What is stopping AFS policy from taking off in India?

In a bid to ease processes and bring efficiency in the air cargo industry, the Air Freight Stations (AFS) policy was introduced by government in the country six years ago. However, the concept was buried, and no AFS is operational till date except the one in Chennai which was established before the policy came out. CARGOTALK delves into the reasons of why this project is not gaining popularity in India as compared to the European and US countries.

On October 28, 2014, the Ministry of Civil Aviation announced the policy guidelines on AFSs with an objective to strengthen air cargo logistics infrastructure in the country. The initiative of AFS was taken to create an enabling environment for promoting international air cargo operations by reaching out to hinterland regions of the country besides de-congesting the congested air cargo terminals in some gateway international airports that face high dwell time. AFS was supposed to be an extension of the airport or an off-terminal facility where all import/export formalities should be completed without hassles for cargo transport. However, the concept never took off in India despite the fact that shipping industry is using off-dock freight stations effectively from last so many years and flourishing. CARGOTALK spoke to industry experts to understand why the air cargo sector has failed to imitate the success of Container Freight Stations (CFSs) in shipping industry.

On this, Sunil Arora, President, Air Cargo Agents Association of India (ACAAI), shares, “Lot of analysis and studies were done before setting up the policy guidelines of AFS as this is very important for the logistics infrastructure in the country. ACAAI supported this policy and we were even part of the consultative committee. However, it is quite strenuous to understand the main reason of AFS not taking off in India.”

Commenting on why the project is not taking off in India, Raman Raj Sud, President, DCBA, voices, “Private custodians do not wish AFS to come up because of their vested interests,” in adding, “Without thinking about the trade, the custodians are monopolising the air cargo sector. Hence, they are not letting it to be implemented.”

“Making a policy is one thing and then implementation of it is also a very serious matter. There is no use of making a law or a policy if government cannot implement it,” he adds

In one of the conferences organised by PHD Chamber of Commerce in 2018, Former Civil Aviation Secretary, R N Choubey also focussed on the matter, saying, “We are actively pushing for establishment of offsite AFS. This is against the financial interest of airport operators, but this is the way forward.”

Stressing on the monopoly of terminal operators, Vipin Vohra, Chairman, Continental Carriers, says, “This is a government policy and a key project of ‘Make in India’ campaign, still we wonder why MoCA is not initiating and starting air freight stations in the country. The AFS policy was announced with an aim to increase air cargo volumes by decongesting the air cargo terminals at the international gateway airports, thereby reducing air logistics costs for companies engaged in foreign trade. Continental Carriers is the first company that did huge investment in the AFS, believing the Government of India’s AFS policy appreciating the idea of boosting the economy and bringing supply chain management on par with global standards. This has been a disappointing journey since the first Green Field AFS of Continental Carriers was approved by government on August 8, 2016. It’s already been six years. We have been struggling with all the government departments but have failed miserably due to the fact that terminal operators have more say in MoCA/AERA/Logistics Departments of Commerce Ministry and they are not interested that this concept gets started.”

He further added that unnecessary hurdles and roadblocks in infrastructure are not allowing this policy to take off. Since the announcement, Continental Carriers has communicated with all the government departments viz. MoCA/AERA/Logistics Departments of Commerce Ministry etc., but no result has been formulated. Today, when everyone is gearing up for COVID vaccine delivery management, we are still not sure about the future of AFS, whereas, in other countries the concept of off-airport cargo handling has been in practice for decades. The failure of this policy will only hamper our Prime Minister’s vision to ‘Make in India’ and develop India as a manufacturing hub for the world.

AV Vijaykumar, Chairman, FFFAI shares the key obstacles which have derailed this initiative. He says, “Firstly is the reluctance on the part of terminal operators based on the unfounded fear of loss of revenue. Second is the failure of AERA to fix charges for airside to landside transfer of pallet charges. Then, there is hesitation amongst airlines to support off location movement of inbound cargoes as they were unsure of the liability allocation. Also, there are BCAS screening regulations and lack of export consolidation and USD selling for outbound cargoes.”

“The Ministry of Civil Aviation had announced the policy very ambitiously, surely with other ministries on board in the year 2014. The guidelines were also drawn but the quickness with which the guidelines have been implemented was not up to the mark, to say the least. There should have been one Ministry responsible with all committee members of different Ministries to take quick decisions. The AFS operator should have got the results within a fortnight. The delay in the process leads to the cost escalation in infrastructure projects like this which no one wants to undertake. Even today it is not late, let a formidable committee be made with decision making authorities and you would see the results on the ground,” says S. Ramakrishna, Director, Balaji Mariline.

“The policy aims at increasing air cargo at various airports across India by utilising airline capacity where cargo handling facilities are not adequate. Unexpected lockdown because of COVID-19 has already shown us the challenges we are going to face in the future. During this period the airport terminals got over congested and operators were not able to handle cargo. AFS is undoubtedly an innovative alternate solution that would decongest air terminals and help in better cargo management and an essential step towards making India a manufacturing hub under the Prime Minister’s ambitious ‘Make in India’ scheme. If a solution is not found soon, this industry will remain a victim to the monopolistic practices being carried out by the terminal operators,” points Vohra.

Sharing the reason why it didn’t take off in India, Tigist Eshetu, Regional Director – Indian Suncontinent, Ethiopian Airlines, mentions, “There is lack of modern infrastructure and effective technology for cargo handling supply chain. The overall infrastructure did not have the facility for warehousing special cargo like frozen food, animals, DGR/express products. Complicated regulatory processes and procedures is another reason. Moreover, lack of sufficient human resources, shortage of import cargo storage and lack of customs clearance airport are few of the reasons which might not be letting this project to take off.”

On the other hand, Rajesh Menon, Regional Head Cargo – South Asia, Middle East and Africa, Cathay Pacific Airways, expresses optimism by saying, “The government has been actively pushing for establishment of AFSs as per the policy guidelines of 2014. And, with the 2019 air cargo policy and the government’s vision to make India among the top five air freight markers by 2025, there have been multiple initiatives towards key infrastructural development. We are sure the AFS project will be rolled out as a part of the same.”

According to Mahesh P Trikha, Managing Director, Aargus Global Logistics, “Investing in AFS in the given circumstances is very challenging and rather innovative too.” He says, “Indian air cargo sector fully understands the benefits of it. The major hurdle, at the moment, seems to be lack of transparency or understanding by a couple of government agencies especially relating to security. Hence, there are few takers for setting up AFS in the present circumstances.”

Competition brings efficiency
“It is proven worldwide that AFSs have brought in healthy competition because if we study the best practices worldwide, 85-90 per cent of the cargo in the major cargo hubs like Dubai, Singapore, Hong Kong come from AFS. Moreover, AFS should not be taken as a competitive establishment to the airports, be it a Greenfield or Brownfield airport. It should be considered as an additional facility to promote the Exim of the country,” emphasises Arora.

“AFS should not be restricted only for big freight forwarders to open rather it should have been considered as a policy which would bring in lot of infrastructure investment in the country. Lot of big giants, not only multinational freight forwarders, but big manufacturing organisations like Panasonic, Siemens, Honda, Pfizer, Dr Reddy’s Lab and Lupin, etc. should have been given an opportunity to open an AFS wherein cargo immediately, after landing, moves into AFS and gets customs cleared. And, for export purpose a big export unit should have been allowed to open their AFS where they can clear their cargo,” he continues.

Adding to this, Vohra notes, “At present, the infrastructure at several major airports is inadequate, causing extensive delays. Consequently, the dwell time becomes very high. The transaction costs also increase due to such delays, thereby making exports from India uncompetitive in comparison to exports from other countries. AFS will certainly make dwell cost low and export rates competitive. If we want the Indian air cargo industry to match global standards then AFS is the only ideal solution where all loose cargo will be processed, centralised and will be delivered to airports and in the reverse flow will be shifted to AFS for further delivery to the end customer. We must appreciate the fact that AFS is a present-day solution to complement air cargo terminals and would make air cargo handling and supply chain management on par with the global standards of logistics management and a step towards growth and efficiency.”

“Competition always brings efficiency and presently there is no competition. At Delhi airport, the custodian is Delhi International Airport (DIAL) and it has further appointed two different concessionaires; Celebi and DCSC. The aim of making DCSC was that there would be competition between the two concessionaires and the benefit will go to trade but unfortunately it has not happened because airlines are now divided between the two concessionaires. So, if we have to do business with any airline one cannot go to any other than the specified concessionaire by them. It was discussed and they said it is technically not feasible. Technical feasibility should have been seen before appointing two of them,” underlines Sud.

He says, “With AFS coming up, there will be more competition and naturally it will benefit the service level and commercial level. Competition always brings out the best in the services. With AFS in place, an exporter will rather go to the nearby AFS than to the airport; it is exactly the same we have seen being done in ICDs and CFSs. The purpose of ICD, CFS and AFS is to make processes simpler.”

Explaining further, Vijaykumar says, “The role of an airport operator is not to warehouse cargoes pending clearances. Congestion at airports are regular occurrences and lack of competition has also diluted the performances on par with international standards across many Indian airports. An AFS can offer an economic and efficient remedy to these issues.”

“We have been fighting for this policy to take off for years, but the first AFS has not even started yet. We at ACAAI have supported this policy, and whatever has been the issue, whether it is rates or tariff adjustments, they should have been discussed and amicably agreed upon,” says Arora.

According to Ramakrishna, “It is not only going to be the efficiency level alone, saving of cost will also be a major factor. Giving a little perspective to efficiency level, he adds, “If the build-up unit is moved to and fro from AFS, the airport operators will have a distinct advantage of handling more aircrafts which would mean more revenue, more efficacy, ranking of their airport will be high, the logistics cost will reduce. Above all, the Exim trade is at a distinct advantage.”

TSP charges; a reason of deferral
According to the circular issued by MoCA, airport operators and air cargo terminal operators shall accept palletised ULDs for bulk cargo in the case of exports from an approved AFS facility and facilitate its transfer to the airside. They shall not insist on levying full Terminal, Storage and Processing (TSP) charges on consignments/cargo meant for/received from AFS (particularly in respect of ready for carriage conditions export cargo) for its transfer from land to airside and vice-versa since no value addition is contemplated at the airport terminal. AERA while approving TSP charges shall give a break-up of Transit, Storage and Processing charges.

“It is unfortunate that despite the establishment of AERA, users have not witnessed any accountability on the terminal operators commensurate with the charges levied. AERA seems to be fixated on a ‘light touch’ approach despite the users highlighting the delays and sub optimal performances,” expresses Vijaykumar, in adding, “A close comparison of the rates charges at the terminals would highlight that rates are almost similar despite the variable capital and operating costs of the terminal operators. The issue of royalty is a serious cost push to users.”

Throwing more light on the subject, Sud adds, “As and when meetings were held between AERA and custodians to discuss rates, which were arbitrarily increased, DCBA was not taken in the loop in deciding the rates but the minutes of such meetings showed the presence of DCBA. The same was also brought to the notice of AERA. This completely signifies that we are being misled.”

“With AFS in place, all work which is done at the airport presently will be done in an AFS and when it is done in AFS, container will directly get loaded in the aircraft from AFS, so definitely there is a possibility of less charges as compared to the cargo which goes directly to the airport. In the current scenario, let’s say if the TSP charges are 100 per cent, when cargo will come through AFS it will be 30-40 per cent of the existing charges,” expounds Arora.

Arora comments, “If exporters and importers have to pay twice; one to the AFS and secondly when cargo goes to the airport then export through AFS will not be feasible and will not be a practical approach. If the expenses are not incurred on the cargo coming from AFS then why charge for that? If it is a direct transfer of cargo from AFS to airside or to the ramp then in that case bare minimum charges should be worked out, discussed, negotiated because at the end of the day it is not about TSP charges, there has to be willingness to bring AFS policy up and running. If the policy had been concluded by this time, we would have at least 30-40 AFSs not only in and around Delhi but around major hubs like Mumbai, Bengaluru, Hyderabad, etc.”

Sharing an exporter perspective, HKL Magu, Managing Director, Jyoti Apparels and Immediate Past Chairman, Apparel Export Promotion Council (AEPC), says, “Logistics charges are already high and there is no scope to pay higher charges. Exporters are already struggling because of competitive prices worldwide, hence, it is not at all advisable to ask for higher charges. I hope authorities will take care of this and the Ministry will ensure to implement the announced policy of Air Freight Stations announced in the year October 2014.”

Explaining further on the subject, Sud says, “Another problem is both the concessionaires have different set of protocols and work in their own ways which not only brings confusion but also leads to extra charges.”

“Continental Carriers has taken up the issue of reduced terminal charges in all the meetings with Air Cargo Logistics Promotion Board, Ministry of Civil Aviation, Ministry of Commerce, Scope Air, AERA and all the concerned ministries since 2014. Unfortunately, all through these years this issue still remains unresolved,” informs Vohra. He continues, “Presently TSP charges of cargo are provided to the airport operator. Representatives of FFFAI also feel that it is necessary to have clarity in the distribution of the charges as this would affect the revenue models of cargo movement to the airport through the AFS as most of the activities related to the cargo will be performed at AFS. The TSP issue has caused unexplainable delay and huge financial burden to the aspiring entrepreneur.”

Cargo in ULDs
The bonded cargo is arriving in ULDs across the world, so why this concept is not getting popular in India. On this, Eshetu says, “The main but not limited reasons are Indian infrastructures limits, timely delivery of cargo at a point for further chain continuity, lack of technically evolved RFS companies, tedious paperwork procedure of customs at origin/destination and borders, and insufficient infrastructure for managing & building ULDs for RFS movement.”

“The bonded cargo across the world is transported in ULDs. However, in India there have been challenges due to the lack of adequate infrastructure and formalised processes. With the civil aviation 2019 policy, we see a lot of promise in the infrastructure development in the country and to be able to offer the service to our Indian customers too,” adds Menon.

Talking about whether airlines are ready to accept cargo in palletised position in India, Menon says, “A pallet container that is preloaded at the shipper or freight forwarders facility is widely accepted by Cathay Pacific across the globe and we hope to extend this to India soon. India being an important market, this will be a great booster for the business and help us provide more options to our customers.”

“We are in a position to accept palletised cargo in India if the above-mentioned challenges can be overcome,” confirms Eshetu, in adding, “Almost the entire cargo is transported in ULDs in Africa, that is, 95 per cent of our cargo is coming to ADD with ULD.”

“Hong Kong is the world’s leading cargo hub and the Cathay Pacific Hong Kong cargo terminal is well equipped to handle shipments in ULDs. We see almost the majority of cargo shipped or received in ULDs from our hub,” informs Menon.

Benefits of AFS
Commenting on how the trade is going to be benefitted if this project gets through, Trikha says, “The transaction cost for the exporter may come down as they will enjoy the benefit of lower freight rates due to consolidation of cargo for multiple shipments.”

Sharing his views on whether FFFAI members would be interested in operating through AFSs, once the policy gets through, Vijaykumar says, “If an economically attractive proposal is put forth, members of the forwarding community will likely to take up this challenge.”

“If the policy doesn’t get approval by the government then the time is not far away when cargo will be lying outside the airports when ‘Make in India’ will come into action in the next two years. In ocean freight, ICDs/CFSs are a major relief to the seaports, if ICDs and CFSs would not have been there, the country would have been in big trouble because of shortage of space at seaports. Similarly, if the AFS policy is not implemented in the next one or two months and the government does not come forward and remove all the obstacles in the way of policy implementation, it will not only cause major losses but also adversely affect the ease of doing business concept,” states Vohra.

Arora says, “An airport is situated in the heart of a city with lot of traffic restriction, if there is an AFS in and around an airport or may be at a little distance, say at an industrial park like Faridabad or Gurugram or Manesar, then why would I take my cargo to the airport. I would comfortably take it to an AFS, custom clear it, palletised it there and get it loaded in the aircraft. The industry will support AFS strongly.”

“Custodians are taking advantage of monopoly and doing business on their own terms. For example, with the purpose of decongesting the airport and not letting it be used as a warehouse, AAI issued a circular for reduction of free period from 72 hours to 48 hours and it also says that if 24×7 facility is not available then you will not charge for the holidays. Now, in Delhi 24×7 facility is available only on paper but if allied agencies which means drug controllers, FSSAI, plant quarantine, animal quarantine, banks are not functioning on a holiday or close in half time on Saturdays, how will we manage to do the clearance. So, there is no use of custodians being operational if allied agencies are not operational. With AFS in place, there will be competition in true sense. AFS will break the monopoly, ease processes and benefit the trade,” says Sud, in adding, “We have always supported this initiative and once this policy gets a go ahead, we will definitely be using the AFS facilities for better services. On one side, the policy is made and on the other side semi government organisations are not bothered about the implementation.”

Connecting AFS with COVID vaccine distribution scenario, Arora says, “If we had got AFS placed all over India or if this policy had taken off, any logistics person or any supply chain management consultant would feel that it would have been a fantastic opportunity and ease distribution of vaccine throughout the country because the vaccine would have been immediately transferred to the respective AFS and from the AFS onto an arterial network this vaccine would have reached much faster.

Vohra adds, “Once the COVID-19 vaccine starts moving from India, AFS will be able to help in creating cool chain warehouses close to distribution centres in India and for export/import within India and countries aboard.”