FROM MAGAZINE: Indian Air Cargo Poised to fly High
Indian air cargo has an appealing story to tell. The country’s air cargo segment grew in leaps and bounds in the past seven decades. From small units of shipments in the 1950s, India's air cargo sector has scaled to a level where it attracts more and more international cargo operators
Indian air cargo has an appealing story to tell. The country’s air cargo segment grew in leaps and bounds in the past seven decades. From small units of shipments in the 1950s, India's air cargo sector has scaled to a level where it attracts more and more international cargo operators.
Renjini Liza Varghese
Indian aviation segment which was dominated by the national carrier for long has seen whirlwinds in the past 25 years. On one hand, it saw the emergence of private airlines and at the same time it also witnessed bankruptcies, sell offs and consolidation. Around 30 airlines ceased their operation in the country which includes East West Airlines, Damania Airways, NEPC, Paramount, ModiLuft, Kingfisher, Gujarat Airways to name a few. And airlines like Indian Airlines, Deccan Aviation and Sahara Airlines took the merger route.
The four airlines, national carrier Air India and private carriers like Jet Airways, Indigo and SpiceJet put together command 80 percent of the civil aviation market in the country. The passenger segment in the country had grown substantially over the last decade. According to the data from India Brand Equity Foundation (IBEF), the domestic passenger traffic expanded at a compound annual growth rate (CAGR) of 11.46 percent between financial year (FY) 2006 and FY 2017.
Owing to two major challenges — the crippling infrastructure constraints at major airports, and an uptick in fuel prices — the rating agency Crisil Research predicts a decline in the air passenger growth over the next five years. A latest report from Crisil Research says, “Growth decelerating ~800 basis points (bps) to 13-15 percent annually in the five fiscals through 2022, compared with a blistering 22 percent seen in fiscals 2016 and 2017. This fiscal, it is seen slowing 300-500 bps to 17-19 percent.”
Indian air cargo operations started by folding the seatings in the passenger cabins in the 1950s on airlines. Now the segment has grown to be one of the key and promising markets globally.
According to an analysis by Crisil Research, over all the trade has picked up in a big way in the cargo segment. The report puts a higher potential for both exports and imports. They keep the big bet in the international cargo segment for the medium and long term.
Binaifer F Jehani, Director, Crisil Research commented, “If you look at this year, the exports have grown by around 15 percent or so and imports have grown about 20 percent. For long term, we expect the cargo movement to grow between 9 to 10 percent over the next 5 years. So clearly we expect a healthy growth."
As per the data available from Statista.com, an international online statistics, market research and business intelligence portal, Indira Gandhi International Airport, New Delhi handled the maximum cargo in the FY 2016-17. While Delhi handled 8,57,000 tonnes, Chhatrapati Shivaji international Airport Mumbai stood second with 7,82,000 tonnes, followed by Chennai International Airport handling 3,59,000 tonnes and Kempegowda International Airport in Bengaluru with 3,19,000 tonnes of cargo in the same period.
Though the volumes kept rising, none of the Indian all cargo operator could sustain because of the low yields. The national carrier's subsidiary Air India Cargo operated till 2012; Deccan 360 from the old Deccan Aviation though started on a high note in 2009 seized its function in 2011. There was Aryan Cargo Express which operated for less than a year in 2010. It is a similar story with Sovika Group's domestic freighter operations. The Mumbai-headquartered airport to airport logistics specialist started operations in February 2016 with a leased 737-400F from QuikJet. It offered overnight connections to Delhi, Chennai, Bengaluru and Hyderabad. However the operations were wounded up within a short span of time.
That is the history of all-cargo operators in India. However, all airlines still continue to carry cargo in their bellies.
India had released the National Civil Aviation Policy in 2016 with major emphasis on making air travel affordable for the common man with the Regional Connectivity Scheme (RCS). At the same time the policy document had given equal thrust to other crucial areas like a) Ground handling policy b) Development of airports and its infrastructure by Airport Authority of India and under the Public Private Partnership models c) Security enhancement d) Policy for helicopters and charters and e) Maintenance, Repair and Overhaul.
The surge in volumes
Imports have registered significant surge from China, US, Japan in the recent past, the most import of these were the mobile components from China.
Indian exports typically were concentrated to the Middle East, Europe, and America. However, in the recent past, there was an increase of exports to new regions like Africa, South America, East Europe. It is now anticipated that the exports to these regions will see the maximum increase in growth.
An operator like Emirates, which has a sizable presence in India, foresees a healthy growth in exports. Jassim Saif, Emirates vice president, Cargo Commercial - West Asia and South East Asia, said, “India is an important base for the manufacture of pharmaceuticals and over the last year we have seen an important growth in the volume of pharmaceutical shipments from the country to different parts of the world. Other sectors that have shown considerable growth rates include automotive, engineering goods and electronics.”
Considering the growing potential, he added,“Emirates SkyCargo is constantly studying market conditions so that we are in a position to be able to serve capacity where there is demand. We see a lot of potential in the Indian market and we will continue to evaluate the market very closely.”
2017 saw some of the major developments in the air cargo segment. The establishment of an air cargo route between Kabul and India was a significant step as the two countries circumvented Pakistan. The first flight between Kabul and New Delhi took off in June. The second route Kabul-Mumbai was put into operations in December.
Lenient policies and regulatory measures, increase in export volumes have persuaded the foreign cargo operators to turn their attention more on India. These factors have paved way for international cargo operators to enhance their capacity.
India also saw a major aviation deal in the second half of the calendar year. India’s leading private carrier Jet Airways and Air France KLM inked an enhanced co-operation agreement. For the European carrier and the Amsterdam Airport Schiphol, this alliance will facilitate to tap into the cargo potential of India.
“With the expansion of the JV Air France KLM and Jet Airways we expect more direct flights between our two nations. That gives us more cargo capacity. India is one the main regions of Pharma manufacturers for the EU and US markets. The network of KLM and Jet Airways is a perfect answer to the needs of the pharma industry to deliver a fast and reliable service with temperature controlled solutions,” said Bart Pouwels, director, Business Development Cargo, Amsterdam Airport Schiphol (AMS).
In another development, the Agricultural and Processed Food Exports Development Authority (APEDA) facilitated the trial shipment of green chillies by air from Varanasi Airport. It is now agreed that an exporter will now source chillies, green peas from Varnasi for Dubai. SpiceJet has agreed to facilitate the shipment.
Despite the huge potential and growth in the air cargo traffic, India does lack in few areas when it comes to infrastructure facility. The first and foremost is the delay in implementations. Many of the airports in the country are not at par or not well equipped to handle the growth. Some airports have already worked towards the hub concepts and built various infrastructure facilities as per the market and industry requirements.
In addition to the infrastructure issue, Harish Shah, CEO of M&C Aviation harped on the three major challenges faced by the general sales agents (GSAs). They are: a) Airport operators, government authorities, airport handlers, cargo terminal operators still perceive GSA as an outside agency although being appointed as the airline representative. b) There is always pressure on the GSA profitability based on the market conditions and currency fluctuations especially when excess capacity exists and pressure on airfreight rates. c) Airlines fail to involve GSAs in their strategy planning and sharing of information concerning the markets that the GSA represents.
Sam N Katgara, Partner, Jeena & Company was candid when he said the main challenge the sector faces is the mindset change to move with times. “The mindset of the bureaucrat, the mindset of customs officers, and the mindset of the airport authorities needs to change. Today the forwarders are very flexible. Even though processes are made better, people still want to function in the old way.”
It is estimated that around 450 brownfield and greenfield airports would be required by 2020. There are plans to develop 50 new airports to boost the regional connectivity over the next three years.
For example, as the existing airport at Mumbai is reaching saturation level, the government has already given its approval to develop a second airport. The proposed airport will come up in Navi Mumbai. The Navi Mumbai International Airport will be developed through PPP and is one of the world’s largest ‘Greenfield’ airports. The airport will be set up in an area of 1160 hectares accommodating two parallel runways for simultaneous and independent operations with provision of full length taxi ways on either side of the runways. The airfield has been designed to accommodate the new large aircrafts.
With UDAN/RCS scheme taking wings, it is estimated that the cargo lift from the regional centres also will pick up in the coming years.
It is not airports alone but developments of decentralised storage facilities near the airports are also gaining momentum. Developing AFS at off airport locations — similar to that of container freight stations (CFS) in the sea freight which is not at the port — is the need of the hour for air freight. The airport station which is not at the airport is where the freight comes in. The pallets from these air freight stations go directly and load straight into the aircraft.
In the air freight station (AFS) segment, country’s first license was obtained by KerryIndev in 2015 in Chennai. Even after two years, the centre is yet become operational fully. PC Servaraj, senior vice president, KerryIndev said, “ Though we have agreements in place with Singapore Airlines, Cathay Pacific and some IT clients like the Acer, Flextronics etc, we are having teething problems. Only 5 percent of the station’s total capacity is operational now. We are making necessary infrastructure additions. We expect the station to be fully operational in next three to four months time.”
The National Aviation Policy of 2016 detailed the single window clearance, a step that is expected to bring down the dwell time in the airports. The government has rolled out the implementation of single window clearance with the existing airports. Crisil Research is of the opinion that this has already started showing results with a reduction of 24 hrs in the dwell time (from 72 hrs to 48hrs).
Shah added, “Things have changed in the past few years and we are seeing a positive development from the policy makers and regulatory authorities. Forums have been formed with professionals from air cargo industry and the government to look into the issues faced and improve/streamline the existing environment.”
The government plans to develop the Navi Mumbai International Airport as an integrated hub connecting the port, the road network and the storage facilities in and around the area.It is also envisaged to have a single window clearance for air, sea and road transport. How confident is the industry on the implementation of single window clearance here?
Katgara was quick to react on the matter. He said “I would be pessimistic. At the same time I don’t see why it shouldn’t happen. The issue is at the bureaucracy level, the port doesn’t want to talk to air; the transporter doesn’t want to play the ball; the customs wants to look at it differently. Difficult to get everybody to sit across a table and make them work jointly. If you ask me, I don’t see it happening in the near future. But that is something which is required for sure.”
The surge in e-commerce volumes has forced the Indian airports to look at ways to accommodate the cargo and store them safe. Airport Authority of India (AAI), is looking at regional connectivity development and facilitation for e-commerce. AAI has adopted a policy to slash the rental charges for old and un-utilised covered space lying at regional airports, and decided to offer such covered space to e-commerce agencies with easier contract condition for establishment of e-commerce facilities at the regional airports. These warehouses will be made capable of handling any quantum of e-commerce goods.
AAI Cargo Logistics and Allied Services Company Limited (AAICLAS) was incorporated as a wholly owned subsidiary of Airport Authority of India, and it will work as multi modal interface linking air, surface and water transport.
Keku Gazdar, CEO, AAICLAS said, “The buoyant Indian aviation industry is gearing up for another revolution. India is expected to be the third largest market by 2020 and the largest by 2030.
E-commerce has potential to bolster air cargo growth. The explosive growth of e-commerce demand for business to consumer (B2C) deliveries of retail purchases may usher in the next freight transportation revolution.”
CRISIL Research in one of the latest reports on the warehousing landscape of the country pointed out that warehousing cost for consumer durables is set to halve, and will fall by 25-30 percent under the new regime of GST. The number of warehouses also will reduce while the size of warehouses will become bigger, and turn into the so-called big boxes.
According to the report, there would be five major warehouse hubs, Mumbai, National Capital Region (NCR), Bengaluru, Hyderabad and Kolkata – which will retain their importance being significant consumption centres for consumer durables. However, new hubs will also emerge in Assam and Haryana. But Nagpur is unlikely to emerge as a warehousing hub in the near term, due to GST, as it is currently neither a major consumption market nor a manufacturing hub.
As part of the 'Make in India' initiative, the Indian government has given thrust to e-commerce and exports. Domestic air cargo segment has a high employment potential, especially for semi-skilled workers. Though currently, the domestic air cargo volumes in India are very small in comparison to its global peers but it is expected to improve in the coming years.
To reap the best benefit, the air cargo industry has to adapt to the changes. With the changing cargoes, today one need not plan for change but need to evolve with it. Katgara commented, “Today the success will primarily be based on how you are able to predict the evolution. If you are little ahead of the competition in evolving, that is when you score.”
Growth in e-commerce and manufacturing coupled with the increase in domestic consumption will drive the future air cargo business in India. Both international and domestic air freight sectors are growing at a healthy rate. If we go by the analytical reports, the air cargo segment is expected to register double digit growth in exports and near double digit growth for the domestic cargo for the next five years.