India sets focus on growing air cargo industry

Published: Thursday, May 18, 2017

The Airports Authority of India (AAI) has prepared a roadmap to create cargo infrastructure and facilities at 24 AAI airports to push economic growth in all of the country’s regions. The total freight handled in 2006 was a meager 0.5 MMT. Today, it’s about 3 MMT, proof of huge potentials in the cargo industry.

Despite some regional airlines (Vijayawada-based Air Costa and Bengaluru-based Air Pegasus) in India folding up in double quick time, the Indian civil aviation sector has something to cheer about.

The passenger numbers are amazing, growing at 18.9 percent (both domestic and international ) between April 2016 and February 2017, though the cargo numbers are just half that (9.3 percent). The freight numbers are going to go north as there is considerable e-retail that is happening, besides a number of initiatives that the government has taken to add to that growth.

Reducing Dwell Time

The main steps taken by the government are many and the air cargo community is gung-ho about the policies. The Ministry of Civil Aviation (MoCA) recently got a study done on cargo dwell-time at six major airports to figure out why the dwell time at Indian airports were higher.

The study suggested corrective action at airports and one of the first actions was taken on April 1, 2017 when the free period for air cargo was reduced from 72 to 48 hours. Dwell time is that time the cargo spends within the airport from unloading to pickup. The yardstick for efficient logistics is faster unloading and pickup of cargo at airports.

The Minister of State for Civil Aviation Jayant Sinha recently stated in the Indian Parliament that the Airports Authority of India had prepared a road map to create cargo infrastructure and facilities at 24 AAI airports initially to provide impetus to economic growth and development on a pan-India basis to ensure harmonious growth for all regions in the country.

More importantly, the regional connectivity scheme (RCS) called ‘UDAN’ (ude desh ka aam nagrik – enabling the common man to fly) took off in April end with Prime Minister Narendra Modi flagging off the first ‘UDAN’ flight from Shimla to Delhi. The RCS is expected to positively impact the air cargo sector as the regional operators will be looking at different revenue streams, one of which is opening up movement of air cargo from Tier II and III cities which are desperately waiting for air connectivity.

Route Incentives

As provided for in the National Civil Aviation Policy (NCAP) 2016, air freighter operations at RCS airports are entitled to excise duty at 2 percent rate on aviation turbine fuel (ATF) for a period of three years.
And upon transition to the new regime of Goods and Service Tax (GST), rates will be as applicable as determined under GST and exemptions/concessions are expected to be given to the current reduced level of taxation to keep the growth momentum going.

Airport operators (whether under the ownership of the AAI, State Governments, private entities or the Ministry of Defence) will not levy Landing Charges and Parking Charges; and Terminal Navigation Landing Charges (TNLC). However, Route Navigation and Facilitation Charges (RNFC) will be levied by AAI on a discounted basis @ 42.50 per cent of normal rates.

The other initiatives include:

a) The concept of 24x7customs clearance of import/export cargo 13 airports, expected to have quicker turnaround times;

b) The concept of ”Single Window” has been launched by Customs with effect from April 1, 2016 in a phased manner which inter-alia ensures on-line clearance from various regulatory agencies.

c) For handling international cargo at its airports, AAI has provided Automatic Storage & Retrieval System (AS&RS) as well as elevated transfer vehicle (ETV) facilities for handling both import and export cargo respectively at Chennai and Kolkata airports.

d) All the international air cargo terminals managed by AAI are well equipped with sufficient storage space, cargo handling equipment, cold rooms for perishable cargo and other basic facilities.

e) The Common User Domestic Cargo Terminal (CUDCT) concept has been introduced for maximum utilization of facilities. The terminals will be capable of accommodating cargo from all over the country including perishable goods, medicine and other high value and express delivery shipments.
With all these initiatives, there is incremental growth in air cargo movement and the government of the day must be appreciated for the efforts it is taking to boost economic development. As per the Directorate General of Commercial Intelligence and Statistics, the share of air transport in the total exports of the country in terms of value has risen considerably.

Air cargo business has grown almost six-fold in the past decade. The total freight handled in 2006 was a meagre 0.5 MMT which has now increased to about 3 MMT. Though the business is quite less as compared to other countries, there is huge potential for growth.

AAI Chairman Guruprasad Mohapatra acknowledges that the host of measures initiated by the government will boost and sustain economic growth in a steady manner. The policies look at the sector in a holistic manner covering different segments such as cargo, MRO, general aviation, aerospace manufacturing, skill development etc.

The government is encouraging use of technology, infrastructure development, simplified procedures etc. to catch up with the world having lost out in archaic systems and procedures. “The country now is on the right track.”
One of the many upgradations happening at Indian airports has to do with reducing delays on ground and in air. The authority has installed the Central Air Traffic Flow Management (C-ATFM), making India the seventh country to have this, expected to help in optimum utilisation of major resources – airport, airspace and aircraft.

Improving Logistics Network
Also the government recently set up a subsidiary of AAI, the AAI Cargo Logistics & Allied Services Company (AAICLAS) which is to focus on air cargo handling and allied services, warehousing and contract logistics.
The vision of AAICLAS is to become the foremost integrated logistics network operator in India with primary focus on air cargo handling and allied services, achieving 1.50 million tonnes of air cargo handled, with a turnover of $120 million. It will also establish a working Free Trade Warehousing Zone by 2022-23. In all, the AAI has chalked up investments of about $3 billion in the next five years.

Yes, India has a long way to go in improving its logistics. Currently, the annual logistics cost of the world is estimated at about $3.5 trillion. India spends around 14.4 per cent of its GDP on logistics and transportation as compared to less than 8 per cent by developing countries. Indian freight transport market is expected to grow at a CAGR of 13.35 percent by 2020 driven by the growth in the manufacturing, retail, FMCG and e-commerce sectors.
Freight transport market in India is expected to be worth US$ 307.70 billion by 2020. In India road freight constitutes around 63 percent of the total freight movement consisting of 2.2 million heavy duty trucks and 0.6 million light duty trucks annually.

The road freight movement is expected to increase at a CAGR of 15 percent. The sea freight consists of around 9 percent of the total freight market and is mainly used as a major mode for imports and exports. The air freight consists of around 1 percent of the total freight market which is estimated to grow around 12.5 percent CAGR over the next 5 years.

e-Commerce—the driver

e-Commerce is picking up fast in India, though it is way behind China. With $681 billion in online retail sales in 2016, China is the largest market for e-commerce globally, followed by the US, and the fastest growing one is India.

According to a study by Forrester Research, approximately a fifth of total retail sales will take place online by 2021 in Asia Pacific, with 78 percent of that coming from mobile, up from 63 percent in 2016. The study adds that online retail via mobile will grow at a CAGR of 15.6 percent, to reach $1 trillion in 2020, up from $539 billion in 2016.

China accounts for nearly 80 percent of online retail sales in Asia-Pacific, and Forrester expects it to become the first market to reach $1 trillion in online retail sales in 2020.

More than 19 percent of all retail sales in China take place online, and it will reach 24 percent by 2021. The Indian market is expected to reach $64 billion by 2021, growing at a five-year CAGR of 312 percent. What better market situation than this.