Soaring to new horizons

The advent of e-commerce has changed the dynamics of the express sector of the air cargo industry and has provided respite to its dwindling fortunes. Lionel Alva...

E-commerce has brought about a veritable shift in the approach towards conventional logistics. The internet and e-commerce have become essential business tools for companies of all sizes in every type of industry, including the retail and airfreight industries. With shorter lead times and increasingly tight window frames for delivery have impelled the need for a more time-sensitive supply chain. Furthermore, with e-commerce trade often being carried out between countries has opened up avenues for air cargo transportation. Over recent years, the air express distribution industry has changed, due in no small part owing to the role played by e-commerce.

An industry in transition The advent of e-commerce presents a huge opportunity for the air cargo industry. Air-freight has been instrumental for e-commerce companies since they can source low cost supplies from developing countries and sell these supplies in the buoyant market of developed countries at reasonable margins. Since these companies frequently conduct business around the world, air transportation is pivotal to their business needs and is at the crux of the logistics infrastructure. This has acquired greater significance when it comes to transporting rare commoditiesand high value items using the just in time management process. Express Industry Council of India (EICI), in a recent seminar titled “Delivering Opportunities for ‘Make in India’ and e-Commerce” in New Delhi, highlighted that the next phase of growth is likely to come with the implementation of Goods and Services Tax (GST) and allowing exports through the courier channels. E-commerce has become an important platform for micro and small manufacturers/exporters and the rapid progress made by both e-commerce and small and medium enterprises (SMEs) has opened up new vistas for the EDS industry for handling non-document shipments. Ease of doing business i.e movement of shipments within the country and outside was cited as the biggest impediment for the express industry. Central and state legislations governing goods transportation have not kept pace with the explosive growth of e-commerce and due to the absence of uniform taxation policies between states, e-commerce shipments face significant hurdles while delivery, consequently impacting the EDS players. Speaking at the event RK Saboo, Chairman, Express Industry Council of India (EICI) said, “The industry is not seeking tax breaks and sops, but simplification of procedures. We believe the expected GST regulations have the ability to standardise legislations and smoothen out operations. However, a definitive road map for the implementation of GST may provide significant immediate relief to issues associated with inter-state commerce. We also want the government to give a special focus on exports from small and medium enterprises as part of their ‘Make in India’ initiative.” Facilitating ease of exports will give further impetus towards encouraging products manufactured in India to be sold in the global market as envisioned by the governments ‘Make in India’ policy. It would also open up avenues for e-commerce and the air cargo industry while enhancing the prospects of the country’s booming e-commerce sector. “We are certainly benefitting from the huge demand increase in the domestic market. This is primarily being driven by the thriving e-commerce sector in the country. Year on year, we have seen double digit growth in revenue on our domestic network. Many of the major agents are key customers and we have focused on how we can do more with them as well as trying to capitalize as much as we can on the growing e-commerce sector,” said Martin Drew, former vice president of cargo for Jet Airways in an earlier interview to ACAAI News. Recently a joint report by ASSOCHAM and research firm PwC highlighted that Indian e-commerce is expected to spend an additional $950 million to $1.9 billion on warehousing and logistics between 2017 and 2020. The study estimates that over the next three to four years, warehousing capacity could increase by up to 12 per cent. The growth of e-commerce will also see a boost to air cargo as India currently operates at a very low level of air cargo penetration, as the market grows there will be increasing demand to expand air cargo connectivity. Furthermore, as business models are evolving to reflect economic globalisation there has been agreater emphasis on increased efficiency within the supply chain, demand for time definite and reliable movement of goods. “We have increased revenues through the development of high yield products, greatly increased focus on partnership, a critical area in enabling us to expand our network reach,” Drew was quoted in the ACAAI News interview. The extensive airfreight network is useful as internet business models revolve around high volume of transactions with high levels of smaller shipments. Air express transportation companies have access to 220 countries or territories and fit the internet business model effectively.Furthermore, air express companies have a great degree of space that goes unutilised and can be used effectively to transport e-commerce commodities. On an average only 33 percent of the cargo capacity of a passenger flight is being utilised to transport cargo and airlines are hard pressed to sell this space to increase revenue. The hub-and-spoke model that most airlines use permits individual pallets to be quickly loaded at the hub airports, to flights that can carry the cargo to smaller cities, closer to the customers. The race among online vendors in India to deliver first has propelled the country’s domestic air cargo traffic since May 2014, enabling it to grow at an unprecedented 21 percent to 25 percent in six of the past 14 months, with double-digit growth in virtually every month. Growth in cargo movement has been the sharpest at airports in Bengaluru, Hyderabad and New Delhi, home to major warehousing hubs for big ecommerce players. “With e-commerce, manufacturers are reaching the consumers directly, thereby eliminating the intermediaries, resulting in lower prices and increased sales. Manufacturers are now focusing more on building mode of transportation to develop just-in-time delivery system, which will result in an increase in the air traffic. Speed being the major factor, logistic processes could be accelerated by efficiently managing the supply chain to ensure smooth functioning,” observed Willy Ko, CEO, Air India SATS. As the consumers have become demanding, on time delivery of goods has gained much importance than ever before. Various airlines are increasing their fleet size and operating special freighters on key routes to transport e-commerce goods and the volume of cargo uplift is gradually growing. Airport infrastructure development also needs to cater the growing need of logistics by air which will further help in shortening the delivery time from supplier to the customer. India’s bleeding airlines are seizing the opportunity. SpiceJet has initiated talks with several e-commerce firms for tie-ups, while a couple of airlines are considering starting dedicated freighter plane services. According to Forrester, e-commerce market in India is set to grow the fastest within the Asia-Pacific Region at a CAGR of over 40 percent between 2012 and 2016. “Air cargo industry is expected to reach the level of nine million MT by 2020 in accordance to Vision-2020 prepared by the Ministry of Civil Aviation. Airport Authority of India (AAI) has indicated plans to optimally utilise its old redundant/un-utilised domestic passenger terminals by converting them into cargo facilities after carrying out the necessary modifications,” added Ko.

Evolving supply chains The advent of e-commerce has also led to enhanced competition and more pressure for companies to streamline their supply chains to reduce cycle times, improve profits and remain competitive. It has also led to a greater demand for communicating detailed information quickly, preferably on a real-time basis. Thus it is critical for air express companies to be able to move goods even faster and to create more sophisticated communication tools in order to facilitate the flow of goods around the world. More and more businesses are relying on air express companies to deliver these goods directly from the point of supply to the point of consumption, within the shortest amount of time. “Given our edge in the air cargo sector, we can deliver the product anywhere in the country within 24 hours, provided that the air connectivity is there. This is coupled with the strong fleet on the ground and sufficient delivery nodes. The rising competition for express delivery is not really a challenge for us now, thanks to this strong airport-to-airport and airport-to-door network,” said Areef Patel, Vvce chairman, Patel Integrated Logistics. With e-commerce, manufacturers are reaching the consumers directly, thereby eliminating the intermediaries, resulting in lower prices and increased sales. Manufacturers are now focusing more on building mode of transportation to develop just-in-time delivery system, which will result in an increase in the air traffic. Speed being the major factor, logistic processes could be accelerated by efficiently managing the supply chain to ensure smooth functioning. “The cargo industry is a value scheme encompassing the entire value chain for end-to-end solutions. Air transportation is crucial in the entire logistics network that comprises infrastructure and geographical reach, supported by advanced technology and committed people. Minimum and optimal handling of cargo goods and products is of prime importance. Thus, relearning the staff and facilitating process change to handle such goods effectively will enhance efficiency of air cargo operations,” Ko concluded.