Study on Future Prospects of Air Freight / Cargo Industry in India & Required

Policy Intervention

Guide: Prof. G. Raghuram

(Public Systems Group)

Members:

Peeush Kumar (PGP-2)

Samdish Chumber (PGP-2)

(Term IV)

A Term Course Project On

Logistics sector has failed to keep pace with the growth India ranks 54 among 160 countries in LPI index

Average logistics costs as a percentage of GDP in India as compared to other countries (Source: Report of the Indian Foundation of

Transport Research and Training)

0 1 2 3 4 5

Customs

Infrastructure

International

Shipments

Logistics

Quality and

competence

Tracking and

tracing

Timeliness

S Africa China India Germany

Comparison of India on individual LPI components (Source: World Bank LPI Survey 2014)

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Rail and Road carry about 87% of total freight traffic in 2007

Rail,

36.07%

Road,

50.13%

Coastal

Shipping,

6.08%

Inland

Water

Transport,

0.24%

Pipelines,

7.49% Airways,

0.02%

Modal Share of originating freight traffic in Net Tonne-Kilometre (NTKMS) (Source: Planning Commission)

•Air cargo at present constitutes around 1% of total cargo volume but carries around 29 % of total trade value. •Air cargo involves high costs with typical costs in the range of 4-5 times of road transport and 12-16 times of sea transport

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Air Cargo market generally consists of international and domestic cargo

Air Cargo Market

Domestic Cargo Market

Regular Service Express Service

International Cargo Market

Regular Service Express Service

Market Segmentation of Air Cargo Market (Source: Frost &Sullivan)

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Air Cargo movement involves several intermediaries Complex interaction between different players adds to dwell time at

airports

Various Stakeholders Involved in the Value Chain (Source: Frost & Sullivan)

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Air Cargo in India: Open Sky Policy Economic Growth

1995-96 2000-01 2004-05 2006-07 2010-11

Domestic Cargo 0.22 0.33 0.49 0.57 0.89

International Cargo 0.46 0.57 0.83 1.03 1.5

Total Cargo 0.68 0.9 1.32 1.6 2.39

0.22 0.33

0.49 0.57

0.89

0.46 0.57

0.83 1.03

1.5

0.68

0.9

1.32

1.6

2.39 C

arg

o h

an

dle

d i

n m

illi

on

met

ric

ton

nes

The Open Sky policy of government of India adopted in 1990s has led to tremendous growth in air cargo segment

Cargo handled at Indian Airports (Source: AAI)

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Majority of domestic and international trade is carried by 6 major airports

6,44,826 6,05,699

2,92,079 2,42,391

1,28,523 86,670

Mumbai Delhi Chennai Bangalore Kolkata Hyderabad

Freight handled at Metro airports in tonnes in 2013-14. (Source: CRISIL)

Mumbai carries the majority of cargo among six major airports. Out of total freight carried by major airports, Mumbai carried about 32% closely

followed by Delhi with 30%

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GAP

Mumbai, Delhi, Chennai, Bangalore handle majorly to international freights

28% 36%

25% 38%

64%

43%

72% 64%

75% 62%

36%

57%

Mumbai Delhi Chennai Bangalore Kolkata Hyderabad

Domestic Freight International Freight

Percentage of Domestic and International Freight handled at Metro airports in Tonnes in 2013-14 (Source: CRISIL)

Hence, establishment of cargo hubs at these locations for the transshipment cargo

has to be expedited

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Among non-metro airports, many airports are emerging as cargo centres

0

10,000

20,000

30,000

40,000

50,000

60,000

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14

Fre

igh

t in

to

nn

es

Total Freight Handled

AHMEDABAD TRIVANDRUM CALICUT JAIPUR COCHIN

PUNE LUCKNOW PATNA GUWAHATI

Total freight (domestic & international) in tonnes. (Source: CRISIL)

Airports handling total freight (domestic and international in tonnes) more than 15000 tonnes per annum OR with a CAGR of more than 10% over 2006-07 to 2013-

14 have been shown here

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The amount of dedicated cargo services as compared to belly cargo has been on the rise due to growth of air cargo business

Year Scheduled Belly Cargo (%) Scheduled Dedicated Cargo Operator (%)

2000-01 88.7 11.3

2004-05 85.8 14.1

2009-10 82.8 17.2

(Source: DGCA)

Data reveals that foreign players have been steadily increasing their market share in international freight reaching 83.9% in 2009-10

(Data Source: DGCA)

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Outbound cargo has been more than inbound cargo in volume but inbound cargo has been growing at a faster rate

Year Outbound Cargo Inbound Cargo Total

1995-96 296 163 459

2003-04 435 266 701

2010-11 842 661 1503

CAGR

1995-96 to 2003-04 7.22% 9.78% 8.23%

India’s Outbound and Inbound Cargo Traffic in ‘000 Metric Tonnes (Source: MoCA, 2012 Report)

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In case of exports by value: USA, UAE and China are the major export destinations,

While China, Saudi Arabia and UAE are the major sources from where air freight originates and reaches India

Middle East,

43%

Asia Pacific ,

23%

South and

Central

Europe, 14%

UK, 10%

Rest of the

world, 6% US, 2%

Canada, 1% Latin

America, 1%

In case of air cargo by volume • Middle East (43%) and Asia Pacific (23%) are the major destination countries from India. • The major destinations in Middle East include Dubai, UAE, Saudi Arabia. • The major destination from Asia pacific include Hongkong, China, Singapore.

Country-wise Distribution of International Cargo (Exports) by Volume in FY 2013.

(Source: Frost &Sullivan)

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Share of air cargo is miniscule in terms of freight by volume but in terms of value it is quite appreciable

Cargo Business Value v/s Volume Comparison.

(Source: DGCI&S, MoCA, 2012 Report)

Air Cargo is responsible for carrying high value but low volume and time constraint

goods. It is imperative to contain any pilferage in transit and storage

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The airlifted commodities represented about 30% of the total trade in FY 2013 reaching $ US 233.69 billion

410.39 361.09 425.32 498.84 542.77

136.42 167.98 196.2

239.58 233.69

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013

Co

mm

od

itie

s T

rad

e V

alu

e

($ B

illi

on

s)

Commodities Potentially Non-Airlifted Commodities Potentially Airlifted

31.7% 31.6% 32.4% 30.1%

(Source: Frost & Sullivan)

Potentially airlifted

Potentially not airlifted

Precious metals and jewelry, textile and textile articles, perishable goods,

pharma and medical products, electronics and engineering goods,

leather goods and handicrafts.

Mineral products, metals and articles of metals, transport equipment etc.

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25%

Airlifted commodities are expected to reach $ US 315.42 billion by FY 2018 (Forecast)

13

6.4

2

16

7.9

8

19

6.2

23

9.5

8

23

3.6

9

24

0.7

25

2.7

3

27

2.9

5

29

4.7

9

31

5.4

2

FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Va

lue

($ B

illi

on

s)

Commodities Potentially Airlifted

(Source: Frost & Sullivan)

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52%

8%

13%

11%

4% 7%

5%

Break up of airlifted commodities FY 2013

Precious metals and jewellery Pharma and medical products Animal and vegetable products Prepared food stuff and beverages Textile and textile articles Electronics and engineering goods Others

Online Retail

Order Goods,

20%

Courier

Documents,

20%

Perishable

Goods , 10%

Pharma &

Healthcare, 9%

Electronics &

Electrical

Goods, 8%

Auto

Components &

Spares, 8%

Gifts &

Stationary, 6%

Jewellery,

Fashion

Accessories

& Luxury

Goods, 5%

Textile &

Garments, 5%

Trade Samples,

4%

Micellaneous,

5%

Current Scenario

Precious Metals constitute of the majority of airlifted

commodities. This share is expected to decline as animal

& vegetable products and pharma categories expand

In domestic cargo, online retail goods have emerged as a major segment over the past few years and mainly consist of electronics

and electrical goods, jewelry, fashion accessories and luxury

goods, and textile and garments.

(Source: Frost & Sullivan)

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Air Cargo sector is expected to grow at a CAGR of 11.2% over next 20 years

0

5

10

15

20

25

30

35

40

2010-11 2015-16 (E) 2020-21 (E) 2025-26 (E) 2030-31 (E)

Ca

rgo

Ha

nd

led

in

Mil

lio

n M

etri

c T

on

nes

(M

MT

)

Forecast of Air freight Traffic throughput at Indian Airports

Domestic Cargo International Cargo Total Cargo

(Source: MoCA, 2012 Report)

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The growth of capacity is lagging behind the air cargo traffic growth in absolute terms in the near future.

This calls for increase in investments in the capacity building front

5.1

5.7 5.9

6.1 6.2 6.4

FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018

Ca

rgo

Ha

nd

lin

g C

ap

aci

ty (

Mil

lio

n

To

nn

es)

Cargo Handling Capacity of Indian Airports (Forecast) (Source: Frost & Sullivan)

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Airport

Cargo

Handling

Capacity

(Tonnes)

Area for

Cargo

Operation

s (sq.

meter)

Area for

Perishabl

e Cargo

(Sq.

meter)

Internationa

l Cargo

(Million

Tonnes) in

FY 2013

Domesti

c Cargo

(Million

Tonnes)

in FY

2013

Total

Tonnage

Handled

(Million

Tonnes)

in FY 13

*Throughpu

t Efficiency

(Tonnes /

Sqm)

%

Utilizatio

n of

capacity

CSIA-

Mumbai 1,000,000 108,684 2,482 0.45 0.18 0.63 5.7 63.0

IGIA-

New

Delhi

2,200,000 73,643 1,127 0.36 0.19 0.55 7.3 25.0

Chennai 1,102,373 33,100 - 0.24 0.08 0.32 9.7 29.0

RGIA-

Hyderaba

d

150,00 14,330 - 0.04 0.03 0.07 4.9 46.7

BIA-

Bengaluru 360,000 29,540 - 0.14 0.08 0.22 7.4 61.1

Kolkata 303,293 21,096 742.5 0.04 0.08 0.12 5.5 39.5

*Throughput efficiency is calculated without taking area for perishable cargo into account

Comparison of Indian Metro Airport on Throughput Efficiency and Capacity Utilization.in FY 2013 (Source: MoCA, 2012 Report, Frost & Sullivan)

Based on the annual throughput, Chennai has the highest throughput efficiency (as per WB Benchmarks)

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Dwell Time : An important parameter for efficient air freight logistics

Airport Dwell Time-

Exports (Hours)

Dwell Time-

Imports (Hours)

Sharjah 4 4 to 8

Singapore 6 3 to 6

Frankfurt 6 NA

Incheon 2 to 3 2 to 7.5

Dubai 2 to 3 2 to 6

HongKong 3 to 6 4 to 8

Delhi 36 119

Mumbai 48 96

Chennai 48 72

Hyderabad 12 36

Kolkata 48 72

Bengaluru 36 48

Global benchmarks of dwell times as compared to Indian Airports (Source:

MoCA, 2012 Report)

Several factors which contribute towards the

high dwell time at Indian airports include:

•Lack of adequate facilities and trained

manpower

•Complicated custom procedures

•No automation

•Congestion created due to free period (72

hours) policy

•Less availability of processing space due to

multiple agencies occupying lot of spaces in

cargo terminal

•No standardization of process

•No synchronization among the multiple

agencies

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Key Issues

Infrastructural Bottlenecks

Possible Reasons

Inadequate and Overloaded facilities

• warehousing, parking bay, cold storages, truck parking terminals, connecting roads, etc • inappropriately planning for express & normal cargo operations, volume & mix of cargo, nature of cargo-palletized or loose

Lack of adequate screening facilities and trained manpower

• Old machines, problems of breakdowns, unable to process heavy and palletized cargo • Unavailability of on-site service engineers & trained manpower in dangerous goods case

Lack of off-site facilities for cargo processing

• AFS (Air Freight Station): lack of custom procedures, legal frameworks, conflicting views: delays due to congestion replaced by delays due to extra operational steps • Existing ones (ICD mulund, virugambakkam) are non operational due to technical issues

Lack of special cargo facilities

• Not all airports operating possess cold storages- integration of cargo difficult

Air side and Land side infrastructure

• allotment in unused old buildings near the airport, EDS companies required to invest, short-term tenure, low commitment & service levels

Other Important Issues: • Delays due to examinations- not moving shipments until all are marked • Documentation process- cumbersome documentation & duplication across various agencies • Congestion - due to practice of cargo tendering during peak hours 40% (0800-1400 Hrs), 60% (after 1400 hrs) • Unavailability of offices of multiple agencies at the site- Drug controller, Port Health Officer, Quarantine dept

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Case: Sardar Vallabhbhai Patel Airport , Ahmedabad • Key Facts:

• 8th busiest airport in terms of passenger traffic

• 4 terminals : domestic, international, one back up and cargo

• GSECL (Gujarat State Export Corporation Ltd.) maintains and operates the cargo terminal of SVP airport

• 45000 square feet area

• 3 level stacker on mezzanine floor

• Major Cargo: Pharmaceutical & Engineering goods

• Facilities: up-to-date & approved by EU as RA3 complaint warehouse

• Pile up Issue:

• Airlines having issues with hubs/destinations

• Customs holding up the cargo for queries

• Documentation problems

• Typical Cargo Documentation Process:

• Filling of shipping bill by custom agents

• Processing by GSECL, data transferred to EDI servers

• Challan generated & printed, handed to agent to offload goods

• Cross verification of goods against details mentioned in the challan

• Examination by cutoms

• After clearance from customs, agents handover the documents for processing it to airlines

• Airlines manifest’s the cargo for onward shipment towards the destination

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Key Recommendations

Integrated approach for aviation industry infrastructure

• Considering overall supply chain while planning, long term investments, multi-agency dependent industry, common platform & transparent processes

Creating of central systems • Central systems, verification of various agency vendors, simplification customs procedures, database creation for cargo facilities

Creation of cargo hubs • Increase in transshipments, boost in trade & economy, location advantage • Establish major & minor hubs (Exhibit)

Dedicated facilities for different types of cargo

• Minimum mandatory requirements to be established for all airports- first step in integration of cargo across country • Creating additional facilities in accordance with the economics of the region (hyd-pharma, mum-sea)

Process standardization & accountability

• standardization of process and procedures across all airports & across complete supply chain • Clear standards of performance,

Education & training infrastructure

• Inadequate manpower, un-attractive for talented people • Establishing Nat. Avi. Council of India for skill dev. Programs

Technological upgradation & easy financing

• Cargo operation is investment intensive- availability of easy financing for technical investments , modernization & upgradation

Offsite facilities • Globally in operation, successfully implemented for ports in India

Regular audit & use of unused spaces

• For adequately utilizing the unused spaces as in Ahmedabad & Chennai

Synchronizing Working hours or 24X7 operation

• unsynchronized working hours among various agencies created problems of pile up during peak time of the day

Reducing free period • reducing the free period from existing 3 days to further below & changing the tariff structure (revenue + push for clearance)

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Potential Major & Minor Cargo Hubs

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Major- Delhi, Mumbai, Chennai, Bangalore, Nagpur; Minor- Lucknow, Guwahati, Kochi, Ahmedabad The yellow circle indicates the potential cargo network in India. *White dots indicate the cargo hubs

(Source: www.mapsofindia.com)

Thank You

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