India Cargo Post Covid Slowdown

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Vol. 22 No. 24	Monday July 24, 2023

India Cargo Post Covid Slowdown

     Just as the Indian air cargo sector thought to reach pre-Covid level tonnages, the market sent back a reality check that U.S. and Europe exports have been heading south ever since Covid ended.
     Airports Authority of India (AAI) data points out that international air freight in the financial year that ended in March 2023 fell 5% to 1.9 million MT.
     For FY24, international freight AAI said is expected at 317,589 MT, or 1.2% lower than a year ago. This despite the fact that the total air cargo volume in FY 22 was 3.14 million tons compared to 2.5 million tons in 2021, 25+% YoY growth. Of the 3.14 million tons, 1.96 million tons was international and 1.18 million tons domestic.
     India has a few FTAs going – the most prominent among them is the one with UAE. But exports declined by 22% to USD 32.97 billion in June, the steepest monthly fall in three years.
     Inbound shipments during the month went down by a steep 17.48 per cent to USD 53.10 billion.
     During the pandemic and soon afterwards, freight rates shot up: around $9-10 per kg. Now as you read this air freight rates are around $2.50 a kg.
     Sources say that the rates are now, lower than pre-Covid level rates.
     To make matters worse India, export of textiles, pharmaceuticals, automotive components and handicrafts – all high-volume cargo – are down.
     Now also has come the imposition of a Goods and Services Tax (GST).
     In October 2022 18% Goods and Services Tax (GST) was imposed. Till September last year, the air cargo sector was exempt from paying GST. Sources said that India’s Ministry of Civil Aviation had approached the Ministry of Finance to reconsider the taxation rate for air freight.
     However, no decision has been taken.
     According to air cargo industry sources, the 5% GST on sea freight and 18 % on air freight is now making Indian goods very expensive in the world market.
     An exporter pointed out that while GST is refunded to the exporter, the total amount can take 2-4 months and that impacts trade.
     The imposition of GST has had an impact on India’s freighter operators.

Afzal Malbarwala, Sunil Arora, J. Krishnan

     Readers might remember that low-cost carrier SpiceJet had enhanced its logistics arm SpiceXpress even as the top low-cost carrier IndiGo had announced that it was going to induct four freighters to its fleet. SpiceJet has whittled down its cargo fleet to three from the 16-18 freighters it was using during Covid.
     As for IndiGo, it is yet to announce expansion in cargo capacity. Newcomer Pradhan Air was all set to add a second freighter at the end of last year but continues plying its single freighter.
     Reacting to the imposition of GST, Afzal Malbarwala, President of ACAAI (the apex body of air cargo agents in India), pointed out that the move had affected exporters’ business. Cash flow has been the biggest hurdle. He mentioned that almost every exporter had to make investments after Covid because importers were demanding for credit to keep their businesses rolling and compete with other countries. He also said that the Indian government wanted to promote exports but now with the imposition of GST, it will be tough going.
     Former President of ACAAI and now a prominent member of ACAAI’s Board of Advisors, J Krishnan said that internationally, all export-related charges were zero-rated except in India. In addition, along with logistics costs, this will deletriously impact the freight forwarders.
     Sunil Arora, also from ACAAI’s Board of Advisors, said that GST would nullify all initiatives taken by the government like the ‘Make in India’ plan or even the ease of doing business. He emphasized that GST on export freight would make our export commodities anti-competitive in the world market.
Tirthankar Ghosh

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