Dive Brief:

• Air cargo volume was up 41% YoY in May, showing that the sector has made progress in recovering from its early pandemic trough. But it was down 4% compared to May 2019, suggesting the market still has room to grow to retain its pre-pandemic operating levels, according to the latest figures from Clive.
• Capacity also has yet to fully return with levels down 21% compared to the same month in 2019, but up 42% YoY.
• The lack of capacity continues to result in elevated rates with prices from Hong Kong to the U.S. reaching $8.07 per kilogram as of Monday, according to the latest data from the TAC Index. This is down from a mid-May peak of $9.50 per kilogram, though up 40% YoY and 127% compared to 2019.

Dive Insight:

Consumer spending has driven demand for air cargo. The elevated demand has pushed up rates as belly capacity has yet to return to pre-pandemic levels. And a hectic ocean market in more recent months has driven even more demand as cargo owners shift shipments from sea to air.

Many brands and retailers have spoken in recent weeks about increasing their airfreight use in recent months as they work to increase the inventory they have on hand.

The Hong Kong lane also suffered in May as a result of capacity loss resulting from quarantine procedures Cathay Pacific has in place, according to a research note from Peter Stallion, head of air and containers at Freight Investor Services.

"Looking ahead, forward prices will also be backwardated, however, US economic growth and a potential collision of low long-haul capacity and passenger flying, and the run-up to another Q4 peak, might be bullish for prices in Q3/4," Stallion wrote. Backwardation is the condition of a market's future value being below its current spot price.

In April, volume was up 1% compared to the same month in 2019. Clive said the downturn in May could be the result of holidays during the month.

"There were several (extended) public holidays in May which were not present in May 2019 (China, Russia and Eid al-Fitr at the end of the Ramadan) which will have impacted the monthly growth rate in a negative manner," Managing Director of Clive Data Services Niall van de Wouw said in a statement.

The 9% decline in air cargo out of Europe in May is especially concerning, van de Wouw said. But lanes into the U.S. are expected to remain in high demand for the foreseeable future.

"Pricing strength continues to be seen [from] China and Hong Kong to the US and Europe and from Europe to the US with all 3 trade lanes seeing price increases in May over April, although prices peaked in early May and have fallen away in recent weeks," Gareth Sinclair, a board advisor for TAC Index, said in a statement. "Even so, the airfreight market continues to be strong, particularly CN/HK to US, and is likely to continue for some time as demand in several markets continues to outstrip supply as eCommerce traffic increases and economic activity strengthens in many markets."