Unlocking growth in the Indian subcontinent:February 2014
February 2014Given the sluggish global economic outlook, and the expected impact on some economies and sectors in the Indian sub-continent, growth and profitability look uncertain in the near term. But over the medium to longer term, the region’s economic fundamentals will ensure consistent growth across a range of industries. Thriving trade between the Indian sub continent, which stretches from Sri Lanka in the east to Pakistan in the west, and the rest of the world has supported the air cargo and aviation sector in the region. According to Star Alliance’s CEO Mark Schwab, the Indian sub continent was one of the most important aviation markets, where the company had yet to build its presence. In a recent development, Star Alliance's Chief Executive Board unanimously decided to recommence the integration process with India’s national airline Air India as it would allow the alliance to build a presence in the Indian sub-continent. Indian aviation market is poised to become the third largest across the globe by 2020, according to industry estimates. The sector is expected to handle 336 million domestic and 85 million international passengers with projected investment to the tune of $120 billion. Indian aviation industry that currently accounts for 1.5 per cent of the GDP, has been instrumental in the overall economic development of the country, said minister for civil aviation Ajit Singh. He further stated that given the huge gap between potential and current air travel penetration in India, the prospects and possibilities of growth of Indian aviation market are enormous. Talking about the current trend in the Indian air cargo industry in terms of capacity, rates and demand, Bharat Thakkar, immediate past president of Air Cargo Association of India (ACAAI) and also the joint chairman of Zeus Air Services said, “Due to low demand and over belly capacity, rates are very competitive. As a result of this, dwell time has come down dramatically. At some airports, carriers have called off scheduled flights due to lesser load factor. A freighter cannot fly with low loads in view of high operational costs unlike passenger flight which are full which offers lots of belly capacity. There is more supply than demand.” India offers logistics and transportation service providers ample opportunity to tap into an emerging marketplace. Key customer segments in India include pharmaceuticals, fashion, gems and jewellery, engineering goods, and precision tools - most of which require special shipping provisions. According to Bharat Thakkar, India’s biggest challenge is efficient planned transport infrastructure with dedicated express ways linking production centers to highways, which link to ports and airports for seamless flow and helps to bring down transaction costs by faster transits with least amount of time spent by goods sitting on trucks due to traffic restrictions. Meanwhile, India’s immediate neighbour Pakistan has been in the midst of one of the worst energy crises in its history. This slowed the pace of economic activity thus causing public unrest with prolonged outages of electricity and gas. Capacity utilization in some key industries fell to nearly 50 percent. “We are the country’s leading supply chain services provider catering to needs of almost all the sectors of economy so this had a direct impact on our business as well. In 2013, our growth remained steady but this crisis had made us to get out of our comfort zone. This resulted in developing more productive strategies for the coming years,” said Yousaf Mohammed, chairman, Pakistan Cargo Services. So, how cost-effective is it to do business in Pakistan? Keeping expenses down will always be a significant criterion for any business to compete effectively in the market. From 2014 onwards, Pakistan is offering the most cost effective business environment especially to textile. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 66 percent of the merchandise exports and almost 40 percent of the employed labour force. “Though in the past our products were losing share in international markets, the current government has developed a coherent plan to revive the economy. This is the reason investors from China and other countries are rushing to Pakistan. But the major challenge lies in the availability of skilled work force, energy availability and equipment upgradation. I believe the industry practices are not up to the mark and lot of effort is required to take the competitive edge,” Yousaf said. Being the leading share holder in the overall freight forwarding industry in the country, Pakistan Cargo Services has devised a strategy of vertical integration within its industry to provide more efficient and cost effective solutions to its clients. “We have acquisition plans for more warehouses as well as development of our trucking fleet. We are also working on diversification strategy as we are serving as partner of India based courier company DTDC in Pakistan and have robust plans for expansion of our courier business in Pakistan. Continual to our diversification strategy is our joint venture with Daewoo Pakistan regarding intercity cargo movement,” he added. Furthermore, Yousaf said that they are also working with some airlines regarding the development of new routes on global basis. This would directly impact the freight forwarding industry as well. Recently, Emirates SkyCargo, the freight division of Emirates, expanded its operations in the Indian subcontinent following the recent launch of Emirates services to Sialkot, the airline’s fifth route in Pakistan. Emirates SkyCargo now offers a weekly capacity into and out of the region of 10,900 tonnes. “With the new service to Sialkot, which is a major manufacturing hub in Pakistan, we are creating a new lane that will give local businesses access to trade opportunities across Emirates SkyCargo’s global network of more than 130 destinations, particularly in Europe, United States, Australia and the Middle East,” said Nabil Sultan, Emirates’ divisional senior vice president-cargo in a press statement. With the addition of Sialkot, Emirates will operate 63 flights a week between Dubai and Pakistan offering 1,400 tonnes of cargo to Pakistan, giving a 5 percent boost to cargo capacity. “When combined with the efficiency of one of the youngest fleets in the skies, unrivalled ground-handling facilities, and the very latest information technology, Emirates SkyCargo is the ideal partner for Sialkot based businesses as they look to boost trade,” added Sultan. Avicon Aviation, a global flight support services provider, servicing charter and commercial flight operations around the globe has its headquarters in Pakistan. Its clients comprise of many eminent charter operators, air ambulances and international airlines offering a diversified portfolio of services catering to our ever growing customers worldwide. Talking about the prospects for charter operations in Pakistan, Avicon’s manager-business development, Syed Wajih Ul Wahab said, “We expect a lot of development in the industrial sector as the newly elected government is creating a business friendly environment, which brings in large charters carrying power generation plants and raw material processing equipment.” “We are facing almost all the challenges, which you can expect in a developing country as some times we have to struggle with overall infrastructure. But we are really pleased to see the developments going on in the country especially the contribution from the masses. Like in recent years, the exporters of Sialkot have developed Sialkot International Airport on self-help basis,” said Pakistan Cargo’s Yousaf Mohammed. He further adds that the main concern in the past years has been the energy crisis of Pakistan. As the saying goes, “there is opportunity in crisis, and this certainly applies to Pakistan’s energy sector. The challenge also lies with some government regulations and skilled workforce,” he added. Moving further south, Sri Lanka’s economy has been growing amidst slow recovery in global demand and the multi-pronged policy measures introduced to strengthen macroeconomic stability, and all key sectors contributed positively. Growth in the services sector moderated largely on account of the slowdown in external trade and the deceleration in the transport sub sector. The Sri Lankan economy is expected to continue on a high growth path benefitting from improved infrastructure facilities and favourable macro-economic fundamentals. Encouraging the private sector to reap the benefits of the government’s investments in infrastructure and facilitating them to expand productive capacity would be vital to achieving the envisaged medium term growth targets. Another country in the Indian sub-continent, which is opening up and presenting a wealth of development and growth opportunities is Myanmar. While most countries in Southeast Asia have experienced a slowdown in growth, Myanmar’s economy has just taken on wings. As a country that is rich in precious stones, oil, natural gas and other mineral resources, it is expected these industries will continue to dominate Myanmar’s exports chart. While the country prepares itself to undergo overdue modernisation, the import charts are dominated by items to assist with the country’s infrastructure development plans – including heavy machinery and power generation equipment. Since major powers have eased sanctions against Myanmar, the cargo industry could see a surge in imports and exports once investments are translated into actual large-scale projects. As a significantly under-served market at the present time, Myanmar is understandably tipped by many to become Asia’s next big aviation growth market with opportunities for cargo airlines, passenger airlines and charter companies alike. Even as the air cargo industry in Asia looks set to endure another relatively slow peak season this year, Myanmar represents a new bright spot in the region that forward-thinking cargo companies are already eying for future projects.