India’s air cargo sector set to fly high

The Indian air cargo sector has a highly untapped potential. Growth in e-commerce and government initiatives are expected to boost the air cargo business in India. Amidst challenges, the Indian air cargo sector throws innumerable opportunities.

Rashmi Pradhan

Air cargo industry plays a crucial role in the economic development and growth of a country. Air cargo is a specialised sector and its development requires deep focus. Air cargo is an integral part of day-to-day life and involves shipment of highly time sensitive, temperature controlled and high value goods. This could be perishables products, pharmaceutical items, live animals, electronics etc., that need an efficient end-to-end supply chain. The air cargo industry involves a wide range of service providers coming together for faster and efficient delivery. Within the air cargo ecosystem, Express Delivery Services (EDS) has a distinct operational nature and has become pivotal especially in the light of double digit growth in e-commerce.

In order to ensure smooth flow of air cargo it is critical to enhance safety, improve security, strengthening the value proposition of air cargo, driving efficiency through global standards, improving quality, strengthening partnerships and building sustainability.

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According to IATA report, annual growth in global air freight tonne kilometres (FTKs) accelerated to 6.1 percent year-on-year in September 2016 its fastest pace since the disruption seen at US west coast seaports during February 2015. European and Asia Pacific airlines both registered strong growth (12.6 percent and 5.5 percent year-on-year, respectively) and accounted for more than 80 percent of the annual increase in industry-wide FTKs.

It is the emerging markets and regions that are expected to deliver the fastest growth in air cargo volumes over the next five years, led by the Middle East and Africa. Strongest forecast growth is foreseen on trade lanes between Asia and the Middle East, within the Middle East region, and between North and South America. Growth in mature markets of the North Atlantic and within Europe is expected to be well below the global average.

As far as India is concerned, adoption of open sky policy by the Indian government for the air cargo sector in early 1990s under which Indian or foreign carriers were allowed to operate scheduled and non-scheduled cargo services to/from any airport in India, has resulted in strong growth in international air cargo movement. However, the air cargo volumes in India are very low as compared to other leading countries.

As per the AAI report, the international and domestic freight traffic have shown growth of 8.1 percent and 7 percent respectively resulting into overall increase of 7.7 per cent in total freight traffic during the period (April-September) 2016-17 as compared to (April-September) 2015-16.

Challenges & Opportunities The opening of economy, entry of new airlines, new routes, reforms in government policies, advanced technology has helped Indian air cargo to grow. But air cargo sector in India is still fragmented and not professional. Highlighting the challenges of air cargo in India, Mike Chew, CEO, AISATS, said, “As India’s air traffic is mainly concentrated at a few airports, with insufficient facilities at smaller airports; the challenge lies in connecting cargo volumes of Tier 2 & 3 cities with major cities for air transportation. This requires an expanded supply chain to these cities for the growth of Indian air cargo.” He further added that to combat the challenge of handling high air cargo volumes, it is necessary to integrate airport infrastructure with air cargo facilities and this could be best done by dedicating unused infrastructure at airports to air cargo operators.

Sam Katgara, Partner, Jeena & Company, informed, “India has become an extremely important market. Most of international carriers are operational in India and some are planning to foray into India. As far air cargo logistics is concerned the inbound freight is not enough to fill up the aircraft and aircrafts are being filled up one-way that is exports. Due to competition, the export rates are low and are going lower. Hence airlines are finding it tougher to make profit to keep India on their route. Although new airlines are coming in, old and established freighters have cut down the capacity.”

Besides the challenges there are many opportunities in the air cargo industry in India that will promote domestic and international trade. Chew said, “Investments in infrastructure development is one such opportunity. The investment could be used to develop dedicated on-airport cargo terminals, air freight stations, as well as off-airport common user facilities to handle air cargo across the country. Apart from developing infrastructure, advances in technology adoption and the implementation of security systems need to be pursued.”

According to FICCI-KPMG ‘India Aviation Report 2016’, “Freight aircrafts play a vital role in increasing the cargo throughput of the country. There is no consistent policy for allotment of dedicated facilities at any of the airports for dedicated cargo aircrafts. Restriction on night operations and high lease rentals has made setting cargo aircrafts operations a costly proposition. There is an urgent need for policy support and robust infrastructure to ensure efficient freighter operations in the country. Dedicated cargo airports can be developed to ensure that cargo gets priority. These airports would allow peak operations during night hours, have good connectivity with transport infrastructure and would be close to industrial areas to ensure a critical customer base for cargo.”

Chew further said, “Indian airports enjoy a geographical advantage, owing to their suitable location as they serve as a transfer hub for various intercontinental routes like Europe-Australia and Europe-South East Asia. But the transshipment route has not been explored to its full potential. This is a disadvantage when competing in the global market and impedes the capture of intercontinental traffic. Development of transshipment hubs would further drive air cargo to cater to growing intercontinental traffic. Customs and security policies and procedures for transshipment differ at various airports.” There is an urgent need for standardisation of the same.

Manoj Singh, Senior Vice President & Head – Cargo, MIAL, mentioned, “Adequate infrastructure, optimisation of working hours and service standards need to be maintained at every stage of supply chain. These parameters are tagged only with airport facilitation. It is crucial to improve on these facilities, their coordination and the standards maintained all along the supply chain. Logistics need to be faster and more reliable at processing air cargo consignments. When competing with other modes of transport, it is important for every logistic player to improve individual performance as well as develop a participative attitude towards working together.”

Govt initiatives The two major initiatives by the Indian Government to propel the Indian air cargo further, are formation of Air Cargo Logistics Promotion Board (ACLPB) and AAI Cargo Logistics & Allied Services (AAICLAS). The aim of the government is to provide an ecosystem for harmonised growth of various aviation subsectors that is airlines, cargo, aerospace manufacturing, skill development etc. In order to promote both domestic and international air cargo and express delivery services, ACLPB has been constituted under the National Civil Aviation Policy 2016. The framework is expected to ensure growth of air cargo business. ACLPB has been constituted to promote growth in air cargo by way of cost reduction, efficiency improvement and better inter-ministerial coordination.

With a vision to become the foremost integrated logistics network operator in India with primary focus on air cargo handling, Airports Authority of India (AAI) has launched a subsidiary company, AAICLAS. The new subsidiary will be allowed to develop its own distinct culture, organisational structure and business model while at the same time draw upon the strength of its large parent origination, AAI. All the activities currently being carried out by the cargo department of AAI will be merged into the new company and the department will no longer be functioning with AAI. AAICLAS will focus on three verticals (a) air cargo handling and allied services, (b) warehousing and contract logistics and (c) air cargo road feeder and air freight stations. Creating AAICLAS would bring multiple advantages as there is lot of activities on the cargo front.

The much-awaited Goods and Services Tax (GST) that is expected to roll out in April 2017 is likely to put an end to some of the issues the logistics industry is facing today. The traditional tax framework in India has resulted in air freight EXIM imbalance and transference to other modes of transport. Singh, said, “Through a uniform tax structure, GST will mitigate this imbalance and boost air freight. GST will help promote air freight consolidations and transshipments, reduce supply chain costs and strengthen the government’s vision to position India as the logistics hub of the world. Factors like cost-effective transaction, timely and hassle-free transport solutions, seamless connectivity to manufacturing/distribution hubs, adequate infrastructure and excellent IT connectivity among air freight logistics players are vital to the creation of an effective hub and spoke model and the transformation of Indian gateway airports into regional cargo hubs.”