Air Cargo

India's constraints

air cargo industry external

is in a nascent stage, both due to lower level of exports via air and due to ETIG met five leading air carriers in Mumbai to understand the

to the industry.

state of the logistics of air cargo in India. (see image '

Unit Load - Devices waiting to be loaded ')

Internationally,

air cargo is becoming a part of the air logistics

business.

Other

parts

of the

business are express, courier and documents.

The global air cargo business is estimated to be worth air cargo will come from

US $200bn in 2000 and likely to grow ahead of world GDP growth rates. By one estimate, grow three times distribution Association, as fast as world GDP by 2005. 80 per cent of air cargo's revenues

- freighting

from one end of the world to the other. Air cargo, according to the Air Cargo

accounts for 16 per cent of total revenues for a typical passenger airline.

International

Scenario other than mail and

Air cargo means any mail, freight or goods moving by air and all revenue air traffic

passengers. The term air cargo is generally used in the broad sense to include air freight, several types of expedited applied. In short, as air small package services to which the term 'air express' that goes in the cargo compartment baggage, which is treated

is now loosely is

almost everything

on a passenger flight as if it were part

considered

cargo, except passenger

of the

passenger. (Source: Air Cargo Association) Larger operations like FedEx have dedicated freight planes.

The air cargo industry chain perspective, the

has several sub-segments freight segment, which

(see chart ' with

Package Deal '). From a supply of final and intermediate

deals

movement

manufactured

goods, is the critical one.

Express

market: cargo is a small shipment, usually documents, meant for overnight or extremely quick

Express

delivery. The international

express market is continuously

growing, driven by the express industry's

enormous success in the US. From a share of four per cent in 1997, the US domestic market share has grown at about 25 per cent annually and is about 60 per cent currently. The international express it will

market now accounts for five per cent and with an expected growth of 18 per cent annually, reach roughly 37 per cent (Internet,

Boeing World Air Cargo Forecast 1998) in 2015. This is against a

projected average growth of air cargo of 6.6 per cent until 2015.

The ET Knowledge Series : Supply Chain And Management 2002 -1-

Express

versus

freight: of the express market lays more emphasis carriers on the buyer's side than for their the freight and

The marketing

market does. Combination

now recognise the need for more publicity

facilities

try to build a close relationship

with customers to gauge their needs.

Another

aspect is the night

operations

carried out by the express

operators,

which consist

of

transportation

and sorting of express required for next day deliveries. This requires quiet and reliable of the plane. (Quiet because of restrictions on noise levels in

aircraft and results in a low utilisation many international airports at night).

By deploying high cost new aircraft to longer ranged missions, missions, integrators try

while lower capital cost freighters are deployed on short and low utilisation to diminish the low utilisation rate (Ouzounian, 1998).

The players who provide express, freight and courier services as their logistics use dedicated freighters scheduling and sorting facilities. The advantage is that

offering (integrators) can give better

all-freighters

to the services offered compared to the belly-hold

capacity of passenger aircraft. Higher to

direct operating costs are often the outcome which means that economies of scale are important

the express operators and are achieved by matching demand for certain products at specific times by making use of their hubs and, of course, the frequency flow on the hubs.

Air Cargo

Demand

What

drives growth in the air cargo industry?

In general, two main factors stimulate

air cargo

growth: market development and technical

development. Market development is concerned with global of total traffic growth. Air cargo is an

and regional GDP growth, which on its own causes two-thirds indicator

of wider economic trends such as showing the way into and out of a recession. Boeing's air freight growth with the an equation that implies that 1 per cent growth of GDP was before the the

1998 forecasts results

in a rise in revenue tonne-kilometres

of 2.54 per cent This forecast

September 11 attacks on the US cities.

According development:

to

the

International

Air

Cargo

Association,

three

major

aspects

cause

market

reduction

of fares as costs decline,

improvement

of service offerings

as routes and

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frequencies contributes international

are added and an increase in globalisation

and trade. It is indicated that the last factor

1.5 per cent to air travel growth for each 1 per cent growth of GDP, which is devoted to trade (Internet, Boeing World Air Cargo Forecast 1998).

In India, a key factor, which is responsible to costs of other transport

for the changes in air cargo fortunes,

is the sensitivity sea cargo

modes. All the carriers ETIG spoke to estimate especially for closer destinations

that fluctuating

rates did affect air cargo business,

like the Middle East and south

east Asia. All agreed that air cargo, at least in India, was used only when sea trade could not be used either due to time or space constraints.

Technical Redesigning

development

is caused by a dedicated

freight

aircraft

design and ground handling.

passenger aeroplanes

to a wider body and nose loading such as the Boeing 747 has

helped to meet shipper needs because this type of aeroplane can handle almost 90 per cent of all the cargo size offered.

Still,

cargo handling needs improvement.

A combined Cargo 2000 and Unisys study concluded that cargo. This shows that cargo

the average door-to-door

time is 6.3 days for loose and transhipment

spends less than 10 per cent in the air and more than 90 per cent on the ground.

Indian

Scenario

Ground

Reality:

The Indian market has a combination

of Indian and foreign players fulfilling

the role

of service providers, movers and fixers. Freight forwarders are Indian companies, some with links to foreign players, enabling them to offer integrated out of India offer cargo services. The Ministry services to the shipper. Most large airlines flying

of Civil Aviation estimates

the growth of air cargo out of at

the four metros at 73 per cent for the next few years. Logistics airports, therefore, acquire critical significance.

and supply chain management

Consider Mumbai Sahar -- India's busiest

airport which houses Air India, India's national

carrier and

largest cargo operator today. A study of the purely logistical sorry state of affairs (see table ' Largely Lacking ').

operations of the airport reveals a rather

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Cargo can be general (dry) or perishable and the logistics of each are different too. Mumbai's Sahar airport handles up to 40 per cent of all perishables exports from. India has always been a large growth areas -- at least what other

exporter of flowers, mangoes, vegetables and vaccines. These are potential 20-30 per cent a year -if certain basic requirements are met.

Unfortunately,

exporters/air

cargo operators take for granted elsewhere is denied to players in India.

Take the case of perishables.

A cold storage is a must to maintain

the quality of the perishables

before being loaded onto the aircraft. Mumbai's Sahar does not have a cold storage facility. Strangely enough, Delhi has one, event though it exports less than half the perishables of facilities controls inhibits the growth of perishables Airlines that Sahar does! Lack

cargo and plays havoc with the finely tuned timings and to come up with various innovations for

of all airlines.

have been compelled

temperature

control and security.

Trials shipper

and Tribulations: contracts transport,

The trial

for most airlines

begins even before they get the cargo. The or for long

with the freight

forwarder

to get the cargo to Sahar. In monsoons infrastructure

distance

the road/rail/communications

is such that the deadline of D-4

(cargo has to be at Sahar 4 hours before aircraft departure)

is often not met. When the deadline is airline are

missed, the cargo actually waits one whole day since the numbers of flights of a particular in designated slots in the day only. A whole lot of telephonic flow back and forth before the status follow-ups,

cajoling and even threats have flights at

of the cargo is known. Of course, if the airlines

night, that compounds the problem since there are restrictions city and arrival at Sahar. Subsequently, reaching the cargo terminal. table ' in-transit

on truck movement at night in the

lead times include the cost and time wasted in just (see box ' Flying High ' and

Contrast this to Dubai's air cargo facilities

First Rate & Accurate ' ).

Beating

the Heat: Players in the air cargo business

in India have had no choice but to innovate.

KLM Air Cargo, for example, is the largest carrier of flowers to Amsterdam, the largest flower market in the world. It averages up to 10 tonnes of flowers per flight and claims to be the only carrier flying combi-flights (part passenger, part cargo) from India.

KLM's process for flowers is detailed here: - The flowers reach Sahar from areas like Nashik, Pune, Mumbai and sometimes as far away as

The ET Knowledge Series : Supply Chain And Management 2002 -4-

Bangalore during the day. These are transported temperature maintained is maintained at a high level.

in either

insulated

or air-conditioned

trucks.

The

between 4-8 degrees Celsius.

As such, the quality

of the cut flowers is

- The problem, says KLM, begins the moment Andheri. The problems are of several kinds: a) There is limited

the flowers

truck reaches Sahar cargo terminal

at

space for cargo storage in the terminal

and in case of heavy rush of cargo during

peak export hours; the truck waits its turn to unload for as much as 8-10 hours. The cost of such large turnaround inadequate time is of course built into the cost to the shipper. That's a direct consequence of at the receiving end. Shippers estimate a build-up of more than 10 per cent on

facility

costs only due to this issue. b) There is no cold room adequate for perishables flowers/perishables airline's cargo at Sahar . This means that once the

are offloaded, weighed, custom cleared (by freight forwarders) and carted into the are directly exposed to ambient to ruin most

storage space inside the export warehouse, the perishables Very often, the temperature rises

temperatures. perishables.

up to 20 degrees. That's enough

Air India has a cold store at Sahar, but there's

no guarantee other airlines

would get

space when they need it. c) Currently, process. there's just one x-ray screening machine at Sahar. This is the largest bottleneck has to go through this machine. There are 37 airlines a day. Several of these carry perishables in the

All cargo of all airlines

out of Mumbai, cargo.

an average of at least 12 flights Naturally, every airline

and time-sensitive

wants its cargo screened first and fast. This results in a queue for screening officials, a lot of wheeling-dealing to be first in line. KLM estimates the

and according to airline

average waiting time for screening, on heavy load days, of up to 4 hours. The cargo has to be put on the conveyors for screening, sometimes opened up and sometimes sealed. If by chance, flowers follow meat into the conveyor, they take on the stench of meat. KLM says this is an oft-repeated complaint by the receivers in Amsterdam. The best solution, and flowers, but without this, airlines of course, is to have separate conveyors for meat

like KLM and Emirates (which is India's largest air carrier for but to widely space out their screening. The direct

meat to the Middle East) have no alternative

consequence of this is a waste of time, which in air cargo can prove to be very expensive.

KLM and Emirates Sky Cargo, has quickly evolved its own ways to deal with the issue. Some of the techniques are:

The ET Knowledge Series : Supply Chain And Management 2002 -5-

- Accepting perishable cargo as late as D-3 (three hours before departure of the aircraft) to minimise the time the perishables remain exposed to unsuitable temperatures. In Dubai, the cargo can come

in any time and can be cleared and stored in the cold store. - KLM has developed an insulation special glass wool and aluminium, blanket, which can be draped over the cargo. This blanket, of

prevents heat loss, but does not cool the cargo. KLM has found the quality. However, this is just a stopgap arrangement. the 4-hour stop at the and make

this blanket to be just enough to maintain KLM, in fact, takes the temperature terminal

of the cargo when received, during

and during loading onto the plane. Most shippers also know the lack of facilities

allowances. These allowances take the shape of opportunity

costs (business lost due to poor quality)

and quantum cost (cannot gain economies of scale due to lack of facility to handle large quantity).

Opening

up the Skies:

The government

has proposed some major steps to make air cargo more

attractive and efficient:

- Introduction - Introduction

of 'Open Sky' policy in the air cargo sector. of Integrated Cargo Management System (ICMS) at the four metro airports. (EDI) for integration facilities with the computers of other agencies.

- Provision of Electronic Data Interchange - Construction

of integrated common user terminal

at the four metro airports.

- Provision of centres for perishable cargo at Delhi, Hyderabad and Chennai airports. - Increase in demurrage-free period from 2 days to 5 days. - Increase activities. - Long-term leasing of metro airports, which will include cargo operations services and managerial efficiency. - Cargo warehousing by private airlines. to improve the standards of and synchronisation in working hours for city side operation for export and import

Logistics

Service

Providers

The players in the business have evolved into very advanced service providers. The players interact in several cross-linked means, as chart ' Think & Link ' shows. Integrators and express couriers

are best suited to develop into logistics services providers in the near future.

The ET Knowledge Series : Supply Chain And Management 2002 -6-

One

of the

crucial

developments

in

the air

cargo industry,

as in

other

industries,

is the

development of integrated outsourcers/specialty

service providers,

also called logistics

providers or third party services or providers take the consignment mix of modes - air, sea,

players. In the air cargo industry,

integrated

from you and deliver it to the destination

using the appropriate and justified

land or river. As far as the customer is concerned, the cargo reaches exactly as desired.

Integrators to documents

in air cargo now extend their services as single stop providers - from cargo, to express - to even post. TNT Post is one such player in Europe, which offers everything from

express to post into and out of Europe.

In general, therefore, up, transportation,

integrators

offer an all-in-one

door-to-door inter-modal

service involving pick

brokerage and delivery of express cargo.

Globally, there are four major integrators - Federal Express Corporation (FedEx) - United Parcel Service (UPS) - TNT Express Worldwide - DHL Worldwide Express

(see table '

The Big Four ').

Their success factors are: - Accessibility - Reliability - Quality, by making use of time-definite - Standardisation of offered services and value added services of services

Their strengths

are:

- Single company control of shipment - Low unit costs - Track and trace facilities for customers by making use of Internet and EDI

- A wide customer base and operate door-to-door on a time controlled base

It is not just courier and express companies that provide integrating

services. Increasingly,

major

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airports either provide or arrange for inter-modal

journeys from and to their cargo hubs. For example,

Dubai's Sheikh Rashid airport handling agency DNATA already has five trucks that can take four full size B747 freighter pallets, nearly 50 tonnes (see box ' All Under One Terminal ')

We compare the differences in operations conducted by Unisys reveals (see table ' the shipper. Right from document

of the integrators

and airlines/forwarders.

As research

Straight & Simple '), integrators and consignment

simplify the process for to infotech issues, a freight

processing

tracking

integrators forwarder.

are in a position

to offer better

services than

if the shipper

goes through

Mega integrators

like

DHL, TPG, FedEx, TNT and UPS comprise 90 per cent of the time sensitive 80 per cent. In Europe, DP (Deutsche Post), Post Office control over 50 per cent of the

market. FedEx, UPS and American Post Office control TPG (Dutch Post/TNT) - DHL, La Post and English

overnight market.

View

from

India

Share

of airfreight

in India's

logistics

scenario

is minuscule.

In 1998-99, of the total metric - airfreight

goods

movement in the domestic market - measured by the tonne-kilometre just 0.15 per cent. Air is the preferred mode for international chart '

accounted for

movement rather than domestic (see movement show a sharp drop total tonnage moving out of to where air cargo is

Overseas Travel '). However, figures available for international movement. Nevertheless,

in the 1990s in terms of total tonne-kilometre Indian airports still

shows a rise. This seems to suggest a shift closer to Indian shores.

in markets

moving; perhaps to destinations

Growth

rate of air cargo has been modest. It has slower than the rate of increase in total cargo

movement in the economy. However, in terms of absolute tonnes moved, growth rate has been better at least in the domestic market. As the table ' Growing At Home ' shows, cargo movement in

domestic market grew at close to 10 per cent in the last 10 years. In export markets, growth has been much lower, reflecting Delhi witness experienced the subdued growth of the Indian economy in the last few years. Mumbai and Chennai airport has in the last few

maximum air cargo movement - both domestic and international. growth indicating Tamil Nadu's

the maximum

economic performance

years. That state has succeeded in attracting

some good quality investment

in the last few years and

The ET Knowledge Series : Supply Chain And Management 2002 -8-

its development graph has been much better than the top two cities of India.

In India,

express and courier

companies have been providing logistics

services for many years.

However, earlier, the business arm and a logistics

was not so well defined. Today, every courier company has an express how many will survive, for this is essentially a

company. It's a moot question

highly capital intensive

and very competitive business.

Nevertheless, and thereby

Indian

express courier companies are moving rapidly towards becoming integrators providers'. There are both Indian companies and MNCs in this sector. An

'logistics

ORG-MARG report in 1999 reveals that there are approximately logistics in India, accounting for Rs 2,000 crore in revenues.

2,300 companies in this All companies

sector of in

have investments

infrastructure, business.

IT, market

knowledge and personnel

which can be leveraged to enter

the logistics

This trend in India is similar

to that of the west, where UPS and FedEx were essentially

courier companies, which later evolved into full-fledged logistics service providers on a global scale.

In the express cargo industry findings (see table '

in India,

there are three distinct '). It must

segments,

as per ORG-MARG's that these are

More than

Mere Couriers

be borne in mind

estimates,

as data is extremely difficult

to come by in the Indian logistics industry.

EMS Speed Post,

a Government of India service, is a large player.

In

terms

of type of cargo, over 90 per cent of all international (see table ' Packages not Paper ').

consignments

by weight were

accounted for by non-documents

How do the Indian companies view logistics? Most see logistics their present business. warehousing We already Says Mirchandani, Vice President,

services as a logical extension

of

Blue Dart, "Our belief in logistics is not in his competitiveness. distribution and like octroi,

but in speeding up the customer supply chain, thereby increasing have air an infrastructure and surface in place to support customs efficient

and speedy sales

complementary investments demand."

infrastructure,

clearances, support

taxes

in IT. Currently,

we are providing complete logistics

where there is customer

Local Indian

companies have been tying up with international

majors to boost performance (see

The ET Knowledge Series : Supply Chain And Management 2002 -9-

table ' penetrate

Tying the Knot '). This alliance into the Indian hinterland

works both ways; for the MNCs which need local help to companies, which may not have the

and for the domestic

required funds for investment. overheads, which is difficult

Besides, the local companies work on very low working capital and

for most MNCs.

One of the biggest advantages that

the express companies can leverage to enter the logistics IT systems of global majors like FedEx and UPS express, courier and cargo companies

business is IT. The massive, global and sophisticated form the core of their business. Practically

all large-scale

provide basic IT services. In India too, IT networks have developed rapidly. For example, Blue Dart has one of the largest private computer networks in India, with over 1,220 computer terminals

connected by dedicated leased lines, V-SATs and microwave links. E-mail is accessed at 72 locations daily by over 2,500 users. extensively Blue Dart uses wireless, mobile telephones, radio sets and pagers

to enhance communication Call Distribution

speed and connectivity.

Its customer service cell is equipped and support to its

with Automated customers. tracking logistics.

Systems

(ACDs) to provide quick response

Blue Dart also claims to be the first Indian company to indigenously Gati Roadways hired an entire train from western by Novell. India

develop COMSAT II India for

system. It

to eastern

uses the enterprise

wide messaging software

Elbee uses

V-SATs for its

domestic network, scanners and Internet

tracking systems too.

ETIG believes that a shake-out shows several models of logistics After - Snap A ' and '

in this industry

is imminent.

An analysis of the Indian industry (see table ' Before &

evolving from the local express industry

Before & After - Snap B ' ). Of these, only a few will survive. While all courier guarantees, next day deliveries, tracking, proof of delivery and so

companies offer service reliability,

on, only those who can capitalise on their strengths

will remain in business.

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