The new Bangalore International Airport during construction.

Ratan Kr. Paul

Despite the unprecedented jet fuel price hike, the air cargo industry in India is apparently gaining ground thanks to the robust economic growth (an expected GDP growth of nine per cent in 2008), increase in foreign trade, development of manufacturing outsourcing to India, and growth of the organised retail segment.

The country is providing tremendous opportunities for the air cargo industry. However, the country’s poor infrastructure is the major hindrance, hitherto deterring the growth process. The success of the highly promising segment is now dependent on how fast the required infrastructure can be set up.

The outlook is bright
The optimism was evident when Air India, the merged entity of two national carriers, Indian Airlines and Air India, chalked out its ambitious freighter programmes for the domestic and international sectors, in spite of soaring ATF price and high sales taxes for the domestic sector.

The air cargo market has grown at 6.1 per cent per year in the last decade and is expected to maintain the same growth till 2025. According to the Planning Commission, India’s air cargo movements would grow at over CAGR of 11.5 per cent from 2007-08 to 2011-12.

Currently, the annual international freight movement into and out of India is over one million tonnes, whilst the annual domestic freight movement within the country is over 500,000 tonnes. Thus international freight accounts for 67 per cent of total freight.

Domestic air cargo traffic has been growing at CAGR of 12.80 per cent from 2001-02 to 2006-07, and international air cargo traffic has been moving at CAGR of 13 per cent during the same period. India’s six big cities account for 90 per cent of total freight. Mumbai was ranked 39th and Delhi was ranked 46th in the world in 2006 in terms of cargo handled.

Significantly, India has 125 airports, and of these, 11 are designated as international airports. The air transport sector contributes over 0.2 per cent to the country’s GDP, which is growing at about 9 per cent now. Contribution to GDP is growing mostly because of the high share of gems and jewellery, special chemicals and high-value pharmaceuticals in the cargo mix.

India accounts for 80 per cent of the traffic from the Indian sub-continent (SAARC countries and Afghanistan). The current region-wise contribution for the Indian subcontinent is Europe – 33 per cent, Middle East – 23 per cent, Asia – 22 per cent and North America – 18 per cent.

According to the Centre for Asia Pacific Aviation (CAPA), the next stage of aviation development in India is likely to include the establishment of a number of domestic and international trade routes, combined with a strong domestic economy, which will continue to drive demand for this sector. According to industry estimates, about 126 freighter aircraft in the domestic and 90 freighter aircraft in the international market would be required for the growing cargo market in India by 2025 to meet the demand.

Meanwhile, the major international express freight operators are all reporting strong growth in India. A number of dedicated cargo airlines are also likely to be established in the near future. Though some of them had announced their schedules, they have temporarily postponed their launch, because of the sudden turmoil caused by jet fuel prices. However, since the market is huge because of just-in-time requirements and the tremendous growth of fast-moving consumer goods, the airlines are upbeat about the new launches. Add to this the massive investment plans in the retail sector by the organised retail chains like Reliance India Limited or Bharti Group, it is clear that the high-value manufacturing sectors will require massive logistics support. Reliance Retail is planning to launch its own cargo airline to secure the supply side between the source of products and retail outlets. This may even include private, captive airports.

India on the international scene
The international sector accounts for almost 70 per cent of the Indian freight market. Volumes have been growing strongly, particularly inbound, with the total market breaking through the 800,000-tonne barrier in 2005-06, up 10.2 per cent year-on-year.

Growth has been even stronger in 2006-07, thanks to India’s impressive trade expansion, with imports and exports up 29 per cent and 24 per cent respectively in 2006-07 for a total value of USD 306 billion. During the same period, foreign direct investment (FDI) to India almost tripled to reach USD 16 billion. The FDI limit for cargo airlines has further been liberalised in January 2008. As the new policy states, FDI up to 74 per cent may be permitted on the automatic route for non-scheduled airlines, chartered airlines and cargo airlines. No direct or indirect participation by foreign airlines would be allowed in non-scheduled airlines and chartered airlines. Non-resident Indian (NRI) investment would be allowed up to 100 per cent on the ‘automatic’ route (meaning that the investor would not need any approvals from the Reserve Bank of India, according to its ‘Automatic Route Investment’ guidelines).

Notably, as of a few days ago, owing to underinvestment in India’s flag carrier Air India, India’s freight sector was largely controlled by foreign airlines. India’s airlines handled just 12 per cent of total freight volumes to/from India in 2005-06, down from five years back. This steady dilution of local carrier share has occurred as foreign airlines expanded their services to the country under the increasingly liberal policies of the Indian government.

The scenario is likely to change dramatically with the new face of Air India and its comprehensive plans for air cargo operations. At present, Air India has a fleet of 149 aircraft including a seven-strong freighter fleet. Air India is inducting more freighters in the coming months. Currently the airline has five B737 and two A310 freighters, and by August 2008 the national carrier will be adding two more A310s. The Nagpur hub, which is located at the central part of India, will be operational by then. Capacity offered by Air India is more than 2,000 tonnes per day on its existing network.

Air India became the first passenger carrier in the country to launch dedicated freighter services. Air India and the Department of Post and Telegraph (DoPT) have entered into a JV to serve the north-east region of India. Starting on August 24 last year, a Boeing 737 freighter has been dedicated to carry mail for DoPT within the north-east region. The airline also has a JV agreement with Gati, India’s leading express cargo logistics player, catering to the domestic market. Operations commenced in October 2007. AI and Gati have planned to serve major cities via the Nagpur hub. A total of five Boeing 737 freighters have been planned for carrying out Gati operations. Air India also operates international freighters, with two Airbus 310 aircraft serving the India–Europe market.

For India the major air freight markets are Germany, the Gulf region (non-Dubai) and Singapore. The German market is 55:45 an outbound/inbound market, while the Gulf is 66:34. Singapore volumes by contrast are tilted slightly in favour of imports to India. Currently, opportunities are opening up for air cargo trade between India and China. Apart from import from China, India is also exploring export opportunities in that country.

To increase air connectivity, on March 19-20, the Aeronautical Authorities of the Republic of India and the People’s Republic of China met in New Delhi. Right now, China Eastern Airlines and China Airlines are offering direct services between India and mainland China and Taiwan, respectively. Air India is the only carrier from India that offers India-China services.

In bilateral discussions it has been decided by both the sides that the designated airlines of the two countries will be entitled to operate to any three beyond points, with not more than two points in one region.

Both sides have come to an agreement that the designated airlines of each country shall be entitled to exceed fifth freedom traffic rights on not more than 14 frequencies to all the beyond points put together. The Chinese delegation has forwarded to the Indian side the complete set of documents regarding the operation of Great Wall Airlines (an all-cargo airline), from Shanghai to Mumbai and Chennai. On April 11, the government of India gave security clearance to the Chinese cargo airline to operate flights to the country.

Despite initial security concerns, India has decided to let Great Wall fly to India and in return Jet Airways, an Indian carrier, was to get the clearance. This informal understanding was worked out during Prime Minister Manmohan Singh’s visit to China in January 2008. Jet Airways is now awaiting the Chinese nod.

In a significant breakthrough, the Japanese government has also agreed to allocate 20 additional slots with effect from March 2010 at the congested Narita International Airport at Tokyo, taking the total number of slots available for Indian carriers to 28 slots. Presently Indian carriers only have eight slots at Narita Airport, sufficient for only four flights per week. Air India is already operating these four flights to Tokyo. Further, Japanese authorities have assured that they shall be making a sincere endeavour to allocate 28 additional slots at Narita or Haneda airport in a timely manner for Indian carriers to operate an additional 14 services to Tokyo.

Both sides have also agreed to expand bilateral traffic entitlements in these talks. The entitlements have been increased from 21 services to 42 services per week from March 2010. The Japanese carriers will be entitled to operate 14 services each on the Tokyo-Delhi and Tokyo-Mumbai route in 2010, up from the present level of seven services each on these routes. The Indian carriers will be able to operate up to 28 services per week from points in India to Tokyo.

It is expected that the India-East Asia air cargo traffic will increase phenomenally in the years to come. Industry sources say the slowdown in the west, especially in the US market, has to be balanced by increasing trade with the Asia-Pacific countries.

Challenges and bottlenecks
A grey area, however, prominently visible is infrastructure bottlenecks. The bottlenecks include airport infrastructure, lack of slots, runways, parking bays, warehouses, facilities to handle odd-size and heavy cargo such as forklifts, perishables (vegetables, fresh flowers, fruits, etc), dangerous goods, live animals and valuables.

Provision of track and trace facilities with RFID, approach roads for heavy vehicles, development of more green-field airports, easy surface connectivity to these airports are some of the basic amenities cargo carriers desperately need in India.

India also lacks the availability of world-class cargo transit hubs, which has resulted in business shifting to other neighbouring countries. Development of dedicated freight corridors for both rail and road transport, which can provide better multi-modal transport (connecting airports) is yet to be conceptualised in the country. High dwell time, proper EDI network and customs procedures remain matters of concern.

Infrastructure projects in the pipeline
It is an undeniable fact that the growth of air cargo traffic into and out of India is much below the potential offered by the sector. Keeping this in mind, the Ministry of Civil Aviation has chalked out plans for facilities to be made available for cargo traffic at various airports in the country. At the metro airports like Bangalore, Hyderabad, Delhi and Mumbai, cargo facilities would be expanded by the private airport operators managing these airports through public-private partnership (PPP) projects. In other metro airports such as Chennai and Kolkata, the Airports Authority of India is modernising and expanding cargo facilities.

In certain non-metro airports the respective state/provincial governments are managing the existing cargo facilities. These facilities would continue to exist along with the new facilities to be set up through PPP. Having more than one cargo operator would provide the necessary competitive environment. At the airports where state government entities are already operating cargo facilities, the concessionaire under the PPP would operate an additional facility. The ministry has increased the FDI limit for the air cargo sector. And, of late, it has announced that the much-sought cargo policy would be in place soon.

Ratan Kr Paul is a senior business journalist based in New Delhi, India, specialising in air and sea cargo and the logistics industry. Contact Ratan at paulratan@gmail.com.

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