India bright spot for global air freight
Multiple levers - economic growth, increasing EXIM trade & focus of global companies for supplies as well as demand
Global cargo revenue is expected to be $142 billion in 2023, according to the latest update from The International Air Transport Association (IATA), 31 percent lower than $207 billion in 2022 but well above $100 billion earned in 2019.
"Yields will be negatively impacted by two factors: (1) ramping-up of passenger capacity which automatically increases available belly capacity for cargo and (2) potential negative effects on international trade of economic cooling measures introduced to fight inflation." Yields are expected to correct with a 29 percent decline this year but remain high by all historical comparisons. "Yield increases of 54.7 percent were recorded in 2020, 25.9 percent in 2021 and 7.4 percent in 2022."
Global volumes are expected to be 57.8 million tonnes, down from 61.5 million tonnes in 2019 "due to the sharp slowing of international trade volumes."
India story bright
Given the gloomy outlook, the Indian cargo industry is a rare ray of hope, hope of growth due to multiple levers - economic growth, increasing EXIM trade and laser focus of global companies on India for supplies as well as demand.
The Indian air cargo market generated 2.2 million tonnes of traffic - 1/5th the size of China’s and about 1/10th the size of the U.S. air cargo market - in 2022 with about 30 percent of the traffic generated on the domestic and the remainder on the international sectors, Frederic Horst, Managing Director, Trade and Transport Group said in his report India Air Cargo Outlook 2023.
Cargo handled across Indian airports may touch 2.4-2.5 million tonnes in 2023 even as passenger/belly capacity comes back, says Horst. "With 5-6 Indian conglomerates investing abroad, the India link is always going to be strong. So, India is in a good position as far as trade is concerned."
International traffic in the first quarter of 2023 was up 8.3 percent but still down 14 percent compared to 2019, says Horst. "In 2017 and 2018, foreign carriers moved about 79 percent of total traffic. In 2022, it was 87 percent, Horst added. "The drop in Indian carrier market share was really driven by Jet Airways exiting the market. A lot will hinge on how much widebody belly capacity gets added by Indian carriers. If Air India adds some widebody freighters to its network then that will lead to a shift in the share as well. But foreign carriers will continue to dominate India – much like they dominate other markets due to their networks."
10 million tonnes by 2030 - Doable?
"That would require more than 20 percent growth per year – that’s not realistic in my view," says Horst. "India is not going to replicate the trajectory that China had in the past but I do expect a decent level of growth coming from the market – just not 20+ percent per year for the next seven years."
The air cargo industry in India has come a long way with strong consumer demand serving as the primary driver of growth," says Deepak Kumar, Head, Air Logistics, India, Sri Lanka, and Maldives, Kuehne+Nagel. "It is one of the most competitive and growing markets in the air cargo sector. Air freight traffic between domestic and foreign airports has also experienced a significant post-pandemic recovery resulting in faster product delivery to end customers.
"As economic activities pick up in the country, air freight movement will also lead to higher growth. E-commerce, shifting consumer habits, and MSMEs are expected to be the major factors as more people have access to the Internet and a well-developed digital payment infrastructure that has spread across the country. The Indian air cargo industry offers new opportunities, and while important stakeholders like cargo service providers, airlines, and airport operators are banking on these opportunities, there are a few challenges such as climate change and airport infrastructure that the industry may face in realising its vision of reaching 10 million tonnes of air cargo by 2030.
"The pandemic has accelerated the digitalisation of the aviation and logistics industries as the modern business environment requires faster and higher-quality services. Therefore, with the use of technology-driven solutions, cargo service providers can bring transparency, accuracy, and speed to day-to-day processes for efficient last-mile delivery. Air freight logistics companies are seeing increased demand from an expanding market segment, which can be met with freighters that can handle capacity shortages, fluctuating volumes, and peak season. Similarly, filling the logistics infrastructure gap will help India become a transshipment hub and boost its economy. Regulatory and compliance issues will also aid in the development of the air cargo industry's competitiveness and attract more private and foreign players to the ecosystem."
Another key driver to drive growth for air cargo in India is the infrastructure of Indian airports, adds Kumar. “The Indian government has launched a well-laid plan to upgrade and further develop the country’s air transport infrastructure as international hubs to enable airlines to optimally make use of such facilities."
Pain points for Indian air cargo
There is no doubt that climate change is one of the biggest challenges facing all of us, says Kumar of K+N. "Logistics industry contributes to roughly eight percent of CO2 emissions worldwide. As industry leaders, we are committed to reduce our contribution to that percentage by actively reducing our own CO2 emissions in transport and developing solutions to support our customers with their carbon reduction journey.
"Specifically for the air cargo industry, companies need to embrace techniques for sustainable environmental solutions that will help them minimise carbon footprints. Sustainable aviation fuel (SAF) is a cleaner substitute for conventional jet fuel and plays a key role in the aviation industry’s plan to reduce carbon emissions in the coming decade.
"At Kuehne+Nagel, we’ve been a keen advocate for sustainable fuels across all forms of logistics, including the adoption of SAF in air freight. As of December 2022, we have procured about seven percent of the global SAF production, and we have committed to an even larger volume for 2023. We are spending a lot of effort and time transferring and sharing knowledge to our industry, suppliers, and customers. In April alone, we hosted various customer sessions in India with almost 100 customers attending in three cities. We are currently participating in various initiatives and cooperations shaping the future framework for an unified standard in emission calculation as well as other means such as carbon capture. We are also cooperating with our carrier partners regarding possibilities of reducing the weight of an aircraft (lighter pallets, safety nets, only running one engine during taxiing at an airport etc.).”
K+N recently formed the Sustainable Engine Alliance with Atlas Air and SR Technics Group to set new industry standards for low-carbon aircraft engine supply chains in line with the SBTi. "Through this alliance we also aim to reduce our collective environmental impact through networks for sustainable engine supply chains and a portfolio of sustainable services. Some of the first joint initiatives carried out by the alliance include the deployment of sustainable fuels, engine stand management solutions and a global digital interface for emission transparency, reduction, and avoidance. This initiative is expected to reduce engine supply chain-related scope three emissions ahead of the Aerospace 2050 sustainability targets."