Cross border e-commerce growth loses steam in key markets

Cross Border e-commerce is perceived as a strong source of growth for the air cargo business, but growth has stalled due to global air cargo capacity constraints and regulatory changes. As consumers focus more on domestic purchases, the origin of cross-border purchases has changed, with China losing market share. This is likely to change once the air cargo supply and demand balance goes back to normal. The importance of e-commerce to air cargo Our estimates show that about 17% of pre-pandemic global air cargo is e-commerce traffic moving through express, general, airfreight and postal networks (see Figure 1). Depending on the lane, shares vary between 12% and 20%. Figure 1 – Major cross-border air cargo flows in tonnes and share of overall air cargo, 2019

This excludes shipments into e-commerce distribution centers, which we do not view as e-commerce as its characteristics and service requirements are like cargo being transported to restock the inventories of large, fixed-location retailers and wholesalers. By our estimates, some 75% of postal and more than one-third of international express traffic is e-commerce — a combined 9% of total cargo traffic. The remainder consists of e-commerce consolidations traveling under an air waybill as normal freight traffic for onward distribution in domestic or regional package delivery markets. This is where we have seen the largest growth over the past years. China as the main source of cross-border e-commerce China is the primary source of cross-border purchases, accounting for about 31% of cross-border purchases worldwide. However, there are some big differences between countries. Some, like Russia, draw more than 80% of cross-border volumes from China, while in other markets such as India that number is closer to 11%. The figure below shows an overview of the importance of China as a source of cross-border e-commerce. Generally, countries will draw significant cross-border volumes from neighboring countries. For example, the main source of cross-border purchases in Canada and Mexico is the U.S. The most important platforms for cross-border purchases are Amazon, Alibaba/AliExpress, eBay, Wish, Zalando and Shein. In the case of Amazon and Zalando, much of the cross-border trade is intraregional trade, while Alibaba, Wish and Shein are China-origin-focused platforms. Figure 2 - China's share of cross-border purchases, 2021

The importance of China has decreased throughout the COVID-19 pandemic, from a peak of about 36% of all purchases in 2018 and 2019, down to 31% in 2021 (see Figure 3). Much of this has been a consequence of long-haul capacity constraints, but changes to tax-free thresholds in Europe have also reduced the demand for China-sourced goods vis-a-vis domestic or intra-European sellers. Figure 3 - China's share of cross-border purchases, 2017-2021

Figure 4 highlights how after 2019, the share of individuals in European Union countries purchasing from non-EU sellers declined. However, there were differences between markets — Germany, Europe's largest market, saw a drop in non-EU origin purchases, while AliExpress-focused markets like Spain and Poland actually saw an increase. Figure 4 - Individuals who purchased from non-EU sellers, 2016 - 2021, EU27 and selected countries

US inbound e-commerce shipment growth has stalled In the case of the U.S., the China share has declined to 38% of all purchases in 2021 from 47% in 2020 and 57% in 2018. The share of purchases drawn from Canada has increased while the U.K. has remained constant. However, despite air cargo capacity constraints, Section 321 shipments valued at less than $800 grew by 21% in FY 2021 and 27% in FY 2020, with the fiscal year ending September 30. Figure 5 - Shipments at $800 or less processed in e-commerce, fiscal year ended September 30

FY 2022 figures so far point to possible declines in 2022, with the October-to-January period only generating 204.2 million shipments of 613 million on an annualized basis. Since signed into law in early 2016, the Trade Facilitation and Trade Enforcement Act (TFTEA) provides a tax- and duty-free importation threshold of $800 per shipment (and person per day) — so-called Section 321 shipments. The previous threshold was $200. The vast majority of e-commerce purchases fall below this threshold; generally, more than 70% are worth less than $100. Until 2018, most small package traffic moved either by mail or express, but the structure of the market began to change, with strong growth in shipments moved by general airfreight as well as by truck. Section 321 shipments by air increased 219% in FY 2020 and 23% in FY 2021. Air express, mail and airfreight account for more than 85% of total de-minimis traffic — or about 55,000 tonnes per month. Figure 6 provides an overview of inbound express and mail packages between FY 2013 and FY 2021. This is based on data captured by U.S. Customs and Border Protection as well as our own estimates. Not all shipments moved by express or mail fall under the $800 threshold, although we estimate that most mail and about half of express shipments do. Figure 6 - U.S. inbound express and mail small package traffic FY 2013 – FY 2021

Combined express and mail traffic peaked in 2018 and has been declining since. However, the decline has primarily been a result of a drop in postal volumes. The postal business, which relies heavily on passenger belly capacity, has been strongly affected by the decline in intercontinental passenger services. The latest volume data published by USPS does not show this volume picking up. Even without pandemic-induced capacity constraints, using international post as a cross-border e-commerce solution has fallen out of favor. Further growth can be expected with the continued expansion of express operator cross-border logistics services and expanding international e-commerce platform activity in North America, but it appears the largest growth will be in general airfreight networks where volumes are controlled by e-commerce consolidators and specialist providers that are not necessarily household logistics names. For example, of the nine companies that have been participating in a CBP data pilot that commenced early last year, only five (Amazon, eBay, FedEx, UPS and DHL) are household names, while the remaining four (Zulily, PreClear, XB Fulfillment and BoxC) are not. The pilot program commenced in January 2020 and was extended two years in August 2021. We also see companies such as JD.com, Cainaio (the logistics arm of Alibaba) and YunExpress expanding warehouse networks overseas.

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Cross border e-commerce growth loses steam in key markets

Lack of capacity and regulatory changes are constraining growth, but performance in individual markets has been mixed

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Air Canada Cargo 2021 revenues reach all-time high

Stored freighters dwindling as demand stays high

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