India looks to boost air cargo amid Red Sea trade disruptions

New Delhi: India’s commerce ministry is pitching for air cargo to ship products such as pharmaceuticals, textiles, electronics and perishables that rely on swift delivery as disruption in the Red Sea trade route has increased freight costs, two people aware of the development said.

"The government is considering measures to promote this segment, including tax incentives, rationalization of aviation turbine fuel prices, and infrastructure development for handling air cargo,” said one of the two people cited above requesting anonymity. “Expanding cargo capacity is also a priority. To reach our export target of $2 trillion by 2030, collaboration across all sectors is vital, and air cargo will play a key role.”

India's strategic location between Europe and Asia positions it well to benefit from rerouted cargo flows, the person said.

India depends on the Suez Canal for trade with Europe, North Africa, and the Americas, which together make up around 30% of its total foreign trade worth $433.09 billion in FY24, mainly in the container sector. But shipping costs have been rising due to delays and increased insurance premiums, and there is also the heightened risk of goods being damaged or seized in attacks during transit. 

While the share of air cargo is insignificant at 2-3% of India’s total freight volume, following the Red Sea crisis that started in October last year, demand surged as businesses sought quicker and more secure ways of transport. Key air transit hubs like Dubai, Colombo, and Bangkok recorded significant increases in cargo volumes headed to Europe, with Dubai-Europe traffic rising by 71%, Colombo-Europe by 61%, and Bangkok-Europe by 58% in early 2024.

India, too, is emerging as a transit hub. According to an Icra report, India's air cargo volumes increased 18% year-on-year between October 2023 and March 2024. From April to August this year, this growth accelerated, with volumes surging by an additional 20% to around 967,000 tonnes, the report said.

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States are also chipping in with incentives. For instance, the Export Promotion Bureau of Uttar Pradesh offers a 25% subsidy on air freight charges, capped at ₹5,00,000 per exporting unit annually, as outbound shipments from the state fell. Similarly, the Krishi Udaan scheme was expanded to include subsidies for agri-perishables, particularly in the northeastern and Himalayan states. It offers up to 50% air freight subsidy to bolster air shipments in less-connected regions. ​

“Despite (higher) pricing considerations, air cargo remains less prevalent than sea freight. However, ocean freight disruptions are prompting many businesses to choose air cargo to meet deadlines,” said C.K. Govil, president, The Air Cargo Agents Association of India, and chairman and managing director of Activair Airfreight India, a freight forwarding company. “Previously, foreign carriers utilized much of the international cargo capacity, but now India is becoming more self-sufficient, offering competitive export space."

According to Ajay Sahai, director-general, Federation of Indian Export Organisations (FIEO), the growth potential of air cargo exports “is immense, especially with the changing export profile, particularly the rise of sophisticated items such as iPhones and high-value textiles”. 

“These shipments need to be airlifted due to their value and time sensitivity. Additionally, smaller electronic goods are increasingly being exported through air freight,” he said.

India’s merchandise exports for the first half of fiscal year 2024-25 reached $211.46 billion, showing a slight increase from $209.38 billion a year earlier. Exports of India-made iPhones reached nearly $6 billion, a 33% increase from the previous year, putting the total on track to exceed $10 billion in fiscal year 2024.​ Export of textiles stood at $17.64 billion in first half of FY25, up from $16.79 billion a year earlier.

According to Mordor Intelligence, India's air cargo industry is projected to reach a market size of $17.22 billion by 2028, growing at a CAGR of 5.65% from 2023 to 2028.

Queries emailed to commerce ministry remained unanswered till press time.

“With a shift towards more sophisticated exports—typically low in volume but high in value—air freight demand will increase,” Sahai said. “This aligns with India’s long-term growth plan for this sector, which will focus on meeting the needs of these high-value, low-volume shipments.”

Icra estimates India’s overall cargo volumes to grow 9-11% year-over-year, reaching 3.6-3.7 million tonnes this fiscal year. International cargo is projected to rise 11-13%, while domestic cargo growth is expected to be around 4-6%. Air cargo handled at Indian airports increased by 7% over a year earlier to 33.7 lakh tonnes in FY24.

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India currently has 38 operational domestic air cargo terminals, including 27 additional terminals built since 2014 by the Airports Authority of India (AAI) and its subsidiary, AAI Cargo Logistics and Allied Services Company Ltd.

Still, according to a report by industry lobby Ficci and KPMG, Indian air cargo industry faces several challenges. These include high dwell times, congested cargo terminals, and inefficient use of belly cargo capacity. Damaged or non-traceable cargo and reliance on manual processes and other such issues. The report attributed these problems to lack of supporting infrastructure, complex procedures, limited technology adoption, and human resource limitations.