India races against time to build capacities amid rising air cargo demand
The country’s air cargo industry faces hurdles such as high dwell times, congested cargo terminals, sub-optimal use of belly cargo capacity, missing/damaged non-traceable cargo, and manual processing.
The Government of India (GoI) is pursuing a range of actions to improve its logistics performance. These include the development of dedicated rail-based freight corridors, surface transport connectivity, improvements to the capacity and connectivity of coastal and inland water-based shipping and airports with improved cargo terminals.
As national freight activity is expected to grow five-fold by 2050, India’s freight transport ecosystem has a critical role to play in supporting the country’s ambitious priorities.
Realizing the importance of air cargo in enhancing economic activity, the Parliamentary Standing Committee on Transport (2021) noted India’s freight potential with respect to its geographical location, its growing economy, and its growth in domestic and international trade.
In 2019-20, airports across India collectively handled 3.33 million metric tons (MMT) of freight. This is certainly way below Hong Kong (4.5 MMT), Memphis (4.8 MMT), and Shanghai (3.7 MMT), the top three airports in terms of freight volume handled. As a country, India can certainly do more.
As per the National Cargo Policy 2019, the air cargo industry faces hurdles such as high dwell times, congested cargo terminals, sub-optimal use of belly cargo capacity, missing/damaged non-traceable cargo, and manual processing.
The Parliamentary Committee noted that inadequate infrastructure has been a major bottleneck in developing the country’s air cargo sector. To eliminate the bottleneck, it recommended the establishment of dedicated cargo airports with automated air cargo procedures and information systems to streamline redundant processes.
Some of the private and AAI airports have got into the act. The Indira Gandhi International Airport at Delhi is the preferred air cargo hub of India due to its strategic location, infrastructure and cargo handling services. It has two integrated cargo terminals, on-airport logistics center and the largest airline network connecting 75 international and 69 domestic destinations.
The Kempegowda International Airport at Bengaluru has reputed cargo terminal operators – Air India SATS and Menzies Aviation Bobba. It offers connections to 25 global and 55 domestic destinations with 15 freighters. It recently inaugurated India’s first dedicated Express Cargo Terminal, exclusively for export and import of international couriers.
“BLR Airport is well on track towards becoming a cargo hub, offering world-class infrastructure, powered by leading global logistics providers. With express courier gaining greater significance following the exponential growth of e-commerce, the Express Cargo Terminal at BLR Airport is a significant step towards supporting and driving this growth. In addition, it will facilitate trade and faster movement of goods across the world,” said Mr. Hari Marar, MD & CEO, BIAL.
Similarly, in March this year, GMR Hyderabad Air Cargo (GHAC), a division of GMR Air Cargo and Aerospace Engineering Limited (GACAEL) inaugurated a new facility to handle international courier and express cargo consignments.
The facility will be the new gateway for import and export of courier cargo shipments from the region. It is connected with Express Cargo Clearance System (ECCS) of Indian Customs, enabling seamless and quick courier consignment processing and clearance at the terminal.
Coming back to the Parliamentary Committee, it highlighted that the ‘Open Sky Policy’ enabled foreign cargo carriers to freely operate cargo services to and from any airports in India having customs/immigration facilities. They account for 90 to 95% of the total international cargo carried to and from the country.
However, for providing a level playing field for Indian air cargo operators in these Covid-affected times, the government in December 2020 effected some changes in the ‘Open Sky Policy’ for cargo.
It restricted non-scheduled cargo flight operations by foreign carriers to and from India to Delhi, Mumbai, Kolkata, Chennai, Bengaluru and Hyderabad while Indian carriers can load non-scheduled cargo flights from any point in the country.
The committee recommended a standard rate for processing and handling of cargo at airports across the country to improve the competitiveness of India’s exports and the cost of air cargo logistics. The committee wanted freighters to get dedicated parking bays and brought all air cargo tariff disputes under the Airports Economic Regulatory Authority (AERA).
Cargo-handling rates across airports
General cargo handling rates at Indian airports vary immensely and across all types of airports – those under the AERA’s purview and those outside. There is no standard rate across airports for the processing and handling of cargo at air cargo terminals, which has been counterproductive to the competitiveness of the country’s exports, while adding to the cost of air cargo logistics as a whole.
“The committee, therefore, recommends (to) the ministry to fix a standard benchmark for fixing processing and handling charges which will be applicable across all airports. The committee further recommends (to) the ministry to ensure that these charges are comparable to other airports around the world so that our export competitiveness is not impacted due to high terminal charges.”
Growth of India’s air cargo market
Despite these irritants, the domestic air cargo market has been expanding since FY16, outpacing global air cargo growth. However, during Covid times, there has been a decline. Cargo tonnage grew at 6 %in FY19 over the previous financial year, according to data from AAI, but it fell by almost 7 % in FY20 and by more than a fourth in FY21.
Among airports operating under the public-private partnership mode, the decline in cargo traffic was the most at Kolkata and Mumbai airports (over 31 %) in FY21 – exceeding the national average, as per data from global aviation consultancy firm CAPA.
Mumbai’s share of domestic cargo volumes declined 5 percentage points in FY21, equivalent to a loss of about 50,000 tons, CAPA said and expected volumes to surpass pre-covid levels in 2022. Domestic cargo is expected to increase by 43 % to 1.36 million tons (2.7 % above FY20 levels), while international cargo is projected to grow 35.9 % to over 2 million tons (3.2 % above FY20 levels).
Room for more cargo planes
To cater to the growth in the air cargo market, Indian carriers have been increasing the deployment of dedicated air freighters. The parliamentary panel said the number of dedicated freighters had risen from seven in 2018 to 26 in 2021, with room for some more.
The government has also encouraged Indian airlines to acquire more wide-bodied aircraft to increase the capacity of belly cargo or cargo-on-seat flights. The panel noted that the share of dedicated air freighters was only 15 % in the air freight market in India compared with 50-55 % globally.
At least two Indian airlines, SpiceJet and IndiGo, have quickly ramped up their cargo operations, during these difficult times. IndiGo’s cargo revenue increased by 9.6 percent in FY21. The airline has now initiated a freighter programme and is sourcing four A321CEO aircraft.
It has converted 10 of its aircraft to carry cargo in the cabin. During the September quarter call with analysts, IndiGo CEO Ronojoy Dutta said structural shifts were already taking place in the cargo space. Dutta said that regulation is “in our favor, shipping to airlines substitution is in our favor, Indian volumes are growing. So, with all that, cargo really is a good story and will continue to be a good story.” Dutta said that regulation is “in our favor, shipping to airlines substitution is in our favor, Indian volumes are growing. So, with all that, cargo really is a good story and will continue to be a good story.”
SpiceJet is also increasing focus on the cargo business. The airline has received shareholder approval to transfer the cargo business to a subsidiary. It operated 17 cargo aircraft in the September quarter, including seven wide-bodied aircraft. Revenue from cargo operations jumped manifold in FY21.
Need to capitalize on demand
According to credit rating agency CRISIL, in India, while passenger traffic demand for the financial year (FY) 2020-21 was 34% of a pre-covid level, cargo demand was at 74%. The logistics sector represents about five % of India’s Gross Domestic Product (GDP) and employs over 2.2 crore people. ‘
India handles 4.6 billion tons of goods each year, representing a variety of domestic industries and products: 22% agricultural goods, 39 % mining products, and 39 % manufacturing-related commodities. Trucks and road vehicles handle most of the movement of these goods. Railways, coastal and inland waterways, pipelines, and airways make up the other transportation modes.
India has been one the world’s fastest-growing major economy for some years now, aside the pandemic years, due to soaring demand for goods and services. The movement of goods across the country and beyond its borders has created humongous economic opportunities for millions of Indians.