Key insights:

1. Air cargo remains under more pressure from higher jet fuel costs and tighter supply, with Lufthansa and KLM cutting domestic flights, United adding a cargo disruption fee, and Southeast Asia already seeing tighter fuel availability.

2. Even so, global air cargo capacity has recovered to just a single digit deficit versus pre-war levels as Middle East carriers rebound and other airlines shift capacity to higher-demand lanes.

3. Freightos Air Index rates are still about 30% above pre-war levels, but have mostly leveled off as capacity rebounds and fuel prices moderate slightly: China-Europe dipped to $5.07/kg last week, China-N. America to $6.40/kg, S. Asia-Europe to $4.94/kg, while SEA-Europe rose 9% to $5.24/kg.

Air rates - Freightos Air index:

• China - N. America weekly prices stayed level at $6.40kg.

• China - N. Europe weekly prices decreased 1% to $5.07/kg.

• N. Europe - N. America weekly prices decreased 1% to $2.30/kg.

Analysis

In air cargo, more carriers have recently announced jet fuel cost-driven flight cancellations. In addition to Lufthansa scrapping its domestic Europe short-haul CityLine service – eliminating 20k flights through October – KLM will cancel some domestic flights, though both carriers say the cancellations represent a very small share of their overall network. United Airlines is rolling out a market disruption fee for cargo bookings.

Jet fuel supply is already getting tight in Southeast Asia, with K+N reporting it is adding fueling stops in China where supply is so far unconstrained before transiting to SEA countries. European Union officials recently met to discuss the looming prospect of jet fuel shortages, and may be considering a jet fuel sharing plan if supply gets really tight.

Despite these cancellations though, overall global air cargo capacity that had dropped sharply in March may now be at only a single digit deficit compared to before the war as Middle East carriers continue to rebound. Other global carriers have also shifted capacity to follow the war-driven shift in volumes to alternative Asia - Europe and other lanes. 

These capacity additions, as well as moderate recent decreases in jet fuel prices may be contributing to the continued leveling off of rates on major lanes. The Freightos Air Index global benchmark remains 30% higher than before the war and year-on-year, but has been about level since the start of the month.

China - Europe rates at $5.07/kg and China - N. America prices of $6.40/kg both dipped slightly last week, with S. Asia - Europe rates also down 1% to $4.94/kg. SEA - Europe rates meanwhile climbed 9% to $5.24/kg, though remain a little below its year high of $5.30/kg hit earlier this month.