As 2025 unfolds, the air cargo industry is navigating a complicated landscape shaped by new US tariffs, supply chain disruptions, and freighter shortages. While some regions are seeing excess capacity, others remain stretched thin. In February, the Baltic Air Freight Index (BAI00) reported a 5.99% drop in its composite value, reflecting the mixed market conditions in the last few weeks.

At the heart of these fluctuations are deeper structural issues. Delays in next-generation freighter production are slowing fleet expansion, while shifting trade policies are forcing carriers and freight forwarders to rethink capacity planning. The industry is caught in a delicate balancing act, managing current oversupply while bracing for potential shortages knowing full well that a single tariff decision could shake up trade routes overnight.

 

Key Drivers of Market Dynamics

1.      Freighter Production Delays

Boeing and Airbus continue to struggle with persistent supply chain challenges, affecting delivery schedules for production freighters. Airbus confirmed that its A350 freighter will not arrive until late 2027, citing production bottlenecks at Spirit AeroSystems. On the Boeing side, the 777-8F timeline slipped to 2028 from 2027. With just a single active line for large widebody production freighters (the Boeing 777-200F) and a considerable backlog of orders, near-term availability is limited, keeping lease rates for capable widebodies elevated.

 

2.      Pressures & Route Realignments

The new US tariffs on goods from Canada and Mexico, along with the temporary removal of de minimis on Chinese e-commerce shipments, have introduced volatility in traditionally robust lanes. While immediate transpacific capacity has relaxed somewhat due to softening e-commerce demand out of China, the threat of retaliatory measures and further tariff changes is sparking cautious capacity repositioning.

The new US tariffs on goods from Canada and Mexico, along with the temporary removal of de minimis on Chinese e-commerce shipments, have introduced volatility in traditionally robust lanes. While immediate transpacific capacity has relaxed somewhat due to softening e-commerce demand out of China, the threat of retaliatory measures and further tariff changes is sparking cautious capacity repositioning. Freight forwarders, reluctant to overcommit on certain lanes, are shifting volumes to alternate routings or ocean freight, which can leave carriers with short-term excess lift in one region, only to face tight capacity in another as new demand corridors emerge (e.g., Southeast Asia to North America).

 

3.      Aging Freighter Fleets and Conversions Bottlenecks

The passenger-to-freighter (P2F) conversion pipeline has slowed so far this year. Feedstock availability for in-demand models like the 737-800, A321, or A330 has been reduced by extended passenger service life, driven by strong passenger demand. Conversion houses are also dealing with supply chain constraints for parts and the growing complexity of certifying new programs. All of this constrains near-term freighter redeliveries.

 

4.      Fewer Retirements, More Retention

Boeing 747-400s, 767-200s, and even older MD-11Fs are still operating beyond typical retirement ages. While this helps bridge the current capacity gap in the widebody segment, these aircraft come with rising maintenance costs and inefficiencies. The transition to newer, more fuel-efficient freighters is taking longer than expected, further complicating the supply-demand balance.

Boeing 747-400s, 767-200s, and even older MD-11Fs are still operating beyond typical retirement ages. While this helps bridge the current capacity gap in the widebody segment, these aircraft come with rising maintenance costs and inefficiencies. The transition to newer, more fuel-efficient freighters is taking longer than expected, further complicating the supply-demand balance.

 

Regional and Route-Specific Insights

·         Transpacific Shifts

Air freight indices from China to North America (BAI82) declined by 10.54% in February show rates slipping on the back of lower e-commerce volumes. The effect of tariffs on B2C shipments has become evident as online retailers are switching to ocean freight consolidation or to distribution within the US. Carriers with too much transpacific lift are looking for ways to redeploy aircraft to Southeast Asia or even transatlantic routes. Meanwhile, shifting supply chains to countries like Vietnam and Indonesia keeps intra-Asia flying robust.

 

·         Transatlantic Variability

BAI44 (London Heathrow to USA) and BAI24 (Frankfurt to USA) both registered double-digit percentage declines in February (-15.18% and -13.80%, respectively), a contrast to the pockets of firmness in mainland Europe to North America services (BAI22), with a 1.66% increase over the last month. BAI data from February suggests some capacity realignment is underway to manage softening volumes on specific corridors.

 

·         Southeast Asia’s Growing Weight

Despite a 7.14% dip in rates from Singapore to other Southeast Asian destinations (BAI63), long-term cargo prospects remain strong. Manufacturing shifts from China are fueling steady trade between Singapore, Malaysia, Vietnam, Indonesia, and Thailand. The big question now is whether tariffs could eventually extend to these countries, introducing more uncertainty.

 

Freighter Market and Supply Challenges

Despite some short-term excess capacity, particularly on transpacific routes as e-commerce demand softens, the overall freighter supply remains tight. Narrowbody freighters, like the 737-800BCF and A321P2F, face supply constraints due to high conversion costs, engine shortages, and leasing challenges.

Delays in new widebody freighters like the A350F and 777-8F mean airlines must rely on used 777 conversions, but regulatory hurdles and limited feedstock are slowing progress, and these programs have not been certified yet. Meanwhile, more than 120 large freighters, including many 747-400Fs and MD-11Fs, are set to retire by 2027, raising concerns about whether replacements will arrive in time to meet demand.

Delays in new widebody freighters like the A350F and 777-8F mean airlines must rely on used 777 conversions, but regulatory hurdles and limited feedstock are slowing progress, and these programs have not been certified yet. Meanwhile, more than 120 large freighters, including many 747-400Fs and MD-11Fs, are set to retire by 2027, raising concerns about whether replacements will arrive in time to meet demand.

This imbalance is driving up lease rates for mid-life freighters like the 767-300F and converted A330Fs. While airfreight rates have dipped across major lanes, the decline is moderate compared to container shipping, and some carriers are securing short-term ACMI deals to prepare for potential disruptions from tariffs or geopolitical shifts.

 

2025 Outlook: Balancing Growth and Operational Realities

The near-term future of air cargo remains uncertain, with shifting trade policies and supply chain challenges shaping the industry. On one side, rising trade tensions and new tariffs are slowing demand in key areas like transpacific e-commerce. On the other hand, delays in aircraft production and freighter conversions mean supply growth may not keep up, creating potential capacity shortages in the coming years.

Industry stakeholders must stay flexible, focusing on strong regional markets and preparing for sudden shifts in demand. While short-term dips in demand may temporarily ease capacity pressures, long-term structural challenges, such as aging fleets, slow production, and regulatory hurdles, will keep the market tight. 

About Cargo Facts Consulting

Founded in 1978, Cargo Facts Consulting (www.cargofactsconsulting.com) is a leading air cargo consultancy and data provider. Through our specialised services in digital innovation, strategic planning, and growth management and data solutions, Cargo Facts Consulting helps its clients navigate the complexities of the air logistics industry.

 

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