Project report on cargo growthin India undertaken by Hindavia Aeronautical Services Private Limited

Context
Introduction
Scope of work
Civil Aviation Ministers comments
Definition of cargo
Cargo Traffic Data
Airport infrastructure facilities in India
Accelerating factors for cargo growth
Growth potential of air cargo
Discussion of air cargo market in India
GHIAL
Freights and Logistics
India as a Cargo Hub
Opportunity
Challenges
Lack of EDI (Electronic Data Interface)
Lack of an integrated Logistics policy.
Initiatives required
Creation of air cargo airports
Rationalisation of duties
Dedicated Cargo airliners operating in and from India
Overview

Introduction

A number of committees in India set up by the Government have studied the pattern of growth of air cargo traffic along with the PAX traffic for domestic and international operations.

The studies by the committees have highlighted an annual growth rate of 6%-7% in long term basis. However there has been a growth rate of 11% - 12% annually in the cargo sector recently. Air cargo is estimated to grow at about 12% -13% as the economy grows by 7%-8% upto 2010.

The total carriage of domestic and international cargo is expected to grow up to 2.56 million tons.

Scope of work

A study has been made in this report regarding

  • Present Air traffic cargo in India
  • Forecasting of cargo growth in India in the near future.
  • General policies regarding aviation in India
  • Airports infrastructure in India
  • Development of Airports as Cargo Hubs
  • Statistical reports of cargo / freight for the past year ending 2007.
  • Opportunities, challenges and initiatives required for cargo operations in India

WORLD AIR FREIGHT

World’s Air Freight accounts for carriage of 35% of global merchandise trade by value, equivalent to $4.2 trillion in 2006.The air freight sector provides annual revenue of almost US$ 55 billion, equiv to 12% of airline industry’s total revenue.World trade growth is forecast to be around 7-8% per year until 2011.Asia accounts for 45% of international freight movement and expected to be at 55% by 2011.The total Air Cargo market is set to grow at an average of 6.1% per year till 2025. Air freight is likely to grow at 6.2% and air mail at 2.5% per year.

International express now comprises over 11% of Total International Air Cargo. The volume of cargo will triple in the next 20 years.Increasing demand for high-tech goods resulting in more air freight. China and India are emerging as major markets over the next 20 years.World freighter fleet today is about 1,980 aircrafts and is expected to double by 2025

(Source Air-India)

INDIA AIR FREIGHT

India accounts for 80% of the traffic from the Indian sub-continent (SAARC countries & Afghanistan).The air cargo market has grown at 6.1% in the last decade and expected to maintain the same growth till 2025.Annual international freight movement into and out of India is over 1.0 million tons.Annual domestic freight movement within the country is over 0.5 million tons.As per industry estimates for the growing cargo market in India about 126 freighter aircrafts in the domestic & 90 freighter aircrafts in the international market would be required by 2025 to meet the growing demand

(Source Air-India)

TOTAL FREIGHT MOVEMENT (000 TONS)

Air India’s assessment of air freight carriage in India is given in the Tables below.

Year / Int’l
000 T / % inc / Dom
000 T / % inc / Total
000 T / % inc
03-04 / 693.3 / - / 375.0 / - / 1068.3 / -
04-05 / 824.8 / 19.0% / 465.0 / 24.0% / 1289.0 / 20.8%
05-06 / 920.1 / 11.7% / 484.0 / 6.0% / 1403.0 / 9.7%
06-07 / 1020.9 / 10.9% / 532.6 / 10.1% / 1553.5 / 10.6%

Freight carriage in & out of India(2006-07 vs 2007-08)

Year / Int’l
000 T / % inc / Dom
000 T / % inc / Total
000 T / % inc
Apr-Jan (06-07) / 837.03 / - / 435.92 / - / 1272.95 / -
Apr-Jan(07-08) / 942.62 / 12.6% / 471.51 / 8.2% / 1414.13 / 11.1%

(Source Air-India)

INDIAN LOGISTICS INDUSTRY

India is in the midst of an unprecedented boom with the GDP growing at more than 9%.Both industrial and consumer goods are witnessing increased demands and this growth is leading to a boom in logistic sector. The Indian Logistics sector is valued at US$100 billion about 2.5% of global market (US$ 4.0 trillion globally).This sector is expected to reach a market size of US$ 125 billion by 2010.India spends on logistic activities equivalent to 13% of GDP compared to less than 10% of GDP in developed countries largely due to inefficiencies in the system. According to industry analysts India spends US$30 billion more than it should on logistics due to inefficiencies in the system and by the dominance of a disorganized market.In order to reduce logistics costs and focus on core competence. Indian companies are now increasingly using the services of third party logistics service providers (3PLs)

The share of third – party logistics (3PL) is less than 10% in India, whereas in US – 57%, Europe – 30 to 40% and Japan – 80%

Need of hour is to build the best Freight & Logistics value chain to cater to changing customer needs

CIVIL AVIATION MINISTER’S COMMENTS

“Mr. Praful Patel, Minister for civil aviation,Indiaon his interview to Aviation Times, March -2008” quoted the following.

Air cargo industry has a great potential for growth in the country, cargo activities are much below than the potential available, and a number of steps have been taken to stream line procedures relating to cargo operations to make them more efficient. The infrastructure at the airport has been enhanced during their modernisation and up gradation to enable support of greater cargo operations while Nagpur airport is being built as the Multi Modal International Cargo Hub. The non metros are being developed as the regional cargo hubs across the country.

Mr.Patel, Minister ostensibly expressed growth of cargo traffic as well. There will be enough requirements on the part of manufacturers and exporters of flowers and other perishable goods, white goods such as telephone sets and desktop computers. There are logistics’ companies such as FedEx and UPS which has over 700 aircraft and I don’t see any reason that India should be far behind.

The world air cargo market is sensitive to air tariffs trade policies and exchange rates movements. With a view to ascertain as to whether opening of an Indian economy had any visible impact on cargo traffic in India during 8 years period (1983-84 to 1991).It was observed that prior to 1991 International cargo traffic achieved a compounded annual growth rate of 5.7%.

INDIAN CHAMBER OF COMMERCE & INDUSTRIES

According to ASSOCHAM (Associate Chamber Of Commerce and Industry of India) ECOPULSE SURVEY air cargo exports from India are expected to rise from present 0.8 million tons to 2.4 million tons while domestic cargo will rise from 300,000 tons to 1000000 tons by 2010. (Ref: Aviation Times)

DEFINITION OF CARGO

Freight – Freight consist of emplaned or actually air lifted (and not Freight accepted by the carrier). Air lifted goods, newspaper, diplomatic bags, parcel, post except carried by aircraft on commercial flight (scheduled and non scheduled) passenger regular or excess baggage and trucked freight are excluded from Freight.

Mail – Mail consists of all closed bags delivered by the Postal Administration.

Cargo- Cargo is a total of Freight and Mail

Loaded and unloaded – these terms are applied to Freight and mails have meanings similar to “Embarked” and “Disembarked” above

CARGO TRAFFIC DATA (Source: Airports Authority of India)

Airports Authority of India carries out the annual review of traffic data which is authentic . The following information has be extracted from the same.

Freighter aircraft movements of five major international airports are given in Annexure – 1 (upto 2005-06)

The airport wise traffic freight data which is presented at Annexure –2.

(IVth Quarter 2007 and year ending 2007)

Airline wise freight traffic statistics Internationalduring Oct-Dec 2007 is attached at Annexure -3

Airline wise freight traffic statistics Domestic during Oct-Dec 2007 is attached at Annexure -4

Latest data on domestic and International cargo carried is given in table below. This data is also taken from the review of Airports Authority of India. It can be seen from the cargo traffic data that it has increased at an annual compound growth rate of 7.5% during the last eight years.

Yearly traffic trends & growth
Year / Cargo ('000 tonnes)
Int’l / Dom / Total
1995-96 / 452.8 / 196.5 / 649.3
1996-97 / 479.1 / 202.1 / 681.2
1997-98 / 488.2 / 217.4 / 705.6
1998-99 / 474.7 / 224.5 / 699.2
1999-2K / 531.8 / 265.6 / 797.4
2000-01 / 557.8 / 288.4 / 846.2
2001-02 / 560.2 / 294.0 / 854.2
2002-03 / 646.1 / 333.2 / 979.3
2003-04 / 693.2 / 375.0 / 1068.2
2004-05 / 822.0 / 458.5 / 1280.6
2005-06 / 920.2 / 483.8 / 1404.0
2006-07 / 1021.3 / 529.6 / 1550.9
2007-08 / 1115.2 / 561.1 / 1676.3
2008-09 / 1259.9 / 627.9 / 1887.8
2009-10 / 1402.5 / 686 / 2088.5
2010-11 / 1563.3 / 750.4 / 2313.7
2011-12 / 1745.2 / 821.7 / 2566.9

The yearly traffic trends and growth in cargo is also shown in the graph

below:

Domestic Freight: The share of top 10 airlines in the carriage of domestic freight is given in the table below.Jet Airways has the highest market share of 37.33% followed by Air India with 28.86% and Blue Dart Aviation with 16.61%.From the table and graphical representation of the freight handled given below; it can be seen that Jet Airways,Air India and Blue Dart Aviation carry the major part of domestic Freightin the country.

Sno / Airline / Freight (in Tonnes) / Percent Share
1 / Jet Airways / 55270 / 37.33
2 / Air India / 39767 / 26.86
3 / Blue Dart Aviation / 24584 / 16.61
4 / Kingfisher Airlines / 16400 / 11.08
5 / Indigo Airlines / 7248 / 4.9
6 / Jet Lite / 4307 / 2.91
7 / Go Air / 177 / 0.12
8 / Paramount Airways / 154 / 0.1
9 / Spicejet / 32 / 0.02
10 / MDLR Airlines / 0 / 0

The carriage of Domestic air freight was studied region wise.Western region has the highest share of 37% followed by southern region with 26% and northern region with 25% of the total domestic freight handled during October –December ‘07

International Freight: The share of top ten airlines in the international freight handled has been analysed and is given below. It can be seen that Singapore airlines has the highest market share of 10.75% followed by Lufthansa with 9.82% of the total international freight handled during Oct-Dec’07.Emirates has the third highest market share of 7.04% followed by Air India with 6.63% market share.From the table and graphical representation of freight handled by top 10 international airlines can be seen that Singapore airlines and Lufthansa have carried the maximum share of the international freight followed by the Emirates.

Sno / Airlines / Freight (in Tonnes) / Percentage Share
1 / Singapore Airlines / 30577 / 10.75
2 / Lufthansa / 27934 / 9.82
3 / Emirates / 20037 / 7.04
4 / Air india / 18851 / 6.63
5 / British Airways / 15816 / 5.56
6 / Cathay Pacific Airways / 14721 / 5.17
7 / Jet Airways / 12690 / 4.46
8 / Ethihad Airways / 10572 / 3.72
9 / Thai Int'l Airways / 9685 / 3.4
10 / Korean Airways / 9281 / 3.26

In respect of international freight, southern region has the highest share of 36% followed by western region with 26% of the total International freight handled during October – December’07

AIRPORT INFRASTRUCTURE FACILITIES IN INDIA.

The carriage of air cargo from various part of the country is possible if sufficient airports/infrastructure is available. In this connection airport infrastructure has been studied.

There are 449 airports / airstrips in the country among these the airports authority of India owns and manage 92 airports and 28 civil enclaves at defence airfield and provide airtraffic services over the entire Indian air space and adjoining oceanic areas.

Joint Venture International airports: these are joint venture international airports and available for operations by Indian and foreign airline Mumbai, Delhi,Kochi, Bangalore, Hyderabad.

International airports: there are thirteen declared international airports where the domestic and international operations can be conducted these are Chennai, HAL Bangalore, Calcutta, Old Hyderabad, Ahmedabad, Goa, Trivanathapuram, Calicut, Jaipur , Srinagar, Nagpur,Amritsar

Custom Airports: These have customs and immigration facilities for limited international operations for national carriers and foreign tourists and cargo / charted flights

Model Airports: These are domestic airports which have a minimum run way length of 7500 feet and adequate terminal capacity to handle aircraft about 100 tons.These can cater to limited international traffic if required. TheseincludeLucknow, Bhubaneswar, Guwahati, Nagpur, Vododara, Imphal and Indore.

It is well established fact that airports bring prosperity and development to the regions top cities wherever these are established and/or existing.

Corporate missions of AAI clearly states and echoes the fact that the airports are for ‘Fostering the economic development’. Airport accelerate growth, generate employment and one of the important means for the foreign exchange earnings.

Accelerating factors for cargo growth

The industrial activity in India has accelerated resulting in the need of movement of air cargo, some of the important accelerating factors for the cargo growth in India are given below:

  • Open sky policy
  • Major industrial houses coming into retail segments
  • International tie ups of companies
  • Reduced custom requirements to WTO and GATT agreements
  • Liberalized FDI in retail sector
  • Encouragements in value added agriculture
  • Floriculture, Flower exports etc
  • Fresh Vegetable and frozen food exports
  • Accredited client programme
  • Risk management scheme for quick and faster clearance of goods by the customs.
  • Establishments of special economic zones
  • Incentive and attractive offers by the railways for movement of goods
  • Development of road network including golden quadrilateral by national highway authority of India.

Growth potential of air cargo

Several studies have indicated that there will be a tremendous growth in the air cargo in India. Many other key players in this trade have also expressed similar views. Forecast by ICAO and Airports Council International (ACI) for the AsiaPacific regionis approximately 6.5% and 7.5 % respectively for international cargo and 5.2 % and 6.4% for domestic cargo.

It is therefore evident that there would be a positive and definite growth in air cargo and a liberal open sky policywill act as catalyst for its growth.

Discussion on Air cargo market in India

The Indian air freight market has been experiencing a strong growth over the past five years, driven by a booming economy and flourishing trade (both export and import).Domestic and International air cargo traffic has grown at a compounded annual growth rate (CAGR) of 12.6% and 13.0% respectively during FY-‘02-‘07.Building on this momentum, domestic and international air cargo traffic is expected to exhibit a compounded annual growth rate (CAGR) of 13.0% and 14.0% respectively during FY-‘07-‘10.

The air cargo traffic is currently limited to low volume and high value products, including garments, pharmaceuticals, andperishable products(Flowers, vegetables and fruits). Absence of adequate facilities such as refrigerated trucks and ware houses has driven the export of perishable goods through air transport.

With the objective of fuelling foreign investments in the air cargo industry, the government has proposed to raise the FDI limit in cargo airlines from 49%to 74% in January 2008.The current government policy does not allow any cargo airport to come up within a 150 Km radius of an existing airport. However, the Ministry of Civil Aviation(MOCA) is considering a revision of this regulation, and as a result, a number of speciality cargo airports are expected to be developed in the country.

The growth potential offered has led to entry of foreign logistics and airline service providers, including Cathay Pacific,DHL and TNT.Indian companies have also decided to launchexclusive air cargo services in the country and abroad: these include Air India, Indian airlinesand jet airways in addition to others.According to MOCA,three international companies –FedEx, MalaysianAirlines and Australia based Heavy Lift cargo airlines have approached the ministry seeking details on setting up and expanding their operations in India.(Ref: Indian Aviation Sector March 2008 by Ernst & Young)

AIR CARGO POLICY

The air cargo policy will introduce the concept of a cargo village for the growth of domestic air cargo industry. It will be a bonded area wherein all the cargo consignments will be scanned and cleared before being transferred to the airport.

The policy will also deal with the electronic data interchange (EDI) in airports for faster clearance of cargo consignments. EDI is a process through which the airports get the details of the cargo consignments from the airport of origin much before the aircraft lands. This technology is expected to reduce the time taken for clearance of cargo 10-12 hrs for export and 24 hrs to import from the current process which takes a few days.

Though the system is not in place in any airport currently,industrial sources informed that Delhi and Mumbai airports are planning to implement it soon. According to a centre for Asia pacific aviation (CAPA) study, India ranks among top 30 cargo markets in the world. Cargo volumes have been growing for 10- 12 % in the last 12 years and market is projected to grow 20- 30% for the next ten years.

CURRENT MARKET OUTLOOK

Boeing unveiled in 2006 India current market Outlook (CMO) in New Delhi on August 2006 where Dr. Dinesh Keskar, Sr.Vice President (Boeing) had stated that there, will be a considerable increase in the air freight market which are growing at an estimated 5-6% in the next 20 years.

AIR CARGO HUB –NAGPUR

Nagpur air cargo Hub is the Indian government mega plan to create an exclusive cargo hub in Nagpurand is gaining momentum.According to AAI sources the Hub is expected to be ready for commissioning by 2012 and the government will extend very attractive incentives to those companies participating in the development of cargo and Logistic hub. Local Government is in the process of setting up a separate body for this purpose “Maharastra Airport Development Corporation”. Also Boeing has come up with a decision to set up MRO facility at the estimated cost of US$ 100 million.

The likely future plans for cargo operations from Nagpur is presented in the diagram below.

GMR Hyderabad International Airport Limited (GHIAL)

GMR Hyderabad International Airport Limited is currently in the process of setting up operation of its cargo facility. The airport has been operationalised recently, the new airport will be capable to handle 100 thousand ton of cargo per annum. The ultimate capacity of the airport is 1 million tons. GHIAL would construct / infrastructure as part of the project which would among other things facilitate smooth moment of agro products from Hyderabad and its vicinity directly to various international and domestic facilities.This would provide the local farmers wide markets including international market and there by better price realisation for their products.