Chennai Airport is the third busiest airport in the country in terms of cargo handled. Established in 1978 and spread over 19.5 acres, it today has a capacity to handle 11,02,373 metric tonne of cargo every year. However, what it actually handled in FY2015 was a meagre 2,22,470 metric tonne. Quite perplexing! The Dollar Business paid a visit to the Air Cargo Complex at the Chennai airport to solve the puzzle and figure out what will help its cargo traffic really take off.
Sisir Pradhan | The Dollar Business
If you have ever been to Chennai, one thing you can’t miss is the sheer size of public utility areas in and around the city. Whether it be the Chennai Corporation headquarters or the State Hospital or the speed at which flyovers have been commissioned in the city, you will be left in a state of admiration of the public utilities of the biggest city of southern India.
Among the entire architectural extravaganza, the only not-so-aesthetically-appealing structure that caught our attention was the Chennai Airport (domestic and international) – made entirely of brick and mortar. However, we would add, going by the standards maintained by PSUs (the Chennai Airport being one of the two metro airports yet to be privatised; the other being the Kolkata Airport) in India, the new passenger terminal at the airport does fare well and manages to match up to the grandeur of this city in southern India.
The Chennai air cargo complex is located on the busy and congested four-lane NH 45
Congestion Crisis
When the airport was originally conceived, the locality was a suburb and had very little traffic. But gradually, the city swallowed the airport. With little restriction on development of human and business establishments near airports, one is forced to deal with dense traffic on the way to the airport.
The Air Cargo Complex at Chennai Airport is located few hundred meters before the domestic air passenger terminal on the busy National Highway No.45, which connects Chennai to Tiruchirapalli or Trichy and Dindigul, including industrial hubs Guindy, Tambaram, bustling southern suburbs, en-route. Let us also not forget the fact that this is but a four-lane highway. And, of course, there is the ongoing Metrorail construction, which in the name of making public transport more convenient in the future throws traffic out-of-gear, like it does in most of the other major cities in the country. All the importers and exporters and even the Chennai Airport General Manager (Cargo) L. R. Joshi complains about the inconvenience and loss of time in transportation of cargo caused due to the metro rail construction, but why no temporary or permanent remedial measure has been taken so far is a mystery in itself.
Many exporters and importers opine that Chennai should have followed the greenfield airport project approach like those in Hyderabad and Bengaluru where airports are located far away from the city, hence lesser congestion. But, has that put an end to congestion issue permanently in any of these cities?
Many allege that be it any part of the country, the business interests of the real-estate lobby in this country is of greater priority for the people who are at the helm of penning down infrastructure development policies, as against drawing up policies for the growth of trade and commerce in the larger interest of the country. One can imagine the trauma that drivers of long and heavy cargo trailers must be facing day in and day out. Lands close to an airport are always considered prime property and land owners have made the most out of it. Further, when human habitat closes into an airport, it brings in waste and also birds, which thrive on this waste, resulting in increased cases of aircraft-bird hits.
A specially demarcated area for safe storage of hazardous goods in Cargo Complex at Chennai Airport.Finding A Panacea
The dilemma over whether Chennai Airport should continue under Airport Authority of India (AAI) or should it be handed over to a private player to operate has created an air of confusion and acted as a demotivating factor for its stakeholders. It has also delayed various investments and infrastructure development at the airport. Also, the decision to handover the airport cargo handling job to a private player, Bhadra International (India)Ltd., seems to have in no way helped the trade. In fact, at present, several stakeholders are of the opinion that Bhadra International got the contract for ground handling services based not on merit but owing to the agency’s proximity to a powerful lobby.
Unitised cargo being moved onto to elevating transfer vehicle (ETV), which helps safer and more efficient transporting, stacking and retrieving of cargo.“Critical cargo handling functions have been outsourced to an agency that is not very efficient. The cargo handling agency’s performance is below par and unfortunately, for the first time in the 35-year history of Chennai airport, industrial unrest and strikes have started happening. Earlier Chennai never witnessed stoppage of work or strike by the airport loaders. The reason for frequent strikes by agency workers is the agency’s extremely poor industrial relationship with its key stakeholders,” feels J. Krishnan, Member – Board of Advisors, Air Cargo Agents Association of India (ACAAI).
Interestingly, the contract awarded to the cargo handling company laid down such terms at the time of appointment that they can neither be held accountable for non-performance nor terminated for sub-substandard performance, since as per the terms, there were not enough benchmarks that have been laid down to be followed by Bhadra International. During our stay at the cargo complex too, there was a token strike by workers of Bhadra International. In such a tug of war, it is the airport users who are facing the brunt of the chaos reigning at the terminal. This is clearly evident from the decreasing proportion of revenue of Chennai airport from cargo business, which has decreased to 15% in FY2014-15 from about 17% in FY2013-14.
Despite rising incidents of acts of terrorism across the world, when the security of airports should be a high priority for any government, it is a matter of concern how Bhadra International continues to operate while its security clearance has already expired on April 22, 2015, and the new application for security clearance remains pending with the Bureau of Civil Aviation Security (BCAS).
Echoing Krishnan’s sentiments, N. Sivasubramaniam, Regional Chairman (Southern Region) of Air Cargo Agents Association of India (ACAAI), says, “A few hundred crore have been pumped in for infrastructure development at the airport. The equipment and manpower are still not upto the mark. The airport used to handle exports of 12,000-13,000 metric tonne per month which has now come down to 8,000-9,000 metric tonne. On the import side, earlier cargo traffic was about 11,000-12,000 metric tonne per month but now it has come down to 6,000-7,000 metric tonne per month over the last two years.”
Bhadra International (India) Ltd. continues to have unfettered access to the terminal area while their security clearance remains pending with the Bureau of Civil Aviation Security.Although ground handling work has been outsourced to Bhadra International, the company’s manpower is not adequately trained to handle EXIM cargo and there is a lack of standard operating procedure (SOP). No doubt, the airport management is trying to resolve the issues, but they have their own constraints. Without a proper ground handling framework and trained manpower it is difficult to see how the airport will be able to do justice to the investment that has gone into capacity building.
What’s Holding Back
Transhipment cargo has also not taken off the way it should have. And more than physical infrastructure, it’s bureaucratic hurdles that are to be blamed. According to ACAAI Regional Chairman, Customs related procedural hurdles have affected the transhipment cargo growth at Chennai airport. “In Chennai, Customs have not laid down the rules for transhipment, though the airport has been earmarked as a gateway airport. There is hardly any transhipment cargo. While the Customs claim that the delivery of import cargo happens the same day of filing of Bill of Entry, in practice it takes a minimum of two days. Air cargo is time sensitive and it should move out within 8-10 hours time,” avers N. Sivasubramaniam.
Another cause of concern, according to Sivasubramaniam, is the 72-hour cap on free storage time after which demurrage becomes applicable. While it takes AAI around 12-18 hours just to clear the cargo, and another 24-30 hours to hand it over, there is a need for either more efficiency or extension of the 72-hour period. It is because of this reason, exporters and importers who have a factory in Sriperumbudur prefer to import cargo through the Bangalore airport as they can get it cleared the same day and bring it to their factories or godown by road.
Although Chennai was one of the earliest cities to get an approval for an Air Freight Station (AFS), it is yet to make any real difference to the trade. Moreover, there is a need to increase the number of scanning machines so as to facilitate operational efficiency.
The airport doesn’t have dedicated road connectivity, and hence 85% of the total import and export cargo is handled between a fixed window time period, i.e. 1200 hrs to 2000 hrs and 1500 hrs to 2000 hrs respectively. This leads to greater time lags in cargo clearance.
It’s The Mindset
Divulging some details about the future growth plans for the airport, Chennai Airport General Manager (Cargo) L. R.
Joshi says, “We are looking forward to increase the cargo movement to Europe.” Further, Chennai airport is soon going to get RA status, a security process which validates that cargo is secured from origin till it reaches the destination. The airport has three freighter bays (compliant to 747 type of aircraft operations) exclusively reserved for cargo carriers. There are also 85 bays for various types of passenger aircraft which also carry cargo.
Cargo fastened onto universal general-purpose flat pallet ensures that cargo does not shift place as the aircraft moves.
Some of the other facilities at the cargo complex include 60,000 square metres of covered area spread across 20 acres for storage and processing of both export and import cargo. Both export and import terminals are equipped with mechanised cargo handling systems such as Elevated Transfer Vehicle (ETV) and Automated Storage and Retrieval System (ASRS). The ETV has 174 Main Deck storage slots; whereas ASRS has 8,000 storage bins. For safety and security the complex has X-ray machines, electronic weighing scales and Explosive Trace Detectors (ETDs). There is also a Centre for Perishable Cargo (CPC) with 40 metric tonne capacity.
If we talk about the cargo traffic growth at Chennai Airport, it has been stagnant over the last few years. While the airport handled 2,20,401 metric tonne of cargo in FY2013-14, it handled 2,22,470 metric tonne of cargo in FY2014-15. Even revenues for the period stood at Rs.15,663 lakh and Rs.15,354 lakh respectively. This when it has a capacity to handle 11,02,373 metric tonne of cargo every year. Hence, the numbers state the obvious – capacity and capability are two very different things.
Time To Take-Off
There is no doubt that Chennai Airport has good future prospects. If we go by global standard practice, in the port sector, be it sea or air, it’s the port which needs to first create adequate infrastructure and then the cargo follows.
Airports Authority of India Cargo Complex at Chennai Airport.
Chennai has done that by building capacity. Once it’s complemented by improved efficiency through automation and technology, as well as improved management, not withstanding whether it gets privatised, Chennai Air Cargo Complex should be well on its way to justify its position as the gateway of South India.
“Chennai Airport is implementing the right things in a right way” - Deepak Shastri Airport Director, Chennai Airport
Deepak Shastri AIRPORT DIRECTOR, CHENNAI AIRPORTTDB: Please tell us about your role and responsibilities as an Airport Director?
Deepak Shastri (DS): An Airport Director is a post which has the authority of overall administrative control of an airport and is responsible for the safe and successful running of an airport. The role of the director includes city-side management, air-side management and terminal management. Certain global benchmarks have been earmarked for airport operators and our job is to ensure these parameters are adhered to at all levels. These relate to safety and security, passenger and airport users’ comfort and commercial aspects, etc.
TDB: Please shed some light on the commercial charges that an airport levies on airlines and passengers?
DS: Airports have a virtual monopoly as far as the earnings from airlines are concerned as aircraft use the infrastructure and facilities of an airport. Then there is an user development fee (UDF), which passengers have to bear. UDF goes to a fund which can be used in future for all the infrastructure related development at the terminals. Normally UDF is incorporated in flight ticket fee which airlines pay to an airport operator. The other sources of revenue for us are the fee we collect for providing various amenities that are offered at the airport to visitors. Besides, we also have ground handling charges.
TDB: While private partners have been roped in for development of airports in Delhi, Mumbai and Bangalore, Chennai still continues to be fully governed by Airports Authority of India. Is there any specific reason for not joining hands with private players?
DS: In a democratic political system like India, all these decisions take their own time. There was already one attempt to privatise airports. However, owing to some bottlenecks, the government shelved the proposal. Today, if we look globally, we find in most countries, airports and aviation sector is generally being run by private operators, barring a few small countries. In developed countries, even smaller airports are run by private players. India is not going to be an exception and it’s just a matter of time before we will hear of some development on the privatisation front.
TDB: Has there been any additional fees levied on passengers following the opening of the new passenger terminal at Chennai Airport? And how do you see the air connectivity from Chennai to Europe and United States?
DS: Except for UDF, there has been no additional fee that is charged from passengers. A majority of our cargo comes from Middle East and Asia Pacific. Presently, we have fewer number of long-haul flights from Chennai to Europe, meaning that our core regions are not in Europe. And since the hub-and-spoke model is popular these days, most of our export items from Chennai reach those destinations via hub airports in Singapore, Dubai and Qatar.
TDB: Recently, a survey carried out by an agency rated Chennai passenger terminal as one of the worst in the whole of Asia. How do you see it?
DS: That was a cheap TRP enhancing act by some lobbyists who very well know the potential of this airport in the days to come. Ever since the government decided not to privatise the airport, such reports appear, just to pressurise the government to reconsider their decision.
Earlier, when the government was considering privatising four airports, Chennai got the maximum global attention. Further, as per the Airport Service Quality (ASQ) survey conducted by Airports Council International (ACI), an independent body, Chennai Airport was placed at 46th position globally. However, such news hardly gets media attention.
TDB: How has the air cargo sector evolved over the last few years?
DS: Today, in the air cargo sector, distance is not a concern for many players, as for a better bargain, they are willing to go to as far as Delhi Airport. Now, owing to multi-modal transport systems, which have enabled single window end-to-end solutions, people normally don’t go directly to ports to book their consignment.Thanks to it, if an exporter from north India gets a competitive price from a multi-modal operator from here (say Chennai), he will have no objection as long as his consignment is reaching its destination on time.
Also, these days there is a greater competition among various airport operators. While in the past, government-run agencies, by habit, were not into brand promotions, things now have undergone a sea-change. Today, everyone, including us, has started taking brand building seriously.
TDB: What is the proportion of revenue that comes from the passenger side and from cargo-related operations? Which one would you pick as a better revenue earner for Chennai Airport?
DS: We, as a corporate body, normally don’t segregate the two. Roughly speaking, about Rs.200 crore every year comes from cargo operations, while a little more than Rs.800 crore comes from our passenger business. Currently, the proportion is about 20:80. But we believe there is potential for cargo business to grow and soon the ratio should change to 50:50. At present, we are facing capacity constraint because of the congestion owing to our location. Also, there is huge competition from other airports in the vicinity such as those in Bangalore, Hyderabad and Tiruchirapalli.
TDB: What initiatives have the Chennai Airport taken to attract more users and facilitate trade?
DS: The Common User Domestic Cargo (CUDC) terminal has become functional in October at Chennai. Our immediate focus area is to tap the pharmaceutical market. We will digitise our transactions and soon there will be 100% computerised transactions. An incentive scheme has also been started to encourage users to bring us more business. Further, 24x7 customs clearance activities have started at this airport. There are multiple agencies and stakeholders who are involved in the process including Customs, Freight Forwarders and Customs Clearing Agents. We have also identified peak and lean hours. So while during lean hours, Customs officials remain on call and can arrive within a notice of 2 hours, in peak hours they remain present at the cargo terminal 24x7. We have also earmarked a special area for e-commerce cargo which reaches its peak during festive season.
TDB: What types of cargo are you handling at present? And what new types of cargo you wish to focus going forward?
DS: Currently, light engineering goods and textiles have emerged as some of our major cargo. Chennai being an automobile manufacturing hub is also home to a large number of original equipment manufacturers (OEMs) and we would like to tap into that segment.
I believe domestic cargo is growing fast. Earlier, our focus was just on imports and exports but now we have started domestic air cargo operations as well. Currently, our focus area is perishable cargo which requires handling of goods in a temperature-controlled environment. We also believe pharmaceuticals and segments involving transportation of livestock such as chicks and horses have good future prospects.
“SystemS Reengineering is the Need of the Hour at Chennai Air Terminal”
Chennai Airport has been invested in significantly by the government in recent times, to upgrade the existing infrastructure. In an exclusive interaction with The Dollar Business, J. Krishnan, Partner, S. Natesa Iyer & Co. and Member of Board of Advisors of the Air Cargo Agents Association of India (ACAAI) opens up about the current state of affairs at the Chennai Airport and the challenges looming ahead for it:
TDB: As a terminal user, how would you rate the overall infrastructure at Chennai air cargo complex?
J. Krishnan (JK): There has been a massive investment for development of cargo complex at Chennai airport, but unfortunately, user benefit in proportion to the investment has not taken off as planned. I believe this was primarily due to the fact that system and process reengineering has not really been actualised to the maximum, resulting in the entire process being extremely dependent on bureaucratic norms and protocols. The second issue is about critical handling functions that has been outsourced to an agency i.e. Bhadra International, whose performance is below par. For the first time in the airport’s history, industrial unrest and strikes have started becoming the norm. I blame this to poor relationship between the staff and agency workers.
Besides, the political establishment is also not effectively executing its checks and balances. Further, a huge investment was made to set up automatic storage and retrieval system. The entire mechanism was supposed to bring down transaction time. However, the new system led to increased transaction time owing to frequent malfunctions.
TDB: What improvements would you like to see at the facility?
(JK): The Common User Terminal for Domestic Cargo is a welcome development. But, the entire cargo de-palletisation and palletisation activity is still prone to damages by rain, as recently happened when a large volume of domestic cargo was totally rain-washed. I believe unless the concerned authorities work on improving the operating environment and system reengineering, we will not be able to match the standards of airports such as those in Bangalore and Hyderabad that strictly adhere to global standards.
TDB: Automated storage and retrieval system (ASRS) is a standard worldwide. Don’t you think adopting the technology will be a good move?
JK: I agree! But contrary to what was originally claimed about ASRS, in reality, despite it being an automated process, it takes at least 15-25 minutes to retrieve the cargo and sometimes more, depending on the workload. I guess, the system has not been adequately tested for its efficacy prior to its tender-finalising stage.
TDB: Chennai is considered as manufacturing hub of India and there are many other export-oriented industries in and around the city. So, why has Chennai Cargo Terminal not been able to reap the spillover benefits?
JK: In cargo handling activity there are two important components – godown and warehouse. Unfortunately, though Chennai Air Cargo Terminal claims it’s a cargo warehouse, but essentially, from the users’ perspective, it’s still a cargo godown. Also, airports at Bangalore and Hyderabad employ a more systematic and effective approach to address the requirements of their users. Chennai Airport needs to work on harnessing such a culture more proactively.
TDB: Are you in favour of privatisation of airports? Do you think it could make them more efficient?
JK: I believe an airport’s efficiency has nothing to do with it being privatised or not. As far as the development at Chennai Airport’s air cargo terminal is concerned, clearly, the state and union government are not on the same page. We need to bridge this communication gap. It is quite exemplary the way Andhra and Karnataka governments have backed development of greenfield airports.
TDB: Please shed some light on Customs related affairs at the airport? How have things changed since Indev came into picture?
JK: Chennai Airport has a 45% shortage of Customs staff. The 24x7 Customs clearance only exists on paper and not in reality. The user agencies are also not equipped to operate in a 24x7 environment. The Customs officers leave by 5 pm and if an export document has to be accessed post that timeline, the officials are not available. 24x7 clearances can’t be implemented if basic things are not in place.
Another major concern is the absence of other regulatory agencies like wild life and food safety, under one roof. Currently, exporters have to run from pillar to post to get NOCs from these agencies. If it is not possible to house all the regulatory agencies under one roof, at least there should be the facility of online real-time connectivity. Many EDI (electronic data interchange) initiatives exhibit a silo mentality and their resistance to change is hurting the overall growth of the sector.
Presently, the capacity utilisation of the Indev air freight station (AFS) is below par, just 15-20% utilisation. The reason is that Airports Authority of India has been demanding a huge royalty from AFS which is not commercially viable for AFS, as out of the Rs.2.75/kilo they charge from users, Rs. 2.50 has to be given to the airport authority, just to transfer a pallet from airside to landside.
TDB: International air freight is almost stagnant since 2011. Are there other factors than just a slump in the international market?
JK: There are three factors which contributed to the growth of international freight. If we look at the basket of Indian exports, we see that we are not in the high-end product category. We deal in basic and intermediate goods that which are unviable, cost-wise, to be transported by air. Only when there is production delay and the need arises to ship goods on committed time, the traders opt for air freight. Currently, with new production methodologies, it’s much more efficient to send items through sea.
Secondly, sea freight rate has crashed recently due to which the gap between sea and air freight rate has substantially increased. So considering the intense competition in the international market, naturally, exporters like to save on freight cost. Further, with the entry of MNCs into the sea freight sector, it has become easier for the exporter to send goods via the cheaper mode. India doesn’t have many high value products except for medical and pharmaceutical products which can be cost-effectively sent by air.
If we remove coal and POL import, the trade imbalance is not as alarming as it appears. Bulk goods like coal and POL can’t come by air. There is immense potential for growth of domestic air cargo but cost remains a critical factor. We have to take into consideration the difference of fuel costs that an international flight incurs vis-à-vis domestic airlines. Each state has their own sales tax on aviation fuel, there has been a demand to make aviation fuel as a ‘notified good’ but the government has failed to do that. Unless the costs are brought down to a bearable level, air freight will remain out of reach for larger domestic cargo consignments.
In spite of all the hurdles, domestic cargo will continue to grow as cargo needs to move from one place to another. Furthermore, road freight is also giving good competition to air cargo. If we take into consideration the air connectivity between various regions, there is no dedicated aircraft between major cities. The aircraft that are currently in use for domestic cargo movement have a maximum carrying capacity of 100-130 tonne which is not adequate. Most of the domestic passenger flights are Boeing 737-800 or AirBus A320 which can’t accept ULD (unit load device) and can handle only bulk loading. Airbus A300 or A310 which have the capacity to handle unitised cargo are no more in use now.
The real growth in the air cargo sector can take place only when state governments are brought on board. Unfortunately, the antagonistic attitude between the centre and state continues and it is the biggest challenge for the growth of Indian aviation sector.
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