Contraction in US and European economies adversely affects Indian air cargo exports

The economic contraction in the US and Europe has brought down the demand for air cargo exports from India. Consequently, this has resulted in a rise in available capacity and subsequent fall in transportation rates, a senior industry executive said.

“During covid, there was less capacity or few freighters so, the air freight rate to the US went up to ₹700-800 per kg, which was very high…now, it is down to ₹200 a kg. In fact, the rates are even less than pre-covid levels and the main reason is less demand because of a recession in the US and Europe,” Vipin Vohra, chair, Civil Aviation Committee, PHD Chamber of Commerce and Industry, said in an interview.

In addition, while pharmaceuticals, automotive components, handicrafts, and textiles were among the high-volume commodities exported via air earlier, waning of the pandemic and recessionary conditions in these regions caused a decline in volumes of these products, he said.

The international air freight during the financial year ended March fell 5% to 1.9 million MT, as revealed by the data from Airports Authority of India. In FY24 so far, the international freight was at 317,589 MT, 1.2% lower than a year ago.

The air freight industry which was enjoying an exception till September, in October 2022 came under 18% goods and services tax rate.

 The GST applied on air freight and Sea freight is 18% and 5% respectively, making the Made in India goods expensive in the global market.

Vohra speaking of the difficulty of the situation says, “While GST is refunded to the exporter, money gets blocked for 2-4 months and impacts trade.”

Considering the industry’s distress, the civil aviation ministry is looking to approach the finance ministry to reconsider the taxation rate for air freight, it is yet to take a final decision.

Airline like SpiceJet and IndiGO who were looking to expand their freighter capacity, are also seeing an impact on its cargo plan for the near term, due to the week demand.

While SpiceJet has cut its cargo fleet to three from 16-18 freighters during covid, IndiGo hasn’t announced any expansion in cargo capacity. Pradhan Air, which was expected to add its second aircraft in December 2022, still maintains only one freighter.

“Unfortuantely, when all these airlines thought of having freighters, transportation rates were quite high due to covid…now the rates are so low and there is more capacity available…It is very difficult to run and cover the cost…you have to have full routes from where you can get cargo on both ways on regular basis,” Vohra said.

While, the Indian air cargo industry has the potential to shine in the global market, on the back of Make-in-India programmes, and local production by giants such as Foxconn, Samsung and others, certain prevailing challenges need immediate redressal.

“In Hong Kong 94% of cargo comes ready for carriage from agents’ warehouse in pallets and airports are just transit points. In India, airport operators say everything has to go through them. There was a policy on air freight stations which was announced in 2014 and it has not been implemented so far. There is often doubling of costs while paying for clearance of cargo if multiple domestic airports are involved,” he said.

The air cargo industry also witnesses challenges due to lack of digitisation in the custom and security clearance processes and uncoordinated approach in implementing amendments to custom clearance rules and procedures often leads to delay and inefficiency.

“We are positive that air cargo is going to increase. But, our airports should be sufficient to handle the cargo that is expected later,” Vohra said.

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