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Sleeping giant: infrastructure needs impede India's airfreight progress.

India seemingly has all the ingredients to be one of the world's great air cargo centers. Rapid growth of international trade, a huge manufacturing engine and a population of more than 1.2 billion all bode well for the industry. However, for a variety of reasons, India has not realized this great potential.

Participants in India's air cargo sector agree that inadequate infrastructure in the country is the major obstacle, followed by cost inefficiencies and the need for governmental and tax reform. But they are also optimistic that the needed changes will eventually happen.

"The air cargo market in India has the potential to become a global hub, but poor infrastructure and [lack of] cost efficiency are the major challenges to growth," says Shailendra Seth, head of India operations for charter cargo specialist Chapman Freeborn. "However, this segment is growing at a fast pace and will give a tremendous boost to the economy. In the past years, aviation industry has seen many transformations."

Seth says the Indian charter market is growing, but is short on "professional players." He says trade has grown over the past five years as a greater share of trade moved toward finished goods. Products driving the growth include pharmaceuticals, gems and jewelry, transport equipment and ready-made garments, he says.

Sam Katgara, owner of Mumbai-based Jeena & Company, one of India's prominent freight forwarders, says a third of India's exports travel by air. He maintains that the Indian government has made significant efforts to upgrade infrastructure, but much more is needed. He expects the demand for air cargo to continue to rise.

"With the economy booming and rising GDP growth, air cargo witnesses a huge growth," Katgara says.

The government's ongoing effort to develop infrastructure, the easing of regulations for foreign investment in aviation and the introduction of cargo hubs and Special Economic Zones figure to provide momentum for the growth of air cargo in the coming years, he says.

Katgara adds that air cargo is not recognized as an industry by the Indian government, which has not shown a strong commitment to making it efficient and viable.

"Airports were developed primarily from the passenger standpoint, and thus requirement of cargo facility development was not taken seriously," Katgara says. "Cargo is generally the last part to be thought of and is relegated to that part of the airport, considered not important otherwise. This leaves the entire logistics of cargo infrastructure and facility--in woefully inadequate and poorly-managed area of the airport."

Katgara notes that cargo infrastructure is much more than the cargo terminal, but also includes special facilities for express freight, temperature-controlled goods, airmail and hazardous goods. He says development of "cargo villages" is essential for India's major airports.

Ashish Kapur, India-based regional cargo manager for Cathay Pacific, says the rise of India's middle class and subsequent increase in demand for imported items such as high-end fashion and electronics has imports growing faster than exports. However, he says India's weakening currency should help boost exports. Pharmaceutical products are a key driver of exports, followed by machinery and automobiles, he says.

Kapur agrees that improved infrastructure is the industry's greatest need. He cites airports such as Bengaluru International Airport near Bangalore and Hyderabad International Airport as having modern cargo facilities and notes that improvements have been made at Indira Gandhi International Airport in New Delhi. Kapur says cargo remains a challenge at airports that serve big export markets such as Chennai International Airport and Chhatrapati Shivaji International Airport north of Mumbai.

India should also expedite adoption of E-freight and off-airport customs bonded warehousing, Kapur says.

Pukhraj Chug, managing director at Group Concorde, a general services agent company based in Gurgaon, near New Delhi, believes India is poised for growth in both domestic and international air cargo.

"On the domestic front, the emergence of the e-business is underlaying a whole lot of opportunities and creating value propositions for the ultimate customers," Chug says. "The proposed centralized taxation system [a valued-added goods and services tax] will further augment the business and create greater opportunities for both the service provider and recipients."

Devaluation of the Indian currency during the third quarter of 2013 made Indian exports more viable and has resulted in cargo growth at most international airports, he says.

"The better economy in the USA and Europe and the emergence of newer markets for Indian exports to the Far East has further strengthened the international export business," Chug says. "However, imports have declined slightly due to the expensive dollar. There is immense potential for the next few years, and the global indicators suggest that the Indian market will grow substantially in the near future."

The airfreight sector remains challenged by what Chug describes as a lack of speed in government re forms and tax restructuring, plus the ubiquitous need for infrastructure improvements.

Among India's airports, Indira Gandhi International Airport is among those making cargo infrastructure improvements. Cargo traffic is on the rise with the airport handling 600,000 tonnes in 2013, an increase of about 8 percent.

"One of the things we have done is work on a clearly-defined vision to make the airport the cargo gateway for India," says Sanjiv Edward, head of cargo at the airport. "We are working on operations excellence, infrastructure and good connectivity."

In addition to infrastructure, Edward says implementation of electronic data interchange systems presents a formidable challenge.

"This is a challenge since different companies are working on different IT systems, and it requires significant time and effort to integrate. The level of automation and intention to change also varies across organizations," he says. "There are many small players in the market who do not want to make high investments in enhancing IT capabilities."

Delhi International Airport Ltd., the consortium that has managed the airport since 2006, is developing a system of airfreight stations (AFS), which Edward describes as extension of the airports cargo terminals, but located strategically in manufacturing hubs.

"It is like taking the airport to the doorstep of the shipper or consignee," Edward says. "They can process cargo for customs clearance and handover to the AFS operator, who will then bring to the airport."

The stations benefit everyone along the supply chain, Edward says. For shippers, it means faster processing of financial documents and reduced handling. He says airlines can now sell these locations as online stations served through road feeder systems.

"This concept has been very well-accepted, and we are seeing the volumes grow consistently," Edward says.

German logistics firm DB Schenker has had a presence in India since 1996 and has 37 offices across the country. It operates about 2 million square feet (185,806 square meters) of warehouse facilities and employs about 2,500. Reiner Allgeier, CEO of Schenker India, also believes exports will grow.

"Due to the continuous weak Indian currency, the import volumes will most likely not grow, however, we expect to see a growth in export volumes of 3-5 percent as manufacturing and retail is picking up," Allgeier says.

Elaborating on the pesky infrastructure issue, Chapman Freeborn's Seth says it is a major roadblock to efficient cargo handling. He says the cargo sector is poised for tremendous growth if the infrastructure problem is ever solved.

"Cargo warehousing facilities are not up to standards at India's major airports, and most of these amenities are restricted to international freight," Seth says. "Domestic cargo operations have been largely limited because of nonavailability of warehousing space in the Tier-II and Tier-III cities."

Katgara believes India can be a global air cargo hub once the infrastructure issue is solved.

"Considering its geographical location, India, especially Delhi, has the potential to become a global hub for air cargo," Katgara says. "Not only its geographical location but also the amount of international trade that the country is engaged in now makes India a good location for such a hub. Even a place like Dubai, where there is not much manufacturing or exports, is a successful destination. There is no reason why India with all its growth in manufacturing sector and exports and imports could not become another global hub."

Katgara says the government's recent decision to allow foreign direct investment into India's aviation sector is a "blessing" for the cargo industry because it will positively affect belly cargo.

"It is encouraging foreign players to venture into the Indian air cargo market, which would mean direct connectivity to many new destinations and increased penetration of the services in the country," Katgara says. "This will happen primarily because the new players would look at entering the Tier-II and Tier-III cities to avoid clutter in the metro towns and hence offer improved connectivity. And the international airlines are quite positive about the future. The government's policies have been favorable toward the private participants entering the market."

Cathay Pacific's Kapur says with India's weakening currency and political instability in Bangladesh, garment orders are shifting to India, which should give exports a boost. Strikes by workers in the Bangladesh garment industry have caused garment buyers to turn to India, he says.

"Almost all the buyers source from all over the subcontinent, and it's easy for them to shift," Cathay Pacific's Kapur. "Also, as the Indian currency has weakened, the cost impact is not that huge."

The emergence of the pharmaceuticals industry is the major addition to the Indian export in air cargo market, says Concorde's Chug. He also notes growth in the textile and garment sectors over the past year.

"Imports by air have not grown dramatically because of the unforeseeable exchange rate dynamics," Chug says. "But we see this is a temporary phase and hopefully it will correct itself. "

Chug says that while cargo facilities have been improved at Delhi, Hyderabad and Bangalore, Mumbai still has major challenges in infrastructure.

"In spite of new airports, due to lack of surface, ocean and rail connectivity, none of the airports are poised to get the hub status of major international airlines," Chug says. "Should the global economy not become bullish on international trade, Indian exports could face some more challenges. But I am optimistic that Indian exports and imports will grow."

Katgara agrees that upgrades are especially needed in Mumbai.

"It is very important to create more space at Mumbai Airport, which sees a chaos when it faces little bit excess cargo," he says. "Considering that cargo exports at Mumbai will grow, it is very important to concentrate on creating more space for cargo."

John W. McCurry
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Title Annotation:region focus: India
Comment:Sleeping giant: infrastructure needs impede India's airfreight progress.(region focus: India)
Author:McCurry, John W.
Publication:Air Cargo World, International ed.
Geographic Code:9INDI
Date:Feb 1, 2014
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