Airfreight in India: Tax reform, FDI progress offer hope
“The escalating logistics costs resulting from India’s infrastructure inadequacies are affecting the cost-savings achieved from manufacturing in India.”
Khan says the lack of an organized supply chain industry is hampering growth of a sector where only 8 percent of warehousing capacity is owned and operated by organized players.
“For the logistics sector to grow and meet demand, we need to add at least 25-30 million square feet of additional warehousing space annually,” she says.
Despite internal hindrances, Khan reports some signs of recovery in the India airfreight market in the first quarter.
“But we have to caution that the market is not giving any signs of a sustainable recovery as yet,” she says. “What recovery there has been can largely be attributed to the pharma, auto and retail verticals.”
IAG Cargo can claim to provide strength in depth in the India market with a weekly supply of 46 passenger flights and seven westbound freighters to offer an uplift of 900 tonnes serving Delhi, Mumbai, Hyderabad, Chennai and Bangalore.
“Having re-introduced our weekly freighter in Chennai, we are also now expanding our footprint into Hyderabad via increased passenger frequency,” Pravin Singh, area commercial manager South Asia at IAG Cargo, says.
But this, he adds, is against a backdrop of a market that is getting tougher.
“There has been a surge in belly-hold capacity and India has seen a rise in freighter capacity alongside passenger flights which inevitably leads to greater competition,”
Singh says. “But at the same time, this is a market which has seen low single-digit decline in air exports between 2011 and 2012. This was mainly driven by declining exports from the Chennai and Delhi markets. However, origins such as Mumbai, Bangalore and Hyderabad saw positive growth.”
The India growth story, he adds, would gain significantly from improved infrastructure, allowing faster movement of goods to and from airports and allowing diversification from a traditional business model.
“More needs to be done to connect small town India and the manufacturing hubs via an aligned customs regime and road network into the main international gateways.”
The Indian airfreight market can look forward to steady export growth, according to Carsten Hernig, regional director South Asia, Middle East & Pakistan for Lufthansa Cargo. But he voices concern over imports.
“India urgently needs to implement further reforms in order to gain the confidence of foreign and domestic investors,” Hernig says. ”If those reforms were to be implemented, I believe they would trigger sustainable growth in imports and in consequence also of exports.”
But Hernig admits that India remains a challenging market for freighter operations, particularly from the point of view of undermining rates.
“There is significant belly capacity in the market, mainly to the Gulf, but also to Europe,” Hernig says. “Since many of these passenger airlines do not focus on the optimization of their cargo profits, it is challenging to achieve a profitable freighter operation and maintain a stable main deck product in this market…The exorbitant increase of airport charges at airports like Delhi and Mumbai is also not helping to make India an attractive freighter destination.”
He also laments that India is still far from being an e-cargo country and on the after-sales side, Cargo Accounts Settlement Systems has still not been implemented with the country’s entire airfreight billing and payment process still performed manually.