The termination of the U.S. de minimis tariff exemption is leading to structural changes in the air cargo operations of both FedEx and UPS. The exemption, which previously allowed imports valued under $800 to enter the U.S. duty-free with minimal documentation, was eliminated in late August 2025. The removal of this rule has introduced new cost burdens and compliance requirements, particularly for small-parcel shipments originating in Asia. Both companies are responding by redirecting capacity and reassessing their international and domestic logistics strategies.
FedEx has reduced its trans-Pacific air cargo capacity by approximately one-quarter. Aircraft previously operating on U.S.-Asia routes have been reassigned to more stable corridors, particularly in Asia-to-Europe markets where demand remains intact. The company has cited this policy change as a primary factor behind a first-quarter operating income reduction of $150 million. Management expects the total revenue impact from tariff and customs-related costs to reach $1 billion by year-end. Additional earnings pressure stems from the expiration of a long-standing air freight contract with the U.S. Postal Service, which removed a significant volume from FedEx’s domestic network and impacted profitability.
To manage cost pressures and improve asset utilization, FedEx continues to implement a network restructuring initiative that merges Express and Ground infrastructure. The company has also segmented its air cargo services into three operational tiers, distinguished by service priority and cost-to-serve metrics, allowing for more targeted deployment of aircraft and sorting resources. Network consolidation efforts are progressing, with a reported 360 delivery facilities integrated across North America and nearly 20 percent of daily U.S. volumes now running through unified operations.
UPS is undergoing similar realignments. The company has expanded intra-Asia air cargo services, including the addition of a dedicated freighter route between China and Australia and increased service frequencies in Southeast Asia. These adjustments aim to capitalize on regional trade momentum while offsetting declining U.S.-bound parcel flows. At the same time, UPS is facing slower-than-expected progress on its domestic cost-saving initiatives. A strategic pivot toward small and mid-sized business clients, away from high-volume, low-margin residential deliveries, is underway but has yet to produce meaningful financial gains.
Analysts have expressed concern over UPS’s near-term performance, pointing to ongoing macroeconomic weakness in the business-to-business segment, elevated costs associated with reshaping the domestic network, and complications arising from the internalization of final-mile services. Trade policy developments have also added complexity to UPS’s international operations. These factors have contributed to recent stock downgrades and a cautious investor outlook.
Both companies are reallocating capacity and resources to reflect changing global trade patterns. With trans-Pacific volumes under pressure, there is a clear shift toward optimizing intra-regional air networks, particularly in Asia. These moves suggest a longer-term departure from the low-margin, high-volume e-commerce flows that previously dominated international parcel movements into the United States. The current environment, shaped by regulatory tightening and uneven demand, is forcing these logistics providers to emphasize profitability, efficiency, and operational flexibility over simple network scale.
The post FedEx and UPS Adjust Air Cargo Networks Amid De Minimis Policy Shift and Economic Headwinds appeared first on Logistics Viewpoints.