Where is Air Cargo Operations Headed to?

A Working Group Report by Ministry of Civil Aviation, published in 2012, says, “Evidence between 2007 and 2010 Logistics Performance Index (LPI) indicates that countries at the same level of Per Capita Income, those with the best logistics performance experience an additional growth of 1% in GDP and 2% in trade.” Similarly, according to International Civil Aviation Organization (ICAO), the output and employment multiplier of the aviation sector are 3.25 and 6.1 respectively.

This means every Rs. 100 spent in the sector results in an addition of Rs. 325 in GDP and every 100 direct jobs created in the sector results in 610 jobs created in the larger economy. This GDP-air cargo relation is amply justified by the data available for the period between 1995 & 2010.

Unfortunately, no such study report is available for the period afterwards. The annual performance report put up by the Ministry of Civil Aviation clearly shows an overall stagnation between FY11-12 & 15-16 with growth thereafter only marginal. The immediate reason for this lull can be attributed to the global financial crisis that affected the incoming cargo with domestic cargo businesses of pharma & ecommerce sector rescued it from the tumble.

In fact, health of India’s air cargo sector can be gauged from the fact that while the country’s total trade has risen by 22.4% between FY11-12 & 15-16; its total air cargo traffic has actually fallen by 3%. And if seen in terms of GDP which has been contracting quarter after quarter, the slump in the tonnage as well as the number of people directly and indirectly employed could be well understood. 

The Government of India adopted Air Cargo Open Sky Policy in 1992 which allowed all domestic and foreign carriers that met operational and safety requirements to operate to scheduled and non-scheduled cargo services to & from any airport in India that had custom facilities. In addition, a regulatory regime for cargo rate was abolished and carriers were allowed to fix their tariff. 

The opening up of the sector saw a spike in international cargo traffic, primarily due to a rise in scheduled services by foreign airlines as carriers like Lufthansa, Air France and KLM doubled their capacity in the country. The effect was cascading as a host of domestic players entered into the business. Despite existing infrastructure bottlenecks, there was an impressive growth that promised a rosier picture. An industry that is positively correlated with GDP growth and employment generation has gone into stagnation for most of the last decade should be worrisome. But what exactly has caused this slowdown?

The Working Group’s study paper cited above pointed out thus, “A peculiar aspect of India’s trade is that despite the country’s massive deficits in value terms, when it comes to volumes, outbound traffic is, at times, much higher than that of inbound traffic! And this shows in the composition of the country’s air cargo traffic as well.

For example, the mentioned Working Group Report reveals that in FY2011, while the volume of inbound air cargo traffic was 6.6 lakh MT, the same for outbound traffic was 8.4 lakh MT. Such imbalances mess up an airlines’ ability to provide competitive quotes because many-a-time, their aircrafts are forced to fly empty. And while this has been a perennial issue with India’s air cargo sector, factors like volatile ATF prices and high taxes at airports, lack of warehouses and cold storage facility, cargo terminals, etc. have also played a significant role in ruining the prospects of India’s air cargo sector.”

Air cargo operation comes associated with time-centricity and urgency. Players who operate in delivery operations often perform far better than passenger-centric commercial airlines. Globally, DHL, UPS, Fedex & others fly their own cargo planes and also some dedicated premium routes in India. Domestic players though operate in multi-model belittling the feel of urgency or glamour.

The Expert Group nonetheless made an impressive forecast for air cargo believing that with businesses finding Just In Time model compelling & highly rewarding one coupled with forecasted exponential growth in online retail would the driving force. Meanwhile, the forecast was made in 2010-11!