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Air, Challenges

Air Cargo Industry in India

Airports in India

· The airport infrastructure plays a decisive role in shaping a nation’s competitiveness and the inflow of foreign investment. It is also significant in the country’s booming economic growth.

· Currently the number of airports/airstrips in the country is 449.

· Airports Authority of India (AAI) manages 126 airports that include 11 international airports, 89 domestic airports and 26 civil enclaves at defense airfields.

· The premier authority also provides Air Traffic Management Services over the entire Indian air space and adjoining oceanic areas with ground installations at all airports and 25 other locations to ensure the safety of aircraft operations.

· India would spend around Rs. 400 billion in airport development under several programs by 2010

Opportunities Galore

· In view of the present boom in air cargo segments in India, several domestic as well as international air carriers have decided to start air cargo operations in India and some of them have already started flying freighter aircrafts in the country.

· Besides the state-owned carriers Indian Airlines and Air India, players such as Jet Airways, Go Air and King Fisher Airlines have also decided to venture into air freight market and play a bigger role in booming aviation sector.

· Cathay Pacific Cargo, the Hong Kong based airline, decided to start six new freighter services in India in view of the growing Indo-US and Indo- China trade.

· Flyington Freighters Pvt. Ltd., the secunderabad-based air cargo company, has placed an order to acquire four Boeing 777F cargo aircrafts for an estimated cost of US$945…acquisition of cargo aircraft is one of the biggest orders so far by an Indian aviation company.

· Great Wall Airlines, a Sino-Singaporean JV, is planning to launch a freighter servince connecting Shangai with Mumbai and Chennai. The first and only direct scheduled freighter services between China and India.

· Another important feature of ecstatic growth of Indian aviation industry is aircraft maintenance, repair and overhaul (MRO) industry.

Intermediaries and Support Service Providers

· With the rapid changes in the business environment, logistics has emerged into a separate function.

· Presently, most of the companies understand the importance of logistics in the overall cost structure and competitiveness.

· A large number of companies have already gone ahead and set up a separate department for handling the logistics functions.

· Now such companies, if they chose to, can outsource their logistics functions thanks to the emergence of third party logistics (3PL) service companies

· 3PL involves hiring of outside specialists enabling companies to focus on their core activities, instead of getting bogged down in non-core activities.

· Unlike the outsourcing of other business processes where cost reduction is the prime driver, the outsourcing of logistics function is motivated by both cost benefits and efficiency gains in the supply chain management.

· As the business environment grows ever more complex and dynamic, the importance of logistics function will increase and so will the practice of outsourcing logistics function to the 3PL provider.

· The factors that drive the outsourcing of logistics function to the 3PL provider can be grouped into 3 categories:

Strategic Factors:

· Focus on core competency, delegating supply chain management to specialists

· Improve customer service

· Enhance flexibility of business operations

Operational Factors:

· Improved process execution at all levels

· Optimum use of technology for improving operations

· Financial Factors:

· Significant reduction in costs

· Reduction in capital costs

3PL

With the starting of operations by MNC’s, and major domestic companies also outsourcing their basic logistics functions in the Indian market, the 3PL market is booming in India. Realizing the significant benefits like cost reductions and just-in-time delivery gained by these companies, a large numbers of small and medium companies are gearing up to 3PL services in their logistic functions. The Indian 3PL market was estimated at about US$890.3m in 2005, which is expected to grow at a CAGR of 21.9% to reach US$3,556.7m by 2012.

This is owing to the growing presence of multinationals and the renewed thrust on exports.

Services frequently outsourced to 3PL’s:

· Direct Transportation Services

· Customs Brokerage

· Freight Payment Services

· Freight Forwarding

· Warehouse Management

· Distribution Facilities

· Shipment Consolidation

Function of 3PL

The services of 3PL providers can encompass the entire supply chain or parts of it. If a company opts for the outsourcing of the transportation process, the 3PL providers extend services such as network design, carrier contracting, shipment optimization, shipment tracking and freight payments. In the distribution sphere, 3PL providers design the distribution facility and take care of project management. 3PL providers undertake core warehousing activities besides providing value-added services such as kitting and packing. In the overseas trade, the 3PL provider’s co-ordinate global freight movements and handle customs clearance-freight forwarding.

3PL market in India is relatively still in an emerging stage. The largest end-user industry for 3PL services in India, as of 2005, is the automobile and auto component industry. MNC automobile giants like Suzuki, Hyundai, Honda and Ford have set up their manufacturing bases in India. Other sectors that have contributed substantially to 3PL market in India include

· IT hardware and electronics,

· fast moving consumer goods,

· textiles and

· retail

State of 3PL in India

Factors driving the Indian logistics industry towards 3PL market are:

· Indian governments Value Added Tax – a uniform tax regime that is expected to drive Indian industries towards using more 3PL services.

· A full implementation of the regime would necessitate having centralize large warehouses to achieve best efficiency in logistics.

· India’s increased focus on improving logistics infrastructure…in this context the government has invested US$17 billion to upgrade highways with the implementation of two major projects, namely the Golden Quadrilateral Network and the North-South-East-West (NSEW) Corridor.

· The entering of MNC’s like BMW, Flextronics, Wal-Mart, etc in India is expected to fuel the growth of 3PL market and contribute to considerable growth of 3PL usage in their respective industry sectors.

4PL

Recently, the Indian market is witnessing the emergence of Fourth Party Logistics (4PL) service providers.

· The rise of 4PL service represents the next step in the evolution of supply chain management in India.

· The 4PL service provider takes over the entire logistics function, obviating the need to deal with multiple 3PL service providers.

· The 4PL service providers provide the entire logistics solution on their own or take the help of multiple 3PL providers.

Clearing and Forwarding Agents

· To help companies in fulfilling legal formalities of transportation a separate class of clearing agents or freight forwarders have emerged over the years.

· The cargo clearing agents or freight forwarders also acts as a consolidator of shipments.

· The freight forwarders deliver most of air cargo shipments to airlines in consolidated bundles. Therefore, the freight forwarder serves in two ways:

· A freight forwarder is at once a customer and sales partner of the airlines.

· The freight forwarders specialize in routing shipments on scheduled flights even while organizing chartered flights for shippers.

· The freight forwarder, meanwhile, organize all-cargo charter flights.

· The integrators offer door-to-door services to shippers.

· An integrator controls the sales channels and the transportation processes.

Warehousing

The warehousing discharges an important role in business. It creates time utility by bridging the time gap between production and the consumption of goods. Warehousing refers to the systematic storing of goods with the goal of making them available on demand

Types of warehousing can be classified into the following categories:

· Private Warehouses

· Public Warehouses

· Government Warehouses

· Bonded Warehouses

· Co-operative Warehouses

Warehouses perform the following functions:

· Storage of goods

· Protection of goods

· Bearing risk

· Financing

· Processing

· Grading and branding

· Transportation

Issues and Challenges

· Major Indian Airports Running Out of Capacity

· High Waiting Time and Congestion in Airports

· High Fuel Cost

· Taxation

· Aviation Security

· Lack of Human Power

Market Dynamics – Global Air Cargo Forecast

· International air cargo traffic is expected to grow at average annual growth rate of 5.8% between 2007 and 2009, driven by resurgent global economic conditions, booming international trade and several open sky policies signed between countries.

· The Asia-Pacific region would have the key trade routes for global air freight market, particularly countries like China and India.

· In addition, Middle East air freight is also expected to show strong growth over the next three years.

Discussion

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