Boon to the Air Cargo Industry

With Indian aviation market going through a transformational phase, backed by the huge opportunities in the air cargo industry, government and industry stakeholders have realised the need for infrastructure development focusing on providing quick and sophisticated services to sustain increasing air cargo volumes. Watan Singh...

While the Ministry of Civil Aviation (MoCA) already unveiled the draft Civil Aviation Policy in last November to reach aviation sector’s full potential, the Indian government has furthered its steps to outline extensive focus on infrastructure development. The implementation plan is mainly in the areas of process simplification, reducing dwell-time, green measures and hi-tech advancement into e-systems for bringing in efficiencies in the air cargo activity. As India is to become world’s third largest aviation market by 2020, developing infrastructure along with addressing the needs of the air cargo industry has been the top priority for the aviation ministry. But is India’s aviation infrastructure prepared to sustain air cargo industry’s immense future growth? It is important for the government to scrutinise the areas of development and set up working groups to study new opportunities in this sector. The logistics industry has always been confronted with multitude of problems on account of inordinate dwell times, damaged or missing cargo, long processing times and queues at the cargo terminals, etc. This has led to huge transaction cost and operating expense for the air cargo industry players. Therefore, the government’s main focus initially is to reduce dwell time to match with international standards through automation, e-governance, air freight stations (AFS) and simplified processes. Air freight stations help to decongest airports and offer value additions to cargo stakeholders. AFS immensely contributes to operational and cost efficiencies. With the help of AFS, the cargo can be brought to the air cargo terminal in a ‘ready for cargo’ condition avoiding congestion. Commenting on the faster clearance, Amber Dubey, Partner & Head - Aviation, KPMG India noted, “This will also help the airlines to plan their space allotment in time and cargo can be loaded promptly on arrival at the loading bays without any further loss of time.” Further Dubey mentioned in a special report on AFS in ACAAI News, “The most important thing for success of AFS would be seamless co-ordination among all its stakeholders such as airlines, consol agent, customs brokers, etc.” In January 2015, Ministry of Civil Aviation (MoCA) released the much argued guidelines for setting up AFS across India. “The initiative of AFS will create an enabling environment for promoting international air cargo operations by reaching out to hinterland regions of the country besides de-congesting the congested air cargo terminals in some gateway international airports that face high dwell time,” said the MoCA guidelines. Taking full advantage of this, Indev Logistics from Chennai became the first private logistics company to receive the green signal from the government to set up and operate India’s first fully-integrated private AFS. Indev AFS spreads about 20,000 sq. ft., in Irungattukottai and is strategically located near the Chennai International Airport (around 37.7 kilometres away) with an aim to decongest the airport. Chennai airport currently handles around 5 million tonnes of cargo but inadequate infrastructure at the airport leads to congestion and high transaction cost. This is the first successful project after the concept of AFS was first tried by Central Warehousing Corporation in Virugambakkam (around 15 kilometres from the Chennai airport). But it was abandoned because of protests from the airport operators who fear loss of revenue from cargo handling at separate private facilities like AFS. Indev AFS was scheduled to commence operations from August but due to the ongoing arrangements for Electronic Data Interchange (EDI) connectivity that is being implemented the opening has been postponed to a future date which, according to a company official, is ‘soon to happen’. Indev AFS is initially concentrating on servicing the import volume going to Chennai and other places like Bangalore, Hyderabad, Kochi and Coimbatore. “Currently we are starting with imports including temperature-controlled goods. And for exports we required scanning machines and Central Government approved security system for fool proof handling,” said Xavier Britto, Chairman, Indev Logisitcs. Commenting on reducing clearance time, Britto said, “We expect at this facility we should be able to offer clients for clearance within 24 hours upon arrival basis client’s readiness with documentation and completion of customs procedure.” With Indev AFS, the cost of cargo handling will be 15-20 percent cheaper, noted Britto. Usually, the clearance time at airport is five days and demurrage charges are charged after 72 hours, but at the new AFS, “We want to give a second day delivery and demurrage charges will be collected only after five days,” Britto added. Indev AFS aims to obtain 5-10 percent cargo of the Chennai airport. Earlier, it was in the news that Indev AFS is signing up with Lufthansa and Singapore Airlines who intend to move their ULDs to the new facility, but when contacted Indev, the company said that such pacts are in process but nothing concrete and further stated that it may see similar clients as future prospects. When asked about IT, Britto stated, “We have our own WMS (Warehouse Management System) fully operational at all our 3PL across India & FTWZ warehouses. This package is on Oracle Platform and on cloud. This system can be integrated with our clients system (SAP, etc) as well if required. This system is very effective in Inventory Management and complete reporting as per client’s requirements. We are using this system for the last three years and will continue for all our future projects as recently we had upgraded the system for further requirements,” Britto noted. As per the new policy guidelines released by MoCA, all export and import cargo clearance including customs related activities like assessment, examination, payment of duties, etc. would be provided at AFSs, as is done in any other custom station. A good example of this is the Mulund AFS facility, with a capacity of 70,000 tonnes jointly operated by Cargo Service Centre (CSC) and Container Corporation of India (CONCOR), strategically located within CONCOR’s ICD in Mulund East in Mumbai. It features an in-bound customs clearance and significant road and rail connectivity for traffic to and from industrial hubs Bhiwandi, Pune, Nashik, Aurangabad, etc. that proved crucial in decongesting the Mumbai Airport that was suffering from space constraints at its cargo complex. On the contrary, government-controlled Airports Authority of India (AAI), that operates major airports controlling the air cargo operations, was not in favour of AFSs as it felt that it may lose revenue and control if the cargo is moved out to an off-dock AFS facility from cargo terminals of airports. Other concerns rise from Operation, Management and Development Agreement (OMDA) between AAI and airports that makes cargo handling and terminal operation subject to airport business. Due to this, terminal operators have a mix reaction towards the coming of AFS concept in India. Alongside this, cargo terminal operators at airports are in receipt to demurrage charges and storage and facility costs provided to the airlines and businesses linked to the airport business. But as AFS coming into place, most of the business will be shifted from the cargo terminal operators to the new facility that will hamper airport business and dilute income of the operators. But some industry experts suggest that airport terminal operators, especially cargo, must not fear from this because AFS will help ease the knotted flow of the overall trade which is consequent to open new opportunities with increased business earnings from the airlines and cargo handling at airports. Looking at the current situation of cargo being handled at airports, one of the major reasons for Indian airports’ low non-aeronautical earnings is that most of the airports are run by AAI that cannot afford huge investment alone from its scarce fund for world-class services. Recently, the government had urged on privatisation of airports, strongly resisted by AAI, at Chennai, Jaipur, Kolkata and Ahmadabad through a bidding process to private players to boost infrastructure development. Indian government had planned this through the PPP modal that also comes in favour under its lucrative ‘Make in India’ policy. But after steaming protests from the AAI staff, the government has put off the plan of privatisation of all four airports and only two, Jaipur and Ahmadabad, will be allowed for private investment for modernisation only but the operation remains with the AAI; whereas Chennai and Kolkata airports remain under AAI’s full control. Given the current scenario, there are nine firms including GMR (managing Delhi and Hyderabad airports) and GVK Group (Mumbai and Bangalore airports), Tata Realty and Adani Ports and others keen on investing in the modernisation of four airports at Chennai, Kolkata, Jaipur and Ahmadabad. Going forward, releasing customs procedures for off-airport clearance facilities, providing smooth road connectivity to AFS and putting in place a transparent procedure for bidding the AFS to private players are the next steps. “Government should consider giving a 10-year tax holiday to AFS to give a fillip to off-airport cargo handling,” suggested Dubey. The need of the hour is to develop infrastructure not only in the air cargo sector but also in road, rail and water transport, foreseeing a bright future in the interconnected network with a structured multi-modal transportation. A comprehensive policy framework governing air freight stations is needed in order to meet the target of $700 billion exports by 2018. Industry hopes are high as the Indian government has earmarked about Rs 50,000 billion investment in the air cargo sector according to the XII Five Year plan (2012-17).