Explained: Why air cargo handling rates must be standardised across India

There is no standard rate across airports for the processing and handling of cargo at air cargo terminals, which may be counterproductive to the competitiveness of the country’s exports and to the cost of air cargo logistics as a whole, the Department Related Parliamentary Standing Committee on Commerce said in its 164th report titled Augmenting Infrastructure Facilities to Boost Exports.

“The committee, therefore, recommends (to) the ministry to fix a standard benchmark for fixing processing and handling charges which will be applicable across all airports. The committee further recommends (to) the ministry to ensure that these charges are comparable to other airports around the world so that our export competitiveness is not impacted due to high terminal charges,” it said.

Growth of India’s air cargo market

India’s domestic air cargo market had been expanding since FY16, outpacing global air cargo growth. The decline started in FY20 and could not be attributed to Covid-19-induced travel and trade restrictions. However, the decline since then has been largely on account of the pandemic.

Cargo tonnage grew at 6 percent in FY19 over the previous financial year, according to data from the Airports Authority of India. Since then, it has fallen almost 7 percent in FY20 and by more than a fourth in FY21.

Among airports operating under the public-private partnership mode, the decline in cargo traffic was the most at Kolkata and Mumbai airports (over 31 percent) in FY21 – exceeding the national average, as per data from global aviation consultancy firm CAPA. Mumbai’s share of domestic cargo volumes declined 5 percentage points in FY21, equivalent to a loss of about 50,000 tonnes, CAPA said.

Cargo volume recovery prospects

Air cargo volumes are expected to recover and cross pre-Covid levels in this financial year, according to CAPA. Domestic cargo is expected to increase by 43 percent to 1.36 million tonnes (2.7 percent above FY20 levels), while international cargo is projected to grow 35.9 percent to over 2 million tonnes (3.2 percent above FY20 levels).

Still, the total air cargo throughput at all Indian airports is less than the volumes handled by individual airports such as Hong Kong and Shanghai.

Indian operators of cargo planes

To cater to the growth in the air cargo market, Indian carriers have been increasing the deployment of dedicated air freighters or cargo planes. The parliamentary panel said the number of dedicated freighters had risen to 26 in 2021 from seven in 2018.

The government has also encouraged Indian airlines to acquire more wide-bodied aircraft to increase the capacity of belly cargo or cargo-on-seat flights. The parliamentary panel noted that the share of dedicated air freighters was only 15 percent in the air freight market in India compared with 50-55 percent globally.

Plans to increase cargo operations

At least two Indian airlines, SpiceJet and IndiGo, have ramped up their cargo operations as the pandemic crippled passenger operations and they realised that cargo operations could bridge some of the revenue shortfall.

IndiGo’s cargo revenue increased by 9.6 percent in FY21. The airline has now initiated a freighter programme and is sourcing four A321CEO aircraft. It has converted 10 of its aircraft to carry cargo in the cabin. During the September quarter call with analysts, IndiGo CEO Ronojoy Dutta said structural shifts were already taking place in the cargo space:

1) Volumes of both exports and imports were growing; the economy was strong and international trade was growing. These factors would help air cargo volume growth.

2) The wide body (aircraft) capacity worldwide was down.

3) Airlines “like Cathay and Korean” were doing a lot of one-step cargo out of India. The government recently put a “kibosh on that, so that’s not allowed.”

4) Shipping was in some sort of congestion.

Dutta said that regulation is “in our favour, shipping to airlines substitution is in our favour, Indian volumes are growing. So, with all that, cargo really is a good story and will continue to be a good story.”

SpiceJet is also increasing focus on the cargo business. The airline has received shareholder approval to transfer the cargo business to a subsidiary. It operated 17 cargo aircraft in the September quarter, including seven wide-bodied aircraft. Revenue from cargo operations jumped manifold in FY21.

Challenges in ramping up air cargo operations

As per the National Cargo Policy 2019, the air cargo industry faces hurdles such as high dwell times, congested cargo terminals, sub-optimal use of belly cargo capacity, missing/damaged non-traceable cargo, and manual processing.

The top 10 destinations for cargo from India account for the bulk of the entire cargo volume and new markets could be tapped to correct the skew towards the Gulf countries.

Another challenge seems to be the “Open Sky Policy” for cargo in India. A different parliamentary panel had pointed out a few months ago that as a result of this policy, foreign airlines carried 90-95 percent of the total international cargo to and from India, while Indian operators faced all sorts of barriers when they went to other countries.

This panel sought a level playing field for Indian operators and asked the government to help Indian airlines that face discriminatory practices in other markets.