WITH the demand for rapid, guaranteed delivery services growing strongly, the express industry in India has grown in size and reach. Having invested in latest information technology systems to gear up for handling large volumes, many players have now scaled up their operations and have grown to significant levels. Airport Authority of India’s statistics reveal that the total air freight movement in the last 10 months from April 2013 to January 2014 has increased by 3.3 percent on a year-on-year basis, thereby taking the total air freight traffic to 1.88 million tonnes. During this period, domestic air traffic grew at a higher rate of 5.4 percent as compared to international air traffic at 2.1 percent. With the growth rate gaining momentum over the past few months in FY14, primarily on the back of significant increase in domestic air traffic, the total air freight market is expected to grow between 4-5 percent (in terms of volume) over the next few years, believes Prahlad Tanwar, Director - Transport & Logistics, KPMG India. People in the air cargo industry claim that it is the express sector of the air cargo market that has grown faster and introduced more innovative methods of delivery. They attribute the spike in growth largely to the fast growing e-commerce market which generates huge volumes of cargo which are expected to be delivered under specific time conditions to consumers. “This growth will be led mainly by increased demand from customer segments, such as e-commerce, organized retail and pharmaceuticals. Moreover, with the development of industry specific specialized solutions, the penetration of air express market in these customer segments is likely to increase, thereby leading to the overall growth of the industry,” Tanwar said. Commodities typically shipped via air express include those time-sensitive, high-value and light products that are perishable or have a short lifetime. They can be broadly divided into two categories – documents (including letter, cheque books and advertisement material) and non-documents (including equipment parts and components and pharmaceutical products). The fastest growing verticals for the air express market include consumer durables, auto and telecom components, BFSI, pharmaceutical and IT. Going forward, e-commerce, fashion and high-value product segments are expected to generate significant opportunities in this market, according to Tanwar. In agreement, Vineet Kanaujia, Vice President - Marketing, Safexpress said, “As a premium segment, the express industry is a small but significant segment of supply chain and logistics industry. It is one of the fastest growing segments of our industry. The express industry is expected to grow at around 12.5 percent per annum in an otherwise sluggish economy.” The express industry is extremely fragmented with close to 2500 players. However, there has been considerable consolidation of the industry over the years and the large organized players, including government postal department, presently have about 72 percent share of the industry revenue. The semi-organized players are supposed to have another 15 percent share, while smaller players have the remaining market share. With wider networks, larger players have larger presence in national and international locations. The medium size players have a regional focus with limited presence across other regions. The smaller players are mostly unorganized and have relatively smaller networks limited to few cities and towns. The larger players have made considerable investment in developing their network and processes, including information technology infrastructure and transport assets. Therefore, they are able to handle large volumes across multiple locations. Apart from the major metro cities - Delhi, Mumbai, Hyderabad, Kolkata, Chennai, and Bangalore – which account for the majority of the market share, the highest growth is expected in tier II cities, in which the majority of the country’s population lives, estimates Tanwar. Among the relatively large micro-markets that handled more than 20,000 tonnes, Pune almost trebled its volumes and Kozhikode and Kochi have also demonstrated healthy growth. Significant trends have been observed in markets that handled sub-10,000 tonne cargo. While Amritsar and Nagpur registered compounded annual growth rate (CAGR) of more than 25 percent in five years, catering to the rising cargo demand in India’s regional pockets. Jaipur, with a growth rate of 27.3 percent, is expected to emerge as the next crucial destination catering to increasing freight demand in northwest India. In the northeast, Guwahati (CAGR of 13.1 percent) and Agartala (CAGR of 19.2 percent), traditional leaders are being closely followed by Imphal (CAGR of 30.3 percent). Though such high growth rates can be attributed to low base volumes, the trend indeed indicates an encouraging outlook for the region. India’s growing might in the field of information technology, large scale liberalization and globalization of trade have been instrumental in the growth of the air cargo industry, which is a direct indicator of the affluence of a country. Moreover, the purchasing power and the consumption pattern of millions of middle class people in the country have undergone a huge change, which has an influence on the growth of the air cargo industry. In the years to come, trade growth in the country will be the primary growth driver for the express industry. Kanaujia is of the opinion that “the growth in current customer industry segments and expansion into new industry segments will be demand drivers for the express industry.” Increase in reach through expansion of network and innovative products like temperature-controlled logistics and so on, will augment the growth of this industry, he added. Challenges Though the Indian express industry is poised for impressive growth in the future, there are significant challenges that industry might face in the coming years. Increase in fuel cost, shortage of skilled manpower and increasing competition are some of the major challenges for the industry. Furthermore, any slowdown in economic activity, both local and global, will dampen the growth of Indian express industry. In addition, aviation logistics in the country is suffering from numerous bottlenecks. Inadequate infrastructure is one of the major problems faced by the sector. “Lack of adequate facilities at the airport is one of the biggest challenges for the air express industry. Insufficient truck docking stations, parking bays and space for express terminals lead to delays in clearance, thereby increasing the average dwell time for cargo at Indian airports by about 5–10 times than the international standards. This congestion leads to increased operating costs and poor service quality to consumers,” complains Tanwar. Lack of dedicated special cargo handling infrastructure to process temperature sensitive, perishable and dangerous cargo also results in procedural delays. Moreover, high aviation fuel cost due to different tax structure across states impacts operators’ operating margins. Adding to the woes, India’s air traffic is highly concentrated at a few airports with most of the second tier cities being ignored or having inadequate facilities. Another major issue is the poor cargo handling facilities at airports across the country. Other issues like limitations in interstate movement of goods, the impeded movement of air cargo between second tier cities and gateway airports and scale of operations add to the troubles, leading to lower cost efficiencies. Fuel costs are continually impacting air freight, but most players view the price volatility as a cost of doing business over which they have little control. Fuel represents almost half the expenses for air cargo carriers. Infrastructure development and planning can prevent many of the bottlenecks faced by domestic air cargo industry. A growth in volume could lead to larger investments. The government could help by increasing the capacity of the airports in tier-II and tier-III cities and simplifying the processes with electronic data interchange (EDI), which could ease paperwork and speed up transactions. Strong measures need to be taken to improve cargo handling facilities at all airports. Express services are vital for the competitiveness of companies around the world. Being able to respond quickly to customer demand – for new products, spare parts, contracts etc – is essential to winning and maintaining business in an increasingly competitive global economy.n