New UPS income enables Cargojet to offset decline in China e-commerce shipments

Cargojet Adapts to Shifting Market Dynamics

Canadian cargo airline Cargojet has managed to offset the impact of losing a major transport contract—caused by a sharp decline in e-commerce shipments from China to North America and a significant drop in charter revenue—by increasing its operations for UPS and redirecting its fleet to high-demand regions such as South America.

Supporting UPS and FedEx Amid Fleet Challenges

After a serious UPS accident in Louisville, Kentucky, led to the grounding of all MD-11 aircraft, both UPS (NYSE: UPS) and, to a lesser extent, FedEx (NYSE: FDX) turned to Cargojet (TSX: CJT) for crewed charter flights within their delivery networks. As a result, 56 MD-11s from UPS and FedEx remain out of service pending inspections and investigations.

By mid-November, flight tracking data revealed that Cargojet was operating four Boeing 757-200 jets between UPS’s Louisville hub and Hamilton International Airport near Toronto. Since then, Cargojet has ramped up its services for UPS, running multiple daily flights between Louisville, Hamilton, and Toronto. Over the past three months, 14 Boeing 757-200 freighters have been deployed on these routes. The exact scale of UPS’s leasing arrangement is unclear, as aircraft are rotated and used flexibly.

Additionally, Cargojet has flown seven Boeing 767-300 freighters for UPS, mainly between Vancouver and Louisville, with aircraft often swapped between routes. Specific details of these arrangements remain undisclosed. In December and January, Cargojet also operated flights for FedEx from Memphis to Vancouver, Hamilton, and Toronto using two 767 freighters.

UPS Retires MD-11s, Relies on Cargojet

UPS recently announced plans to permanently retire its 27 MD-11s, opting instead to fulfill demand with alternative aircraft, including Boeing 767-300s already on order. Cargojet is one of three airlines UPS is using to compensate for the loss of MD-11 capacity. Cargojet anticipates continuing to provide replacement services for UPS at least through the third quarter, and possibly into the peak fourth quarter, as there is no clear timeline for the MD-11s’ return to service. According to Chairman Ajay Virmani, revenue from UPS is expected to more than offset the loss of transpacific business this year.

Short-Term and Long-Term Outlook

The agreement with UPS is renewed quarterly, but is expected to last until at least the third or fourth quarter, as regulatory clearance for the MD-11s remains uncertain. Virmani noted that this partnership more than compensates for lost business from China and other charters, especially given favorable margins. However, UPS CFO Brian Dykes indicated that most of the budget for third-party airlift will be spent in the first half of the year, with the need for outsourcing expected to decrease as five new B767s are delivered by summer.

Business Performance and Market Shifts

Despite a 17% increase in revenue from its domestic express network, Cargojet’s overall revenue fell by 2.9% year-over-year to $208.1 million, as contracted charter flying and per-flight rentals dropped by 22.6% and 9.6% respectively. This decline was attributed to businesses reducing imports in response to tariffs.

CEO Pauline Dhillon described 2025 as a “tale of two cities” for the company, with strong domestic performance contrasted by ongoing challenges in long-haul transatlantic and transpacific lanes due to geopolitical uncertainty. Domestic volumes were buoyed by robust online shopping demand, with major clients including Amazon, FedEx, UPS, and Canada Post. Commercial airlines also use Cargojet’s services to reach customers in Canada’s interior.

Through rigorous cost management, Cargojet increased its operating profit by 3.6% to $69.4 million, with an adjusted operating margin up 2.1% from the previous year. The company, which operates 41 aircraft, slashed capital expenditures for maintenance and new capacity by 73% to $27.4 million, and plans to invest in new capacity only if long-term commitments are secured. Labor costs may rise as the pilot contract is up for renegotiation in June.

Impact of US-China Trade Tensions

Cargojet has been affected by US-China trade disputes, as Canada serves as a key transit point for goods destined for the US. Westbound transpacific trade declined last year for the first time since 2022. According to China Customs, e-commerce shipments from Chinese sellers like Shein, Temu, Alibaba, and TikTok to the US dropped 50% year-over-year for three consecutive months ending in December, and fell 30% for all of 2025. The downturn began when the US ended a duty-free exemption for small shipments, subjecting them to higher tariffs averaging 47.5% in November.

Due to weak demand, Cargojet and Great Vision HK Express, an e-commerce logistics provider, mutually agreed to suspend their contract, which had generated nearly $160 million for Cargojet. Initially, Cargojet operated three weekly flights from Hangzhou to Vancouver using Boeing 767-300s. Great Vision is now reassessing its shipping needs based on retailer forecasts and potential Chinese export incentives. Virmani stated that the contract could be quickly reinstated if US-China trade relations improve.

Strategic Fleet Redeployment and New Opportunities

The fourth quarter marked a low point for Cargojet’s long-term contract business, which involves providing aircraft, crew, and maintenance while customers handle sales. The company expects to recover lost revenue from the Great Vision contract by pursuing new business in regions like South America and Europe. Like FedEx, which shifted its fleet after US tariff changes, Cargojet has redirected aircraft from the China-US corridor to Europe.

Dhillon emphasized that the company will continue to align its fleet with routes less affected by political and trade disruptions, while awaiting improved shipping conditions. Recently, Cargojet began scheduled charter flights to Central and South America and the Caribbean for a new client, operating five times a week.

During the fourth quarter, Cargojet also launched weekend flights between Hamilton and Liege, Belgium, using a Boeing 767. This service, which operates when the aircraft isn’t needed for domestic routes, has attracted strong seasonal demand for Canadian exports like premium seafood, with consistent return volumes from Europe. Many imports are integrated into Cargojet’s domestic overnight network for further distribution across Canada.

In North America, Cargojet has secured new business that enhances aircraft utilization, rotation, revenue, margins, and shareholder value, according to Dhillon. Although overall revenue declined due to shorter flight segments in the Americas and Europe, having more aircraft based in North America has simplified fleet management and crew scheduling.