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Capacity corrections accelerate as inventory buildup ends
Tariff-driven inventory building largely over
International air freight markets are experiencing widespread capacity rationalization. Airlines had positioned additional flights and capacity to the United States to handle frontloading demand up until the August 1, 2025, deadline for higher U.S. reciprocal tariffs to be announced. With most importers having completed inventory buildup in July, carriers now face the challenge of right-sizing capacity to match new demand levels.
The correction is particularly evident in markets where tariff-related inventory rushing created temporary capacity shortages earlier this year. Carriers are implementing flight cancellations and route diversions to fill remaining services and maintain profitability.
U.S.-bound ecommerce volumes from Asia have declined significantly following the May 2025 elimination of the de minimis rule for Chinese and Hong Kong shipments. This rule previously allowed duty-free entry for packages valued under $800. The impact will broaden when duty-free shipping on low-value packages from all other countries ends on August 29, 2025.
Asia
Airlines had reduced flights and reallocated aircraft, expecting lower cargo demand after July 9, 2025, when higher U.S. reciprocal tariffs were originally scheduled to take effect. But when trade deal deadlines for most countries were pushed to August 1 and China received a separate extension to August 12 for negotiations, carriers found themselves with mismatched capacity.
The fundamental challenge has been one of timing: With new demand in July, carriers increased capacity. But importers completed inventory building earlier than expected, leaving airlines with excess capacity they must now remove to maintain profitability. Asian carriers are particularly affected as the traditional peak season for electronics and consumer goods shipments to U.S. and European markets has been disrupted by the frontloading cycle, forcing airlines to reassess capacity allocation across their networks.
Ecommerce volumes from China and Southeast Asia continue to drop because of tepid U.S. demand and U.S. Customs enforcement targeting specific product categories such as e-cigarettes. The decline is now creating additional challenges for air cargo carriers that had been counting on steady growth from Asia trade routes.
Premium air shipments remain strong, including artificial intelligence servers and cryptocurrency mining equipment. However, this specialized cargo represents a relatively small portion of total market volume, and overall market conditions suggest rates will stabilize or decline as carriers compete for volumes in more price-sensitive segments.
Peak season surcharges are being implemented on key lanes where capacity is tight, particularly for high-technology and time-sensitive cargo requiring premium handling.
Spot space now requires lead time of more than one week, particularly for time-sensitive cargo, while fixed-rate programs with secured space continue offering better planning reliability for shippers. This represents a normalization from the immediate space availability that characterized the frontloading period.
Europe
European air freight benefits from summer schedule implementation, with increased passenger flight frequencies during peak travel season providing additional belly capacity. This seasonal capacity increase, combined with demand normalization following tariff-related frontloading, has created more balanced market conditions across most European routes.
European carriers are managing capacity with 4-10-day booking windows, varying by cargo profile and airport congestion. Rate levels remain stable across most European networks, though premium and main deck capacity may experience occasional spikes related to seasonal cargo movements.
Schedule reliability remains generally stable across European networks. Airport congestion at Amsterdam Schiphol and Frankfurt continues to impact ground handling times and cargo processing, requiring shippers to build additional buffer time into delivery schedules.
South America
Brazil experiences immediate tariff impact
The August 7, 2025, implementation of 50% U.S. import tariffs on Brazilian products is creating immediate disruption across key sectors. The agri-food, steel, coffee, citrus, and aerospace industries are seeing U.S. importers cancel or postpone air shipments, creating a sudden capacity surplus on Brazil-U.S. routes.
Demand remains high on routes to the United States and Mexico, requiring seven to 12 days advance booking. Shipments under 500 kilograms continue to be more manageable for quicker departures, especially when booked as general cargo rather than in specialized handling categories.
While U.S. trade disruptions may temporarily improve space availability, rate volatility is expected as carriers adjust to reduced demand patterns. Brazil's preparation of retaliatory measures, combined with Venezuela's announcement of 77% tariff on Brazilian imports, creates additional uncertainty in regional South American trade flows and may further reduce intra-regional cargo demand.
These trade frictions are affecting air import volumes to Brazil, as buyers adopt wait-and-see approaches or seek alternative sourcing. The broader impact extends beyond immediate cargo flows, creating uncertainty about sustained demand recovery even if trade tensions eventually ease.
Brazil grapples with operational constraints
Guarulhos International Airport (GRU) in Brazil continues to face ground handling limitations despite reduced U.S.-bound volumes. The potential Azul-Gol airline merger, if confirmed this quarter, may impact domestic connections and Brazil's freighter fleet strategy as the industry adapts to changing trade patterns.
South America-Europe trade shows strength
LATAM Airlines and ITA Airways (ITA) are both adding weekly flights to Europe for Northern Hemisphere summer and fall seasons. These additional flights are improving cargo capacity for perishable goods and providing more stable freight rates with shorter booking delays on Brazil-Europe trade lanes.
General cargo volumes from South America to Europe continue rising steadily, with rates trending slightly upward on certain routes. This growth in South America-Europe trade provides South American exporters, particularly those in Brazil, with alternative markets as U.S. trade faces tariff-related disruptions.
The high-perishables season for mangoes and grapes may cause capacity constraints this month. Export demand typically peaks during the European summer, when passenger flights already take up much of the available aircraft space.
North America
Regional capacity constraints emerge
North American air freight markets show generally balanced capacity and demand across most routes, with operational issues typically resolving quickly. The Miami-South America corridor presents a notable exception, with capacity constraints affecting multiple key destinations.
Air capacity to Buenos Aires, São Paulo (specifically GRU airport), Bogotá, and Santiago is currently strained, resulting in elevated spot rates and extended transit times. Booking shipments well in advance is recommended to secure space allocations and mitigate potential delays on these high-demand routes.
Peak manufacturing cycles and holiday inventory building continue generating consistent volumes across major domestic trade lanes, providing underlying market stability despite volatility on international routes.
South Asia, Middle East, Africa
Red Sea crisis disrupts air freight
Ongoing attacks in the Red Sea are forcing some cargo that normally travels by container ship to move by air instead, creating a surge in demand for Middle Eastern airlines. While airlines benefit from the additional cargo demand, limited capacity poses challenges in meeting existing customer commitments plus added volumes.
Regional volatility forces airlines to constantly adjust flight schedules and reroute aircraft to avoid restricted airspace. These frequent route changes often leave aircraft positioned in suboptimal locations, making it difficult for carriers to maintain reliable service schedules and forcing difficult choices between serving profitable routes and keeping planes in secure, accessible airports.
This supply-demand imbalance means shippers should expect booking lead times to extend from the typical one to two weeks to two to three weeks, while preparing for significantly higher rates as more cargo competes for limited aircraft space. Flight schedules will remain unpredictable due to security-related rerouting, making precise delivery timing difficult to guarantee.
Oceania
Summer vacation travel squeezes cargo space
Air cargo capacity to Australia and New Zealand has tightened considerably as Northern Hemisphere summer vacation travel peaks in Europe and North America. High passenger loads on these routes are reducing available belly space for cargo. Since airlines use the same aircraft for both passengers and freight, this creates intense competition for cargo space to Oceania destinations.
Airlines are prioritizing profitable passenger routes during peak summer travel season, making it harder to position aircraft optimally for cargo operations. Major hub airports in Asia and the Middle East are experiencing delays and backlogs, extending transit times particularly for oversized cargo that must be shipped on dedicated freighter aircraft instead of on passenger flights.
Shippers should expect significantly longer booking lead times in August and September, with rates trending upward due to reduced belly capacity availability. Oversized cargo faces the greatest challenges, as dedicated freighter capacity remains limited and hub congestion creates additional delays.