steps like analyzing their existing customs data, identifying alternative suppliers, and re-evaluating their cross-border strategies, according to research from logistics provider C.H. Robinson.
They are acting now because survey results show that shippers say the top risk to their supply chains in 2025 is changes in tariffs and trade policy. And nearly 50% say the uncertainty around tariffs and trade policy is already a pain point for them today, the Eden Prairie, Minnesota-based company said.
In a move to answer those concerns, C.H. Robinson says it has been working with its clients by running risk scenarios, building and implementing contingency plans, engineering and executing tariff solutions, and increasing supply chain diversification and agility.
“Having visibility into your full supply chain is no longer a nice-to-have. In 2025, visibility is a competitive differentiator and shippers without the technology and expertise to support real-time data and insights, contingency planning, and quick action will face increased supply chain risks,” Jordan Kass, President of C.H. Robinson Managed Solutions, said in a release.
The company’s survey showed that shippers say the top five ways they are planning for those risks: identifying where they can switch sourcing to save money, analyzing customs data, evaluating cross-border strategies, running risk scenarios, and lowering their dependence on Chinese imports.
President of C.H. Robinson Global Forwarding, Mike Short, said: “In today’s uncertain shipping environment, shippers are looking for ways to reduce their susceptibility to events that impact logistics but are out of their control. By diversifying their supply chains, getting access to the latest information and having a global supply chain partner able to flex with their needs at a moment’s notice, shippers can gain something they don’t always have when disruptions and policy changes occur - options.”
That strategy is described by RILA President Brian Dodge in a document titled “2025 Retail Public Policy Agenda,” which begins by describing leading retailers as “dynamic and multifaceted businesses that begin on Main Street and stretch across the world to bring high value and affordable consumer goods to American families.”
RILA says its policy priorities support that membership in four ways:
Investing in people. Retail is for everyone; the place for a first job, 2nd chance, third act, or a side hustle – the retail workforce represents the American workforce.
Ensuring a safe, sustainable future. RILA is working with lawmakers to help shape policies that protect our customers and meet expectations regarding environmental concerns.
Leading in the community. Retail is more than a store; we are an integral part of the fabric of our communities.
“As Congress and the Trump administration move forward to adopt policies that reduce regulatory burdens, create economic growth, and bring value to American families, understanding how such policies will impact retailers and the communities we serve is imperative,” Dodge said. “RILA and its member companies look forward to collaborating with policymakers to provide industry-specific insights and data to help shape any policies under consideration.”