Pumping up India’s air cargo prospects

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The center under the leadership of Prime Minister Narendra Modi is framing progressive and development policies in order to keep pace with the global players. In an endeavour to provide impetus to the air cargo industry, the Ministry of Civil Aviation (MoCA) has recently released a Draft National Air Cargo Policy which has been greeted and reviewed with approval by the industry. The air cargo industry is of the collective opinion that this policy could be a key facilitator and has all the ingredients to pump up India’s prospects as a future air cargo leader.

Upamanyu Borah

Front Matter

India is set to become the 3rd fastest growing economy in the world by 2030 and this will propel the Indian aviation industry as the 3rd largest in the movement of both passenger and cargo traffic. However, India’s total annual air freight volume stands at 3.3 million metric tonne (MT) despite a continuous growth of over 10 per cent year-on-year (YOY) and has not reached close to any one of the top three world-class airports, i.e. Hong Kong- 5 millon MT, Memphis- 3.56 million MT, and Shanghai- 3.26 million MT, for the year 2017-18 owing to procedural bottlenecks.

Although, amidst challenges, the Indian air cargo sector throws innumerable opportunities. In order to ensure smooth flow of air cargo, it is critical to enhance safety, improve security, strengthening the value proposition of air cargo, driving efficiency through global standards, improving quality, strengthening partnerships, and building sustainability.

Industry leaders also avow that India’s air cargo industry is poised to achieve greater heights provided some of the procedural bottlenecks are addressed, which would aid to the cause immensely. This would require combined efforts in the field of infrastructure and technology to be able to take advantage of the opportunities. Simultaneously, there should be liberal policy initiatives on the part of the Government. Regulation and technology both put their own unique pressures onto freight forwarders which mean that strategic choices need to be made more carefully in order to succeed.

Ground Report

When Spicejet, an Indian low-cost carrier, geared up for 737 freighter operations in September 2018, India came under scrutiny by the air cargo market.

Total cargo at all Indian airports during 2017-18 witnessed a growth rate of 12.7 per cent with 3.35 million MT cargo traffic in FY’18. International air cargo traffic increased by 15.6 per cent to reach 2.14 million MT in FY’18 whereas domestic cargo traffic increased by 8 per cent to reach 1.21 million MT. At present, international cargo contributes 60 per cent to India’s total air cargo sector, approximately double the growth rate as compared to the domestic air cargo business.

India’s top air freight trading market is the UAE, which has a 30 per cent share; followed by Qatar at 11 per cent. The highest rate of growth was to and from Ethiopia, which saw more than double the tonnage in 2017, YOY. Some 35 flights a week are permitted between the two countries, and Ethiopian Airlines in August 2018 announced its intention to expand its seven-year codeshare with Air India.

Mumbai and Chennai were among the world’s top 10 fastest-growing airports in freight terms, with 18.1 per cent and 17.2 per cent growth respectively, while Delhi and Mumbai are among the top 50 biggest freight airports.

Drivers and Facilitators of growth

The Indian air cargo industry is poised for tremendous growth in the coming years. Airfreight has registered a CAGR of 6.79 per cent between FY’10 to FY’19; Chhatrapati Shivaji Maharaj International Airport (CSMIA) itself has recorded a growth of 6 per cent in FY’19 compared to the previous year, informs Manoj Singh, Sr Vice President– Cargo, Mumbai International Airport Ltd (MIAL). “Considering the current state of operations, we are optimistic that the sector will grow at a reasonable pace against the backdrop of an evolving pharmaceutical business model and robust growth of E-commerce market. As per reports, the Indian E-commerce industry is set to become the second-largest E-commerce market in the world by 2034. The industry is expected to spend an additional $950 million to $1.9 billion on warehouses and logistics by 2020. Therefore, we can undoubtedly say that the E-commerce market is one of the major drivers of India’s air freight business across domestic and cross-border sales. Nonetheless, both pharmaceutical and E-commerce segments have been the key drivers in supporting CSMIA’s air cargo growth as well,” says Singh.

The cargo trade has moved to finished goods, and product driving the growth includes pharmaceuticals, gems and jewelry, equipment and ready-made garments, apprises Keku Bomi Gazder, CEO, AAI Cargo Logistics and Allied Services Company Limited (AAICLAS). “The transition of E-commerce is going to benefit the air cargo sector in India, as supply chains adapt to these new trends. Although it is quite difficult to foresee where the market will be heading to, air cargo is likely to witness moderate growth of 6.7 per cent in 2019,” says Gazder.

Reportedly, India is the largest supplier of low-cost generic drugs globally, catering to over 20 per cent of the global demand by volume. As such, India is the chemist of global trade and pharmaceuticals have been its global commodity since 2013. According to Bharat Thakkar, Joint Managing Director, Zeus Air Services, “India’s pharma exports rose 11 per cent to reach 19.2 USD billion during 2018-19 mainly driven by higher demand in regions such as North America and Europe. US Constitutes about 30 per cent of Indian pharma exports followed by Africa and the European Union (EU). Going ahead, we see Africa and South America as the next frontier for India’s surge in air logistics.”

Although, Thakkar feels that the critical need to reduce the transit time of goods carried by air as they are time-sensitive and also significantly higher in terms of value, it will be a key factor, complementing India’s air freight growth.

Given the fact that pharmaceuticals, textiles, automotive components, and leather goods are India’s top export commodities through air; economic development, technology adoption, increase in airline/airport capacity, and liberal government policies are the factors facilitating India’s air cargo growth, believes industry veteran Ramesh Mamidala, Former CEO, Çelebi Delhi Cargo Terminal Management India Pvt Ltd.

“FDI in manufacturing, Government’s focus on Ease of Doing Business, ‘Make in India’, export-oriented manufacturing of electronics, pharmaceuticals, etc. are helping facilitate India’s air cargo growth story,” says Mamidala.

Besides, among the various expansion and up-gradation initiatives taken up by the regulatory bodies, increasing investments to modernise and develop cargo projects by AAICLAS, expansion and up-gradation of existing airports, development of low-cost airports by Airports Authority of India (AAI), expansion of Green-field projects, along with increasing private sector participation is currently driving the country’s air cargo growth, observes Gazder.

However, to realise the potential, the industry must expand its reach by tapping unserved regions with smaller freighters and connecting them to mainland hubs.

At domestic level, considering the continued growth forecast of passenger traffic, introduction of the Ude Desh ka Aam Naagrik (UDAN) scheme along with an increase in the number of airports, will accelerate the growth of Indian aviation sector and encourage airlines to add more fleet to their current network thereby producing an additional belly capacity for air freight, feels Singh.

Improving Efficiency by streamlining Productivity

While new reports by global consulting major Deloitte and industry body FICCI notifies that the air cargo industry in India continues to be dominated by paper-driven legacy systems and procedures which are time-consuming and expensive to comply with, Jaideep Raha, Managing Director, Jetex Oceanair Pvt Ltd reiterates saying that adoption of technology has made India’sair cargo industry substantially paperless, thus saving time and manpower which translates into economical pricing and faster processing of documentation and less clerical mistakes as part of Human Error factor.

Clearly, there is a need to expedite some of the technology initiatives to not just automate all information systems but also to streamline redundant processes and regulations.

Thakkar says, “The paperless era we all have been looking for post-Singapore Govt Model is now around the corner and my understanding is, margins will be tight. The only crucial determiner is Government must work in tandem with a strategy to ensure all parties remain aligned to improve operational effectiveness and deliver against the ‘to-be’ state.”

According to Singh, “Indian air freight industry is perhaps the most innovative and progressive in terms of technology as compared to other modes of transport. The adoption of technology and digitalisation of processes have become much faster in recent years. Though increasing technology impacts the size of the workforce, it is critical for air freight to maintain its competitiveness.”

A similar response, Vipin Vohra, Chairman, Continental Carriers Pvt Ltd maintains, “Technology in the air cargo industry is moving into a new phase of digitalisation and this means more ability to move air cargo quickly, end-to-end paperless transport processes, and improved transparent customs and regulatory frameworks. This certainly gives customers confidence, and is resulting in the growth of India’s air freight industry.”

Along with key technology ideas such as Blockchain, Artificial Intelligence (AI), completely integrated Electronic Data Interchange (EDI) driven air cargo community portals, which Mamidala says are expected to drive and lead to encouraging growth for air freight in India; real-time data, proper planning of cargo, identifying hubs and spokes, analysing market trends and working in close collaboration has streamlined India’s air cargo growth, believes Sailendra Kumar Thakur, Head- North and Gujrat, Aspinwall & Co Ltd.

“Connectivity, cyber-security, AI and automation have the greatest impact at the ecosystem level because they are the key enablers of movement along the value chain, leading to the reinvention of operation and revenue generation models. Other technologies, such as green energy and new materials, are important, but have limited impact on the emergence of new products,” says Thakur.

Certainly, the global air cargo industry can save billions of dollars in costs if it automates transactions between various players in the supply chain.

“Automation can only result in better productivity if there is a change in the mindset of Government officials and airport operators using the service. Automation in India’s air cargo industry is in the process of being upgraded at major airports and the effect of such automation should ideally result in higher throughput and lower dwell times, but the results will need to be seen in the future,” explains Vikram Kumar, Chairman, ACAAI-NR and Director, CTC Air Carriers Pvt Ltd. Above all, the training and sensitisation of staff to changes in processes and the acceptance of paperless, non-human intervened transactions will be the biggest factor to enhance and improve the air cargo trade and take it to world-class levels, says Kumar.

Here, the need is to increase the use of e-AWBs as the first step to further digitisation of air cargo which will yield real benefits and efficiencies for the industry. Definitely, the magnitude of volumes in the next couple of years, be it from E-commerce; or otherwise, will force all service providers to not only adopt automated and digitised solutions but also integrate them to have better transparency in the overall supply chain, exclaims Anil Mantri, Director, Sealair Freighters International Pvt Ltd.

Emerging market economy

After having achieved dominance in the service sector, India is now looking towards becoming a global manufacturing hub. This intention has been made clear by the ‘Make in India’ initiative that has been launched by the government. As a part of this initiative, special concessions have been announced for multinational companies to create manufacturing bases in India. This has definitely drawn the attention of many multinational companies that are looking to reduce the dependence of their supply chain on China. It would be inappropriate to say that within a short span of time India will compete with the likes of Japan, Germany, and China. However, the process of transforming the manufacturing sector has already begun.

Definitely, Thakur says, the entire world is looking to join hands and companies are aggressive to set up their manufacturing units and export finished goods from India. E-commerce giants are planning to join hands with Kirana stores as they feel the demand is more here. This will boost India’s air cargo business as consumers are in a hurry to get their products as soon as possible. Besides, market liberalisation, favourable Export-Import (EXIM) policies, Free-trade Agreements (FTAs), removal of trade barriers concerning a gamut of formalities, will further facilitate the ideology of Indian market as a potential destination for sourcing of services.

Considering its geographical location, India has the potential to become a global hub for air cargo. Not only its geographical location but also the amount of international trade that the country is engaged in now makes India a good location for such a hub. Even a place like Dubai, where there is any manufacturing, has made itself a good cargo hub destination. There is no reason why India with all its growth in the manufacturing sector and exports and imports could not become another global hub.

“India has a geographical advantage to operate as a successful hub initially serving the emerging markets of South Asian Association for Regional Cooperation (SAARC) and countries such as Myanmar, Vietnam, and Cambodia. This cautious start will provide the requisite knowledge and expertise to take on the other existing major Middle Eastern/Asian hubs and expand its hinterland up to Japan in the east and Africa in the west. Besides, India offers a stable political environment, skilled workforce, however existing airport infrastructure and user charges are likely to act as a major disincentive to attract customers to use the hub,” feels Thakkar.

Open Sky Policy on air cargo and improved international connectivity coupled with expanding cargo-handling infrastructure, both physical and digital have sustained the high growth of air cargo in India in the last few years, according to Gazder. “The Indian air cargo market is poised for significant maturation on the back of India’s economic strength and many other drivers of growth in India’s commerce, trade, investment and consumption, which include significant demand from small and medium B2B segments. Going forward, simplification, modernisation and harmonisation of export and import processes as well as end-to-end domestic supply chains are advantageous and will make India a growth spot for air cargo,” says Gazder, elaborating the elements required to create a resourceful cargo hub. Also, it is noteworthy to mention that a strong impetus has been provided through the holistic National Civil Aviation Policy 2016, which has included a number of initiatives for achieving the growth of cargo volumes to 10 million tonnes by 2027, adds Gazder.

Agreeing to Gazder, Vohra also observes that the Indian air cargo industry has the advantage of a growing economy along with many other significant and parallel drivers of growth in India’s commerce, investment and consumption, which include considerable demand from small and medium B2B and B2C segments. “The much-awaited National Air Cargo Policy, improved international connectivity along with ever-expanding cargo-handling infrastructure, both physical and digital are destined to make India as growth spot for air cargo,” adds Vohra.

Thakkar views that as an emerging South Asian hub, India in the future will enable carriers who do not serve many counties in the region, to consolidate the cargoes destined to various airports with Unit Load Devices (ULDs) and these goods can be devanned and placed on individual aircraft operating to the many identified airports. Besides, inbound cargo from many participating operators will also ensure a critical mass for servicing the many regional airports.

Creating positive change

While steady economic growth, domestic open skies and industry-friendly policies are termed as major drivers of cargo traffic growth, it will be the immense untapped potential that will provide a big boost to the industry.

India seemingly has all the ingredients to be one of the world’s great air cargo centers. The rapid growth of international trade, a huge manufacturing engine and a population of more than 1.2 billion, all bode well for the industry. However, for a variety of reasons, India has not realised this great potential to a broader extent. The historical challenges facing India are well documented; inadequate infrastructure, in particular, has proved a major stumbling block in further developing the country’s air cargo sector.

“There is a significant untapped potential for air cargo in India. An indication of the same can be gauged from the fact that the total air cargo throughput handled by all Indian airports if put together is still less than that handled by individual airports like Dubai, Hong Kong, Shanghai, Incheon, London and Paris,” woefully adds Thakkar.

The need of the hour is to have infrastructure that will help reduce costs, save time, manpower and money to make the Indian industry more competitive. Kumar expresses, “The industry must witness the faster movement of capital, lower interest costs and less interaction with Government departments for licensing, permissions, etc. While the enhancement of rail, road and port infrastructure will lead to less congestion, more productivity and more flights and vessels coming in to increase business in the freight industry.”

“The development of new airports especially with a focus on making them cargo hubs, encouraging transshipment, and the arrangement of a transportation network as a hub-and-spoke model, will result in economies of scale and better utilisation of available resources,” further says Kumar.

Proposing a strategy, Raha hints that to have some sort of price/rate control mechanism by the Government for the operators will be a critical factor. Besides, efficient route planning, use of right type of aircraft based on flying time and the type of cargo along with its movement, in a particular route to make it commercially viable, will be a sound step.

Also, to provide relief to the long winding queues of cargo near the airport gateways, Air Freight Station (AFS) is a big initiative; it will not only help to decongest airports but also offer value additions to cargo stakeholders. The AFS, which replicates the CFS (Container Freight Station) model at the ports, ensures speed, safety and security. Counting on the prospects of AFS, Vohra says, “It will 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. AFS will also bring down cargo handling costs.”

Meanwhile, with a vision to create Mumbai International Airport Ltd (MIAL) as the cargo hub of India, Singh says, “We aim to develop complete temperature-controlled and digitalised pharma trade lanes between Mumbai and the various Center of Excellence for Independent Validators (CEIV) certified airports. MIAL has been recently awarded ‘CEIV Pharma’ certification by IATA, the first airport in India and third in Asia to achieve this quality milestone. Going forward, we are in the process of further enhancing the Export Pharma Handling capacity by another 1,50,000 MT offering 120 additional ULD storage positions taking the overall capacity to 2,50,000 MT. We are channeling our efforts towards India’s largest ‘Airside Transport Solution’ which will be a first of its kind for pharma shipments. It is currently under pilot run and will be commissioned soon. The airside transport vehicle can accommodate two main-deck ULD positions and can offer a temperature range of +15 to +25 and +2 to +8 degrees celsius between the airport’s pharma facilities and the aircraft.”

“Besides, enhancing pharma capabilities, we have also commissioned a dedicated agro terminal for export perishables and enhancement of import warehouse capacity by adding multi-level racking systems. The newly commissioned state-of-the-art agro terminal equipped with facilities like truck docks, dock levelers, weighing scales, X-ray machines, work stations for ULD buildup and weighed along with complete CCTV and security surveillance will offer an annual capacity of 2,00,000 MT,” continues Singh.

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