India explores - cargo opportunities further

Year 2016 ended on a high note for the Airports Authority of India (AAI) as it begins its ambitious quest to fully explore opportunities in the country’saviation and air cargo industries.

Civil Aviation Minister Ashok Gajapathi Raju said thecountry is now a step closer to becoming a world-classdestination in cargo and logistics services with the launchof AAI Cargo and Logistics Allied Services Company Ltd(AAICLAS) and its online footprint— ttps://airportsecom.gov.in/new/index.aspx.

Its air cargo and logistics subsidiary is projected to rake in annual turnover of Rs 380 crore ($56 million) in two years. The government has appointed Neera Rawat as the Managing Director while B.K.Mehrotra would be the Chief Executive Officer of AAICLAS.

Civil Aviation Secretary R N Choubey said AAICLAS expects to have “an annual turnover of Rs 380 crore (about USD 56 million) in two years time” and stressed that the cargo sector has so much potential.

AAI Reforms

AAI Chairman Guru prasad Mohapatra said the agency’s cargo department has been demerged and corporatized into a functionally and administratively independent organisation. ” It is envision edto make this company as one of the foremost multi modal logistics company in India with primary focus on air cargo handling and allied services. It would be covering all the entire gamut of cargo and air cargo handling and related value added services including
g ro u n d h a n d l i n g s e r v i c e s a n d security services for securing of cargo,” he said.

He noted: “AAI’s cargo business is hitherto administered through a departmental structure within the overall AAI administration. Given several important priorities of providing air navigation services and airport management services, cargo has been accorded a lower priority than it deserves.

“The analysis of AAI’s business model
shows that there was limited focus on cargo business, lack of appropriate business strategy and marketing
strength. It is a strategic fact that the dynamics of air cargo business and management are different, since speed of decision making and quicker responses to evolving dynamic situations are key success mantra.”

The company would be entering into strategic partnerships based on business demand at airports within the country or abroad.

The new subsidiary has an equity base of Rs 20 crore ($3 million), with a vision tobecome the foremost integrated logistics network operator in India with primary focus on air cargo handling.

Focus on verticals The new subsidiary will be allowed to develop its own distinct culture, organisation structure and business model while at the same time draw upon the strength of its large parent origination, AAI.

All the activities currently being carried out by the cargo department of AAI will be merged into the new
company and the department will no longer be functioning with AAI. The company will be shortly initiating
comprehensive discussion with all the stakeholders to ensure smooth transition of all cargo activities to the
new company. AAICLAS will focus on three verticals (a) air cargo handling and allied services, (b) warehousing
and contract logistics and (c) air cargo road feeder and air freight stations.

Creating AAICLAS would bring multiple advantages as there is lot of activities on the cargo front.
Rawat said, “The AAI cargo subsidiary
is a dream come true. There are two
sides of the air transportation coin
and we cannot do without either. Air
passengers undoubtedly deserve
undivided attention, because the air
transportation is an effect of their
existence. Equally important though
is air cargo as underlined by all the
dignitaries on the dais. A fine balance
will now be achieved, through this
laudable initiative of the launching of
this separate vehicle for air cargo.”

T h e r e a l i s a t i o n a m o n g t h e
government officials that multimodal transportation and air cargo in
particular is one of the major drivers
for economic development, is good
news. That the government has put in place the National Civil Aviation
P o l i c y a n d a l s o t h e R e g i o n a l
Connectivity Scheme should ensure
that there is substantial movement of
cargo, not just passengers, on a pan-
India basis. The opportunities are
humongous.

International consultancy firm Frost &
Sullivan in its report on ‘Strategic
Analysis of Growth Opportunities in
Indian Air Cargo Market’ has said that
the total market opportunity for air
cargo services in the country is
estimated to reach 2.8 million tons by
FY 2018 at a compound annual
growth rate of 5.5 percent.

FDI norms relaxed

“The relaxation of the cap on foreign
direct investment (FDI) in the aviation
sector has given a strong thrust to the
air cargo market,” said Srinath Manda,
Program Manager, Transportation &
Logistics Practice, Frost & Sullivan.
“The Indian Government’s FDI
policies have been particularly
f a v o r a b l e t o w a r d s p r i v a t e
participants entering the market.
Major policies fuelling market growth
include the allowance for 100 percent
FDI in existing airports and under
automatic routes as well as 100
percent tax exemption for airport
projects for the next ten years.”

However, the lack of dedicated air
cargo warehousing facilities at India’s
major airports has slowed down
market development. Domestic air
cargo operations have been limited
as most warehousing facilities cater
to international cargo owing to the
dearth of space in Tier II and III cities.
Further, the restrictions imposed on
providing licenses to operate bonded
warehouses has been causing severe
capacity constraints and impeding
the air cargo market.

Domestic cargo terminals

Nonetheless, market momentum will
pick up soon as the Airport Authority
of India has identified 24 airports in
which unused cargo terminals can be
converted to common user domestic
cargo terminals.

A l o n g wi t h t h e A A I ‘ s p ro g r a m
dedicated to establishing centers of
perishable cargo to cope with the rise
of domestic air cargo movement
involving perishable goods, this will
keep market revenues on a steady
upward trajectory.

“Evidently, opportunities for market
participants lie in common user cargo
t e r m i n a l d e v e l o p m e n t a n d
management at airports, domestic air
cargo carrier services, commercial
and passenger cargo handling at
airports, and perishable cargo
storage facilities development and
operation,” concluded Manda.

Air cargo traffic is likely to grow by
nearly 14 per cent year on-year to
reach 9 million metric tonnes by
2020. Some of the industries driving
the growth of the industry include
retail, automotive goods, telecom
equipment, textile and pharma.
With trade activities of the nation
about to increase manifold, cargo to
be handled in India is set to skyrocket.

Challenges

But there are many challenges that
the air cargo community faces, with
the infrastructure as the most obvious
one. With airports giving preference
to passenger movement, air cargo
remains neglected.

Due to lapse in time travelling
between aircraft to terminal, huge
time gap is created as there is no
parking facility for vehicles that carry
cargo back and forth from airports.
Shipment delays are common due to
air traffic congestion.

It is only now that India is seeing some
development in infrastructure related
to airports, particularly roads which
are crucial to moving cargo from
warehouse to airports.

The average truck speed in India is
about 20 km/hr, with a daily run of
just 250–300 km, compared to about
700–800 km in developed countries.
With emphasis on automation and
digitisation, now India’s air cargo
industry is expected to speed up the
process of movement and this
perceptible change in some airports
has been acknowledged by the air
cargo community.