India builds new ecosystem for air cargo industry
While the air passenger growth story of India has been phenomenal, registering over 20 percent year-on-year increase, its air cargo industry lags behind.
But realizing its potential to accelerate the pace of economic growth in the country, the government now builds the foundation of a new ecosystem that will tap immense opportunities in the air freight industry.
The Indian government set up in 2016 a subsidiary under the Airports Authority of India (AAI), the AAI Cargo Logistics and Allied Services Company Limited (AAICLAS), designed to manage the development of air cargo business at 30 plus airports including potential airports within India and outside of it.
AAICLAS aims to become the largest integrated cargo logistics and ground handling operator in India.
Under the new leadership of Chief Executive Officer Keku Bomi Gazder, the entity is developing Common User Domestic Cargo Terminals (CUDCTs) at 24 AAI Airports in a phased manner. In financial year 2016-17, it set up cargo terminals at Ranchi, Goa, and Srinagar (interim) for Domestic Cargo; Indore, Pune and Bhubaneswar for international cargo and, Kolkata and Chennai for international courier.
For 2017-18, it has listed launch of CUDCTs at Guwahati, Tirupati, Lucknow, Thiruvananthapuram, Varanasi, Amritsar, Srinagar, and Vijayawada (domestic cargo) and to undertake international cargo handling operations at Jaipur, Aurangabad, Visakhapatnam, Madurai, Tiruchirappalli.
The focus, according to Gazder, will be on cargo handling, security and documentation handling, supply chain, transshipment facility provider, airport free zones developer and project logistics. The organization will also work as multi-modal interface linking air, surface and water transport, not just in the metros but also smaller towns in the hinterland.
“We are in the business of creating a favorable environment to enhance and promote business at our airports. We want to grow our cargo business and increase its share from all the airports managed by AAI. This will involve us being disruptive in our current processes,” said Gazder explaining AAI’s vision to become the largest networked & fastest growing logistics solution provider in India.
Gazder estimates India’s air cargo industry will grow between 10-15 percent this year and jump to 20 percent next year to catch up with passenger growth trend.
He said AAICLAS has already started providing services including ground handling services, documentation, transport services for carriage of bonded and non-bonded cargo and screening services. It will be entering into partnerships or joint ventures to promote air cargo business.
With the government introducing a Regional Connectivity Scheme (RCS), air cargo movement from the hinterland is expected to pick up. Under the scheme, air freight operations at RCS Airports shall be entitled for a 2 percent excise duty on ATF (aviation turbine fuel) drawn for air freighter operations at RCS Airports for a period of three (3) years from the date of notification of the Scheme. Now with GST (Goods and Services Tax) in place, rates are applicable as determined under GST and exemptions/ concessions. GST is a complete game changer.
Gazder stressed: “We are business enablers and with GST, the exporters of goods will have less burden of taxes since the place of consumption is overseas. This, in my view, will help make businesses more competitive in the international market perhaps even opening India to newer markets as well as export of more commodities resulting therefore in increased tonnage handling.”
As per the policy, airport operators (whether under the ownership of the AAI, State Governments, private entities or the Ministry of Defense, Government of India) shall not levy Landing Charges and Parking Charges or any other charge subsuming a charge for such aspects in future.
AAI will not levy any Terminal Navigation Landing Charges (TNLC) but it will impose Route Navigation and Facilitation Charges (RNFC) on a discounted basis @ 42.50 percent of normal rates.
The government, however, is not providing VGF (viability gap funding) support for cargo operations it is only for passenger operations. Nevertheless, a study has been initiated to look at leveraging the scheme, considering that mostly small aircraft will be used.
“We are exploring the opportunities to move certain specialized commodities through these aircraft. We are also leveraging these airports to be mini staging areas for our domestic businesses,” said Gazder.
The government is also working on a common IT platform for stakeholders in the domestic air cargo segment.
“We are developing a common framework for movement of air cargo across all stakeholders,” said Civil Aviation Secretary, R.N.Chaubey. The same is expected to be in place in one-and-a-half years. The work has started on a common IT platform for air cargo stakeholders and once it is in place, movement of air cargo would be far easier.
All about air cargo
The new CEO of AAICLAS told Air Cargo Update the company is a 100 percent subsidiary of AAI and its focus will be all about air cargo.
“We will be focusing on cargo handling, security and documentation handling, supply chain, transshipment facility provider, airport free zones developer and project logistics. We would also work as multi-modal interface linking air, surface and water transport as well as connecting to hinterland points in India, thus, becoming the largest networked and fastest growing logistics solution provider in India,” said Gazder.
“We are here to serve the trade and enable ease of doing business for our trade partners by providing them with a facility and service their products deserve. When a manufacturer tells his agent/forwarder/airline to use our airport/facility for his goods; that is what we want to achieve. Hence, we are in the business of creating a favourable environment to enhance and promote business at our airports. We want to grow our cargo business and increase its share from all the airports managed by AAI. This will involve us being disruptive in our current processes,” he added.
Along with that vision is the goal to provide the best practices applied worldwide in India to ensure that businesses flourish.
“Some of the questions I ask myself regularly are: Why would a businessman, forwarder, airline, integrator, manufacturer and various other stakeholders in the supply chain utilise our facilities? What is the best we can offer differently? What additional value are we bringing to the table? How can we act as an enabler to promote trade in the country? How can we make our airports move from handling cargo to a super hub for our airlines? These are my priorities to answer,” said the CEO.
AAICLAS is now working on its five-year plan with an annual turnover of Rs380 crore expected in two years.
Asked if the company is on track in achieving its targets, Gazder explained: “In the past 11 months, we have witnessed a positive development in the cargo movement at our airports. We are aiming to achieve the target in the next financial year. We are expecting the business to grow by 10-15 percent in the current financial year and over 20 percent in the next fiscal year. The mandate of AAICLAS is to focus on cargo and increase the cargo handled by our airports using best practices and world class technologies.”
The CEO also noted how AAICLAS can benefit from government’s UDAN scheme saying, “there is a study that has been initiated to look at leveraging on government’s Regional Connectivity Scheme under UDAN—Ude Desh ka Aam Nagrik. The aircraft under this initiative are relatively small. We are exploring the opportunities to move certain specialized commodities through these aircraft. We are also leveraging these airports to be mini staging areas for our domestic businesses.”
The government is also working on a common IT platform for stakeholders in the domestic air cargo segment, which is projected to see increased growth in the next few years.
The country’s domestic air cargo sector has been growing at 7 percent, while the international air cargo segment has been clipping at 12 percent.
The overall average growth is around 10 percent, which is still twice the average growth rate of the global air cargo business, Civil Aviation Secretary R N Choubey said.
“We are developing a common framework for movement of air cargo across all stakeholders,” he said, adding that the same is expected to be in place in one-and-a-half years.
The work has started on a common IT platform for air cargo stakeholders and once it is in place, movement of air cargo would be far more easier.
What major initiatives of AAICLAS are in the pipeline?
AAICLAS, in accordance to the roadmap prepared by AAI for the development of Common User Domestic Cargo Terminals (CUDCTs) at 24 AAI Airports, have been taking forward the air cargo movements at AAI airports in a phased manner and commissioned the cargo facilities during the FY 2016-17 at Ranchi, Goa, and Srinagar (interim) for Domestic Cargo; Indore and Bhubaneswar for international cargo and, Kolkata and Chennai for international courier.
AAICLAS is planning to launch CUDCTs during the FY 2017-18 at Pune (launched), Guwahati, Tirupati, Lucknow, Thiruvananthapuram, Varanasi, Amritsar, Srinagar, Vijayawada and to undertake international cargo handling operations at Pune, Jaipur, Aurangabad, Visakhapatnam, Madurai, Tiruchirappalli.
AAICLAS has taken the lead in the Ministry of Civil Aviation’s initiative of forming a National Air Cargo Community System (ACS), a single window system for uniform interface between all the stake holders of air cargo community using international standards; a common information technology platform connecting all the various stake holders to streamline country’s air cargo industry on one common platform.
Tell us about investments and marketing strategy. We will be heavily investing in our facilities, training and development of manpower. Although the figures cannot be disclosed at this moment, we will make a significant investment. A private organization will do business where it is profitable. But for us, as part of the government, it is our duty to facilitate the building of infrastructure even where there is less commercial viability keeping in mind its national obligations.
The company would enter into strategic partnerships based on business demand at airports within the country and abroad. For the first time, we will be open to investment outside India. We will invest in airports and facilities worldwide. Our collective expertise and knowledge in managing domestic facilities for over five decades gives us a strong edge over other operators.
In certain models at certain places we will invest in facilities and third parties will manage them whereas in some airports we will build the facilities and operate the facilities ourselves. We also have a strong mandate from the board to explore cargo handling and allied services abroad. On the marketing front, we will conduct road shows and participate in exhibitions to promote our services. We will also meet various stakeholders in government and private sector to leverage on our strengths.