A SUMMER INTERNSHIP PROJECT REPORT ON

A Study on “Scope for Air Exports Consolidation”

AT PANALPINA, HYDERABAD

Submitted in the partial fulfilment of the requirement for the award of degree

MASTER OF BUSINESS ADMINISTRATION (IB)

(2017-2019)
Submitted By

BALA SAI VELUVOLU

Reg No: 121724601004

Under the Guidance of

Faculty Guide: Industry Guide:

Dr. YLP.THORANI Mr. PHANI KUMAR

Assistant Professor, Branch Manager,

GITAM School of International Business, Hyderabad.

GITAM (Deemed to be University), Vishakhapatnam

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 DECLARATION

I, Bala Sai Veluvolu, student of MBA (IB), studying at GITAM School of International
Business, Visakhapatnam, hereby declare that the summer training report on “A Study on
Scope of Air Exports Consolidation” submitted to the school for partial fulfillment of
degree of Master of Business Administration is the original work conducted by me.

The information and data given in the report is authentic to the best of my knowledge. This
summer internship report is not submitted to any university for award of any other degree,
diploma and fellowship.

Bala Sai Veluvolu

MBA (IB)-121724601004

GSIB, Visakhapatnam

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 ACKNOWLEDGEMENT

This project report is the result of a two months of work at Panalpina, Hyderabad.

The Staff have been wonderful to collaborate with me at the company. I take this opportunity to
thank Mr. Phani Kumar, Branch Manager, and Mrs. Varandani Priya, Manager, Human Resource
for giving this opportunity to work in this esteemed organization.

I would like to extend my thanks to Mr. Narasimha Rao, Ocean Exports Manager for guiding me
throughout the project time by cooperating to provide the facilities and listening my suggestions
and giving their feedbacks.

I am also extremely thankful to my Faculty Guide Dr. Y.L.P.Thorani for her support and guidance.
She helped me move ahead in a systematic manner with my project. She has provided the required
direction in adding value to the project report.

I also extend my heartfelt thanks to all the staff who shared their views on their respective field of
work and helping me in this project.

Bala Sai Veluvolu

MBA (IB)-121724601004

GSIB, Visakhapatnam

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 CONTENTS

Chapter No. Particulars Page No.

Executive Summary 1
Chapter 1 Introduction 3-4
1.1 Purpose of the study 3
1.2 Objectives of the study 3
1.3 Limitations of the study 4
Chapter 2 Sector Review 5-31
2.1 Major Market Segments of Global 5
Logistics Industry
2.1.1 An ocean freight industry 7
2.1.2 An Air Freight Industry 11
2.2 Indian Scenario 14
2.3 India Standing in the world 15
2.3.1 India-Emergence of Global 15
Manufacturing Hub
2.3.2 Indian Logistics Industry: 16
Current Scenario and Future Outlook
2.4 Challenges Faced by Logistics 16
Industry in India
2.4.1 Issues of Port Sector 18
2.4.2 Storage Infrastructures Related 19
Challenges

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 2.4.3 Technology and Skills Related 20
Challenges
2.5 Impacts of Challenges Faced 20
2.6 Estimated Future Growth 21
2.7 Indian Ocean Freight industry 22

2.7.1 Market Size 23

2.7.2 Investments/Developments 24
2.7.3 Government Initiatives 24
2.7.4 Road Ahead 24
2.8 Indian Air Freight Industry 25
2.8.1 Market Size 26
2.8.2 Investment 26
2.8.3 Government Initiatives 26
2.8.4 Road Ahead 28
2.9 Different types of Logistics Providers 28
2.9.1 3PL 30
2.9.2 Types of 3PL 31
Chapter 3 Company Profile 32-45
3.1 Panalpina 32
3.2 Services provided by Panalpina 33
3.2.1. Aerospace 34
3.2.2. Automotive 34

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 3.2.3. Chemicals 35
3.2.4. Consumer and Retail 36
3.2.5. Energy and Project Solutions 37
3.2.6. Supply Chain Optimization 38
3.2.7. Government, Aid and Relief 39
3.2.8. Telecom 39
3.2.9. Perishables 40
3.2.10. Fashion 41
3.2.11. Healthcare 43
3.2.12. Hi-Tech 45
Chapter 4 Theoretical Framework 46-72
4.1 Air Cargo 46
4.2 Brief history of Air Cargo 46
4.3 International Air Transport 46
Association (IATA)
4.3.1 Security 47
4.3.2 Services 47
4.3.3 Coding and decoding of 47
Airports, Airlines, Cities and
countries - IATA Codes
4.4 Different types air cargo 48
4.5 Priority in loading Air Cargo 48
4.6 Hub-and-Spoke Operations 50

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 4.6.1 Implications to airports 51
4.6.2 Implications on airport systems 52
and architecture
4.6.3 Implications to airlines 53
4.6.4 Advantages of hub-and-spoke 54
4.6.5 Disadvantages of hub-and- 54
spoke
4.7 Air waybill 56
4.7.1 Functions of AWB 56
4.7.2. Validity of AWB 58
4.7.3. Responsibility for completion 58
4.7.4. Non-negotiable 59
4.7.5. Air Waybill Number 60
4.7.6. Different types of Airway bills 60
4.8 Air Cargo Tariff 62
4.8.1. Additional Charges 63
4.8.2. Charges are covered in Air 63
Cargo Tariff
4.8.3. Following Charges do not 63
covered
4.8.4. Weight Criteria 63
4.8.5. Volume calculation method 64
4.8.6. Chargeable Weight 64

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 4.9 Air Freight Rates 64
4.9.1. Rate Slabs 65
4.9.2. General Cargo Rates 65
4.9.3. Special Commodity Rate 66
4.9.4. Unit Load Device (ULD) Rate 66
4.10 Consolidated Air Freight Service 67
4.11 Role of air freight forwarding 68
company in the import and export
Chapter 5 Analysis 73-83
5.1 Methodology 73
5.1.1. Steps followed to analyze the 73
data
5.1.2. Limitation of Analysis 73
5.2 Analysis 74
Suggestions 83
REFERENCES 84

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 List of Tables and Figures

Figure no. Content Page no.

Figure 2.1 Top Factors Impacting the Global Logistics Market 6

Figure 2.2 World merchandised trade 8

Figure 2.3 Global container volume (Charles. 2013) 9

Figure 2.4 Annual Containership Capacity Growth 1990 – 2016 10
Figure 2.5 Impact of Air Cargo in a day 12
Figure 4.1 Hub and Spoke model 50
Figure 4.2 Difference between HAWB and MAWB 62
Figure 4.3 Total procedure of Air Export 72
Figure 5.1 Count of AWB for each destination 75
Figure 5.2 Charged weight for each destination 76
Figure 5.3 Number of AWB to SZX 77
Figure 5.4 Number of AWB to RGN 79
Figure 5.5 Number of AWB to KIN 80
Table no. Content Page no.
Table 5.1 Top 10 destinations to which airway bills were issued 74
Table 5.2 Volume of Charged weight to top 10 destinations 75
Table 5.3 Number of AWB & Charg weight to SZX 78
Table 5.4 Number of AWB & Charg weight to RGN 79
Table 5.5 Number of AWB & Charg weight to KIN 81

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 EXECUTIVE SUMMARY

The Panalpina Group is one of the world's leading providers of supply chain solutions. The
company combines its core products – Air Freight, Ocean Freight, and Logistics and
Manufacturing – to deliver globally integrated, tailor-made end-to-end solutions for twelve
core industries. Drawing on in-depth industry know-how and customized IT systems,
Panalpina manages the needs of its customers' supply chains. The Panalpina Group
operates a global network with some 500 offices in around 70 countries, and it works with
partner companies in another 100 countries.

This report identifies the top 10 ports for Panalpina Hyderabad, for air exports, from across
the globe, ranked in terms of the number of shipments executed by them in 2017. This
would further assist in optimizing the business between each top 10 port-pair by identifying
the potential back shipments that could be converted to consolidation shipments and help
in increase the potential profit and reduce the effort for shipping the cargo. With the study
done for 2017’s air export shipment data in Panalpina Hyderabad, I found that the
percentage of shipments that could be consolidated to destinations. Also, in one airline, on
the same day, there were shipments to same destination.

Shipments having less than 500kgs could be converted to consols depending on the nature
and type of cargo as the price charged for higher weight shipments would be less as per the
rate slabs specified by the airlines and the profit margin generated would be more by
Panalpina, Hyderabad per shipment. The e-commerce portal, ICES, has helped to reduce
the number of stages in customs clearance where the e-filling of the imported/exported
cargo prior to the shipment to the consignees can be made effectively. With various charge
components involved in freight forwarding, it is essential to have a transparency in
communicating the charges to the customers, as it highly depends on the bargaining power
of the forwarder to negotiate the prices between the buyer and the seller and charge
accordingly.

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As per the study, I found that to certain destinations, during the peak seasons, the number
of shipments were higher and yet there was no consolidation done. If the cargos are non
DG cargos then proper capacity management needs to be done before closing the consol
and forwarding for the customs clearance since the consols are made on FCFS basis. As
per the DG clauses, if the cargos can be consolidated with the non-DG cargos or if two or
more DG cargos can be consolidated in the same airline, then proper communication with
the consolidating authorities is essential.

With certain limitations on the study, this report gives an insight to consolidate freight to
various destinations in order to reduce on the costs, the turnaround time of the cargos and
increase the customer satisfaction in the multi commodity flow of cargos with a mix of
high and low density items. This would also help in reducing the CO2 emissions and save
on fuel through operational efficiency, which Panalpina is dedicated towards.

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CHAPTER-1
INTRODUCTION
 INTRODUCTION
Panalpina India is serving the logistics needs of its clients since 1986 and offering solutions
that include air and ocean freight, warehousing, logistics, Pan projects and oil & gas.
Panalpina has a network of 14 offices across India with a workforce of plus 230 employees.
There headquarter is located in Gurgaon and has offices in Ahmedabad, Bangalore, Baroda,
Chennai, Coimbatore, Hyderabad, Cochin, Kolkata, Mumbai, Pune, Tripura, Tuticorin and
Visakhapatnam.

Panalpina Hyderabad is one of the major air freight forwarding business unit in India for
Panalpina established around 17 years ago in 2000 and the services offered include – air
freight forwarding, ocean freight forwarding and logistics services.

1.1 Purpose and need for the study:

The main purpose behind this study is to help Panalpina Hyderabad to optimize on the air
export consolidation between each top 10 port-pair and convey various alternative
solutions to the Panalpina origin on improving the business by satisfying customer needs
as well as increasing the potential gross profit. This would help in identifying the revenue
leakage areas associated with the international freight forwarders.

1.2 Objectives of the study:

 To understand the air freight forwarding procedures and practices

 To understand the concept of consolidation of the cargos
 To identify destinations which have scope for consolidation of Air Exports in
Panalpina, Hyderabad.
 To identify top destinations based on number of airway bills issued.
 To identify the peak months for the shipments to top destinations.
 To calculate the percentage of shipments having same ETD.
 To identify and recommend destinations which have scope for consolidation.

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1.3 Limitations of the study:

 This study is limited with the observation of the operations, interaction with the
employees in Panalpina Hyderabad
 The duration of the study in the business unit has been for 2 months
 The data used is a secondary data obtained from the internal database of the
company and the time span for the data is from January 2017 till December 2017

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CHAPTER-2
SECTOR REVIEW
 SECTOR REVIEW

Logistics is one of the most important basic industries for any economic growth as it is the
management of the flow of products from the place of their origin to the place of their
consumption, thus the industry also involves the integration of material handling,
warehousing, packaging, transportation, shipping security, inventory management, supply
chain management, procurement, and customs service. The global logistics industry mainly
comprises a complex range of freight and cargo related transportation sectors, such as
shipping, warehousing, courier, and road/rail/air freight. According the report from C and
M Research, the total global logistics market reached a value of about $4 trillion in 2013,
representing an almost 10% of global GDP. The global transportation services market is
fastest growing sector with more 7% year on year growth since 2011, now it is expected to
generate revenue of 3.8% trillion in 2016. The US currently accounts for more than a 42%
of global transportation services sector.

2.1 Major Market Segments of Global Logistics Industry

The global air transportation services industry has been experiencing a decline in growth
rate since 2012, while the airline market is expected to reach £137 billion by 2017. After
generated around $194 billion in 2011, the global rail freight industry had an annually
growth rate of more than 6% until 2015, and the industry growth will increase to a yearly
rate of 8%, reaching $286 billion by 2016, predicted by Market Line. The industry
consumption volumes have remained the growth of 4% year on year.

Road freight industry is so far the leading segment in the global logistics industry
representing over 74% of the overall industry in terms of value. The global road freight
market is expected to top £2.2 trillion in 2015, which is a 28% increase over 5 years period
since 2010. The US represents for 56% of the world road freight sector in terms of value.

The global shipping industry is expected to surpass 730 million TEUs by 2017, according
to Global Industry Analysts. Shipping containers is currently the major way of global
trading, the market performance is boosted by the increasing demand of trade, investments
in port terminal facilities, and the rising of global maritime transport networks. Over the

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next few years, the global shipping sector is expected to grow mainly due to the rising
demand for oil and liquefied gas in Asian countries.

Global logistics market is anticipated to register a CAGR of 3.48% from 2016 to 2022 to
attain a market size of around $12,256 billion by 2022. The term Logistics is generally the
detailed organization and implementation of a complex operation. It refers to the movement
of goods and information between the provider and the receiver. Moreover, logistics is the
management of the flow of things between the point of origin and the point of consumption
in order to meet requirements of customers or corporations. The resources managed in
logistics can include physical items such as food, materials, animals, equipment, and
liquids; as well as abstract items, such as time and information.

Increasing in global trade activities of the developing economies, rise in trade related
agreements and global logistics infrastructure and advancement in information technology
and transportation sector are the prime factors responsible for the growth of global logistics
market. However, rise in pollution level and high inventory cost & low warehousing space
are restraining the market growth. Irrespective of the challenges, rise in adoption of green
logistics solutions is creating an opportunity to the market growth.

Figure 2.1 - Top Factors Impacting the Global Logistics Market

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2.1.1 An ocean freight industry

The ocean freight industry has always been, and is going to be also in the future, heavily
affected by megatrends around a globe. Major changes in an economy and globalization
have been also noticed in the ocean freight industry. These changes have led to a situation
where industrial work has shifted from USA and Europe, to cheaper workforce countries
in Asia. Besides the workforce changes, also consumption changes and countries who are
driving economic growth, are shifting a trade focus points around the globe. All these
megatrends have major effect to the ocean freight industry. In past years, trends like an
environmental thinking and fuel prices has effected heavily to the ocean freight industry.
These trends have led to situation, where ocean carriers are building bigger ships and transit
times are longer than ever before. This is a way how ocean carriers try to drive fuel and
another cost savings. From Finland and other Baltic Sea region point of view, latest big
change has been implementing of the Sulphur directive.

An ocean freight as a transportation mode, is very slow from transit time point of view.
When comparing it to other transportation modes, it is clearly slowest. As opposite to other
transportation modes, an ocean freight can carry big quantities. This makes an ocean freight
the most cost effective way to transport goods around the globe. Globally more than 90 %
of all transported goods are transported by ocean. In Finland, more than 90 % from
exported goods are transported by ocean and from all imported goods 80 % are transported
by ocean.

When comparing to other transportation modes, an air transportation is faster than ocean,
but at the same time it is also five times more expensive. A truck transportation is cheaper
than the air transportation, but it is good only with short distances. A rail transportation is
considered to be most similar to the ocean freight. From continent to continent point of
view, the rail transportation is a bit faster than the ocean, but prices are still doubled
compared to the ocean transportation. This situation is not changing either, because
capacity in rails cannot meet the ocean transportation capacity.

The ocean freight and a global trade, has been in great turbulence for years now. This
turbulence has had a negative effect to companies who use the ocean freight. It has led to

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situation, where companies cannot forecast their transportation costs and flow of goods to
warehouses has become unreliable. In general, situation has shifted companies focus more
to control ocean freight rates rather than developing the supply chain which has been the
main strategy for many companies to achieve reduced transportation costs.

2.1.1(i) History of an ocean transportation

Today, 90 % of everything which we buy is transported in containers. That means at least

20 million containers are shipped at this very moment. The ocean freight history is
relatively long, but what really changed the ocean freight industry was containerization.
Containerization history dates to 18th century, but development in larger scale started in
50’s it can be seen in fig2.2, for example United States army started to use containers in
order to easily deal bulk cargo. Containerization breakthrough happened in 70’s when a
larger scale standardization happened and ships were built to meet container standards.
This standardization did not only affect the ocean freight industry, but it also spread to a
road and a rail freight industry. Standardization revolutionized the way of handling cargo
from bulk cargo to use of different chassis.

Figure 2.2 – World merchandised trade (The Economist 2. 2016)

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Standardization had a huge effect on the world trade because it enabled to handle cargo
faster, cheaper and seamlessly between the transportation modes. This standardization
made the world smaller and companies could reach markets further away quicker and
cheaper. Globally container standardization helped economies to grow faster and that can
be seen also in statistics. After containerization there has been only one year when the
ocean industry globally has not grown. This can be seen in Figure 2.3.

Figure 2.3 Global container volume (Charles. 2013)

2.1.1(ii) Interpretation of trends from Annual Containership Capacity Growth 1990–2016

(Figure 2.4)

The ocean freight industry is heavily affected by world trade trends. Year 2015 was
exceptional because the world trade grew in average 2 % year-on-year. There has been
only five other years in past 50 years when the world trade has grown 2 % or less. A forecast
for years 2016 and 2017 is also modest. The IMF is projecting growth for 2016 3.1 % and
3.4 % for 2017. These uncertainties in past years have led to a situation which ocean freight
markets have not seen before.

Global trade trends itself would not be catastrophically itself, but at the same time carriers
have started to order new vessels to replace old ones. Ocean carriers forecasted before 2008
downturn that demand in markets would stay healthy, which led to decision to invest to
larger megaships with a capacity over 18 000 + TEUs. These decisions have led to the

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situation where capacity kept growing a lot faster than demand in the markets. In 2016 the
situation is getting slightly better (see Figure 2.4) but still the fact is that capacity is growing
faster than demand.

Figure 2.4 Annual Containership Capacity Growth 1990 – 2016 (Supply Chain Digest 2.
2016)

This over capacity versus lack of demand situation, is causing big economical losses to
ocean carriers which has led to alliances between ocean carriers. At the moment, it seems
that there is no quick fix to the situation and it leads most likely to more consolidation
inside of the ocean freight industry.

Most recent hit to the ocean industry, were collapse of carrier Hanjin Shipping. Hanjin
shipping filed bankruptcy leaving more than 60 ships floating in ocean and they were
carrying cargo worth more than USD 14 billion. This is a good example of, how the ocean
freight industry is in unhealthy situation. A slow global economy and overcapacity in the
markets is causing heavy losses. All these growing uncertainties have also effected to their
customers.

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Current price turbulence in the ocean freight market is heavily effecting also to companies
who use the ocean freight. One of the issues has been, how to predict what is a final cost
of transportation and how to measure it year-on-year. In current price turbulence, it has
been almost in possible to compare year on year costs. Another bigger issue has been
unreliability of transit times. When ocean carriers sell with low rates, they might skip
sailings for cheap containers, to improve profitability of sailing. This issue has direct effect
to companies’ businesses.

2.1.2 An Air Freight Industry

Air transport is vital for manufactures trade, particularly trade in components which is a
major part of cross border trade today. IATA forecasts a rise in cargo carried to 62.5 million
tons in 2018 (+4.5% on the 59.9 million tons in 2017) representing less than 1% of world
trade by volume, but over 35% by value.

The value of goods carried by airlines is expected to exceed $6.2 trillion in 2018,
representing 7.4% of world GDP. Air cargo is essential to many facets of modern life.
Moving perishable goods from one side of the world to the other would not be possible
without air transport.

The pharmaceutical industry relies on air transport for its speed and efficiency in
transporting high-value, time and temperature sensitive cargo, particularly vaccines.

In today's world, carriage of live animals by air is considered the most humane and
expedient method of transport over long distances. Most people have personal electronic
devices that were built using a global supply chain linked by air.

Amazon, Alibaba, eBay and other e-commerce companies rely on the express delivery
services made possible by aviation to get those devices, and so much more, to their
customers. Transport of letters decreased from 340 to 328 billion letters globally, whereas
the number of postal parcels grew from 6.7 to 7.4 billion. The best example is China’s
famous “Single’s day” where in just one day, online shoppers bought goods worth
USD17.8 billion, representing 657 million packages, and air transport plays an essential

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role in their delivery. In 2016, online retail sales only represented 7.6% of global sales,
which shows a huge potential for growth in the years to come.

Figure 2.5 Impact of Air Cargo operations in a day

The cargo business continues to benefit from a strong cyclical upturn in volumes, with
some recovery in yields.

Volumes are expected to grow by 4.5% in 2018 (down from the 9.3% growth of 2017).
The boost to cargo volumes in 2017 was a result of companies needing to restock
inventories quickly to meet unexpectedly strong demand. This led cargo volumes to grow
at twice the pace of the expansion in world trade (4.3%). Cargo yields are expected to
improve by 4.0% in 2018 (slower than the 5.0% in 2017). While restocking cycles are
usually short-lived, the growth of e-commerce is expected to support continued momentum

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in the cargo business beyond the rate of expansion of world trade in 2018. Cargo revenues
will continue to do well in 2018, reaching $59.2 billion (up 8.6% from 2017 revenues of
$54.5 billion).

The last two IATA Global Shippers’ Surveys conducted in 2015 and 2017 showed that the
number one selling point of air cargo transport as seen by shippers is speed. Air cargo is
the fastest mode of transport, as illustrated by Cargo data: on average air cargo shipments
take under 140 hours to get from shipper to consignee, including 44 hours under the care
of airlines.

Whilst speed is the number one reason why shippers choose air; they are not necessarily
expecting faster times, but greater reliability and predictability. This is why Cargo has
called on the air cargo industry to stop focusing on speeding up transport times and to
instead concentrate on differentiating products based on the level of reliability on offer.

2.1.2 (i) E-Commerce growth contribution to Air Cargo

The rapid development of connected technologies, including mobile devices in the past
few decades has changed many aspects of consumers’ lives, including their purchasing
process. Consumers are often turning to e-commerce: online shopping (B2C), where
private customers can order various products which they then receive by courier or postal
mail; online transactions from consumer to consumer (C2C), as in the example of eBay or
other similar websites, and B2B e-commerce between companies.

The explosive growth of e-commerce has already had a profound effect on retailers and
manufacturers as manufacturers seek to reach their customer as quickly and cost-
effectively as possible. USD 3.5 trillion is the global e-commerce revenue forecast for
2019. 7.6%: the part of online retail compared to global retail sales. 66%: the growth of e-
commerce from Asia Pacific to Europe between 2013 and 2015. Those figures show the
huge potential of e-commerce in the near future.

Forecasting and quality data usage in ecommerce will become critical, not sure for E-
trailers looking to capitalize on market trends, but also for logistics providers to ensure they
are well placed in the delivery chain.

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Changes are therefore needed in our industry to address the evolving expectations and to
capitalize on e-commerce growth: end-to-end track & trace, reliability in delivery time,
smooth cross-border operations; to mention just a few.

The e-commerce growth is starting to be subject to a growing call for cross-sector,

integrated approach to transport planning and regulation at the international level. For
example, in December 2017 the World Customs Organization adopted a resolution on the
Guiding Principles for Cross-Border E-commerce. In the same month, 70 members of the
World Trade Organization issued a joint statement pushing for future work on e-commerce.

2.2. Indian Scenario

The Logistics sector in India has today become an area of priority. One prime reason for
the same stems from the reason that years of high growth in the Indian economy have
resulted in a significant rise in the volume of freight traffic moved. The large volume of
traffic has provided for growth opportunities in all facets of logistics including
transportation, warehousing, freight forwarding, express cargo delivery, container services,
shipping services etc. The growth path also suggests that increase demand is being placed
on the sector to provide the solutions required for supporting future growth. Strength of the
logistic sector is likely to be one of the key determinants of the pace of the future growth
of the economy.

The market size of the logistics sector in India is estimated to be between USD 90-125
billion. Given that the Indian economy has grown to over USD 1.73 trillion, these estimates
may already be well below the actual size of the industry. Sources estimates that the
industry employs over 45 million people and is going at the rate of 15% with sub-sector
growing at even 30-40% per annum. Due to these reasons the Indian logistics sector is
viewed as one of the most attractive in the world. Recent policies by the government attract
a strong growth area for logistics in the future. Despite holding promise the logistics sector
in India remains mired in several complexities which have the potential of holding it back.
These includes significant inefficiencies in transportation, poor condition of storage
infrastructure, complex tax structure, low rate of technology adoption, and poor skills of
logistics professionals.

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Various modes are used for logistics like-

 Freight and passenger transportation via road, rail, air, and water
 Warehousing and cold-storage

As digitization is taking hold and customer experience is evolving, the logistics industry is
witnessing a tremendous change. New technology is being adopted to come up with new
and collaborative operating models to increase the efficiency of the existing or new models.
Efficient logistics industry acts as an economic catalyst by opening up new market
opportunities, moving products and services with speed and efficiency. The Union
Environment Ministry has recommended approvals for projects worth Rs 20,500 crore
(US$ 3.07 billion) in the aviation and port sectors.

The Logistics Industry includes activities like storage, freight management, supply chain
management, managing vendors and partners, transportation, handling damage claims and
much more. Lately, many new entrants have entered the market and recent development in
other industries have also accelerated the growth in the Logistics Industry. A lot of
opportunities and risk lies with the changing industrial scenario of India. New technology,
new market entrants, new customer expectations, and new business models are key factors
which are driving the industry.

2.3 India Standing in the world

World Banks says that India's logistics performance at its key international gateways has
improved in the last two years. World Bank measures the supply chain efficiency, called
the Logistics Performance Index. As per Survey of 1051 industry professionals, India’s
ranking in LPI stood 35 in 2016 from 54 in 2014. Germany topped the list.

2.3.1 India-Emergence of Global Manufacturing Hub

The demand for FMCG and electronic products in India has been growing at the very fast
pace. Several MNCs from diverse industries have shown growing interest in setting up
world class manufacturing facilities in India to cater to the domestic market as well as for
the export market. Establishing manufacturing facilities in India has been a strategic move

15
to reduce their manufacturing costs and cater to the expanding Indian market. The Indian
automotive industry is well on its way to become one of the world's major automobile
manufacturing hubs. Since the deregulation and opening up of the automotive industry, the
industry has witnessed tremendous changes and experienced a great boom.

2.3.2 Indian Logistics Industry: Current Scenario and Future Outlook

Logistic is the backbone of the economy, providing the efficient, cost effective flow of
goods on which other commercial sectors depends. The logistics industry in India is
evolving rapidly and it is the interplay of infrastructure, technology, and new types of
service providers that will define whether the industry is able to help its customers reduce
their logistics costs and provide efficient services.

Despite weak economic sentiments, the logistics and warehousing industry continued to
witness growth largely due to growth in detail, E-commerce and manufacturing sectors.
The logistics sector is expected to grow at around 10-15% in the period 2017-2018. With
this forward looking attitude and promise of growth and improvements, the service oriented
logistics is all set to expand beyond the horizons in the later half of this decade, utilizing
this fiscal year as its launch pad.

2.4 Challenges Faced by Logistics Industry in India

In India road has become predominant mode of transportation of freight cargo. Estimate
of the modal movement of cargo highlights that in India nearly 60.2% of the cargo is moved
by road, 32.1% by rail, and rest by the coastal shipping, airways and inland waterways.
Pipelines constitute a very minor proportion.

It is recognized that movement of long haul bulk traffic by road is less efficient than by
rail. But road is still preferred over rail because of the various reasons as discussed under:

 Important rail networks are over saturated- There has been little improvement in
the track infrastructure since independence. While route kilometer has grown only
at a CAGR of 3%, incorporating additional lines on existing routes has not fared
much better growing at a low CAGR of 6.6%. During the same period freight and

16
 passenger traffic has grown at a CAGR of nearly 55%. This had led to most high
density corridors becoming oversaturated.
 Rail freight tariffs are high- Indian railways follows a policy of subsidizing
passenger tariff by freight tariff. This has resulted in sharply rising trend in railway
freight rate over the years compare to little increase in passenger tariff rate. The
result of this has been that Indian rail freight rates have already become one of the
highest in the world.
 Transit times are long and uncertain- Freight traffic is frequently subordinated to
passenger traffic on the railway network. This results in a freight train taking as
much as 6-8 days for a journey of 2000kms. Also there is no guarantee on the transit
time for freight trains.
 Rail terminal quality is poor- Most rail terminals (goods shed) used for
loading/unloading of freight are antiquated. They also suffer from issues of access
and evacuation of traffic.
 Less flexibility in carrying different types of products- Special wagons are not
easily available for carrying specialized products. For e.g.- Special types of steel
required for automobile production have to be carried by trucks as the existing
wagons do not offer the kind of protection that these high value products require.
 Railway carriage not easy for industry which cannot provide full train loads-
Railways have a preference for customers who can provide full train load as unlike
in some other countries, railways in India no longer run mixed trains which can
carry different types of cargo due to operational inefficiencies.

While Road movement is preferred to rail, road movement has its own set of
challenges. They are:

 Road network coverage- Freight movement in India is dependent on national

highways. While NH constitutes only about 2% of the road network of India, they
carry 40% of total traffic. As a result most of these highways are severely congested
resulting in freight travelling only a third of the distance compared to developed
countries.

17
  Poor road quality- The road quality in India, on the NHs as well as the roads is
improving but is still poor in many locations. Estimates suggest that motor able
roads are still less than 10% of the total road network.
 Expressway network will take time to develop- In many developed countries
expressways have been developed to facilitate high speed freight movement
through linking of important cities, ports and industrial centers. In India the
expressway network is still largely at a planning stage with a target of development
of around 15000Kms of expressway only by the end of 13th plan period.
 High level of fragmentation of the trucking industry- The trucking industry in India
is largely fragmented and in the hand of small truck operators. Estimates suggest
that nearly 70% of the truck owners in India own between 1-5 trucks. Due to this
there is fierce competition amongst operators leading to truck owners resorting to
overloading to recover investments.
 Multiple checkpoints- Trucks in India have to pass through multiple check points
in their journey. Trucks have to stop at state borders, for payment of toll taxes, for
RTO inspections etc.

2.4.1 Issues of Port Sector

 High turnaround times- Data from Indian ports association shows that ports in India
suffer from high turnaround times for ships. JNPT, the premiere port in India, has
more than two times the turnaround time of Colombo and Singapore ports because
of congestion on berths and slow evacuation of cargos unloaded at berths.
 Inadequate depth at ports- The depth at many ports in India is not enough and
dredging tenders take a long time in getting awarded. As a result with the existing
dates many ports are unable to attract very large vessels.
 Coastal shipping has not taken off- Coastal shipping in India is hampered by
inadequate port and land side infrastructure which hampers large scale use of it for
freight movements.

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2.4.2 Storage Infrastructures Related Challenges

In addition to the poor transportation infrastructure the storage infrastructure in India also
needs significant improvement. Main reasons for this are:

 State of ICD/CFS is poor - The ICD/CFS infrastructure available for EXIM trade
is inadequate. The land requirement for setting up ICD/CFS at an appropriate place
is difficult to come by as several hurdles have to be cleared in the consolidation of
land. As a result many logistics companies with an interest in setting up ICD/CFS
eventually fail to do so. While it is difficult to set up a facility, at the same time the
existing facilities are plagued with several issues:
 Many of the older facilities today are located within city boundaries restricting day
movement of trucks.
 The approach roads to the facilities are poor making evacuation of cargo difficult.
 Most facilities have issues of inadequate parking, lack of available land for
expansion etc.
 State of warehousing is poor- Various estimates put warehousing costs to be around
10% of the total logistics costs. Despite this the state of warehousing is largely
dismal. On the warehousing front 80-85% of warehouses are traditional with sizes
of less than 10,000sqft. Most of these warehouses are not leak proof, equipped with
security systems, racking facilities etc. Majority of the operators of these
warehouses are also small to mid-sized entrepreneurs with limited investment
capacity, the only large warehousing owners are government agencies including
central warehousing corporation and state warehousing corporations, but their
focus is mainly on food grain storage. There is also shortage of warehouses. This
is because land availability for warehousing at an appropriate place and at an
appropriate price is a concern.
 State of cold storages is poor- Despite the significant requirement of cold storages
from the retail sector, pharmaceutical and chemical sector and the farm sector,
where it is estimated that up to 40% of the fruits and vegetables grown in India gets
wasted, receptor needs to grow much faster to meet the needs.

19
  Multi-modal logistic parks yet to take off - With emerging requirements of
integrated logistics, provision of transportation hub, value addition etc. large
logistics park were sought to be developed. However as with other areas the number
of such facilities continues to remain much less than the requirement. Consolidation
of large land parcels is a significant issue hampering their development. Other
issues include the lack of recognition of the concept of logistic park by government.

2.4.3 Technology and Skills Related Challenges

The logistics industry is also hampered by low rates of technology adoption and poor skill
levels. On the technology front the industry now seems to be paying serious attention with
use of RFID, vehicle tracking technologies, warehouse management system etc. While
acceptance is perhaps is not an issue anymore, the marriage between IT and domain
requirement needs to be resolved. Automation in processes is still only in its infancy.
Further progress is dependent on a certain level of standardization which is made more
difficult by the fragmentation in the industry. This drawback needs to be tackled at the
earliest. In addition to the technology related issues the skill levels of in the logistic industry
also require to be upgraded urgently. As now courses focusing on logistic industry remain
few and far between. Also logistic industry is still not looked at as the industry of choice
for young graduates thereby making hiring of quality professional manpower challenging.
Some of the skills required in this sector are technology skills, driving skills including
safety procedures, industry understanding and multi operator's skills.

2.5 Impacts of Challenges Faced

The various challenges faced by the logistic industry lead to high logistics costs incurred
by the Indian economy. This is despite the fact that cost of labor, one of the most significant
contributors to logistics costs in developed countries, is significantly cheaper in India.

With regards to costs of spends on logistics, India's logistics sector accounts for 13% of
the GDP of India. Major elements of logistics costs typically include transportation,
warehousing, inventory management and other value added services such as packaging.
What is worrying about the logistics costs in India is the distribution of costs across various

20
heads. In India, as much as 31% of the logistics costs is attributable to the 'others' category,
which primarily includes various types of process. The logistic costs as a percentage of
total product cost in India is in the range of 4-5 times that in developed countries. This is
at a time when the quality of logistic services provided is not of the highest standards. Also,
worryingly, these costs have been showing a rising trend. Ever increasing congestions at
ports are resulting in high levels of ground rents required to be paid at CFS's near the port.
High levels of inventories are being required to be maintained to guard against sudden
disruptions in supply chain, all of which adds to the cost.

The high level of logistics costs in the economy adversely impacts the competitiveness of
the Indian economy as well as the financial well-being of the individual citizens. An
addition to product costs due to inefficient logistics adds to inflation. Wastages lead to
scarcity. This makes efforts for reducing logistics costs crucial goals to pursue.

The rewards of reduction in logistics costs are manning. The decrease in Logistics costs
leads to significant increase in employment opportunities in the economy. It also helps in
increasing the trade flows in a country by increasing the inherent competitiveness of the
economy. It will lead to decrease in poverty levels in the country through increasing
earnings for the poor. So stringent and coordinated efforts are needed to be made for
logistics costs reduction.

2.6 Estimated Future Growth

The Indian Logistics sector growth depends on the growth of its soft infrastructure like
education, training and policy framework as much as the hard infrastructure. To support
India's fast paced economy growth of logistics industry is very essential. As per the report
by C and M Research it is estimated that the Indian logistics sector will continue to show
robust growth of 10.15% annually, leading the pace of growth of the economy at large.

In 2014 the Global economic outlook and indeed that of India is expected to significantly
improve as India Inc. beings to tackle the economic downturn. With a new government set
in place in 2014, many policies are expected to be implemented which will give a fresh
impetus to India's growth engine particularly in the corporate and SME sector which in

21
turn will expand demand for the logistics sector. The biggest boost to the growth of the
industry is coming from the increasing consumer demand, particularly in the Tier 2 and 3
sections of the country. This is being further fueled by the revolutionary growth being seen
in e-commerce which is leading to logistics companies responding with new innovations
in service since logistics is the most critical ingredient in the success of an online business.

India has become the prime destination for logistics service providers all over the world.
The demand for logistics services in India has being largely driven by the growth of the
economy. The growth is projected at 7-9% in next few years, with the Compounded Annual
Growth Rate (CAGR) expected to grow at rate of 7-8%. This growth is expected to gain
greater momentum due to exponential growth of the Indian economy.

India is also experiencing a big retail boom as the buying capacity of the middle and upper
middle segment of the population have scaled new heights. Many large MNCs from the
retail industry are planning to set up operation in India and large local retailers are also
planning to expand their operations.

But with the infrastructure largely under-developed and incapable of catering to a growing
economy, logistics management in India becomes too complex. The poor condition of
infrastructure directly translates to higher turnover, pushing up the operating costs and
reducing efficiency. There are other problems such as complex regulatory compliances and
limited adoption and utilization of technology, which has resulted in increased paper work
and inability to communicate effectively with customers.

In spite of dismal infrastructural scenario, the hopes of the logistics sector are kept up by
the various upcoming infrastructural projects like logistics parks and hubs and other
initiatives by public and private sectors. The future of the logistics sector depends not only
on the continued development of infrastructure but also on the capability of the service
providers in adopting themselves and making optimal utilization of technologies.

2.7 Indian Ocean Freight industry

According to the Ministry of Shipping, around 95 per cent of India's trading by volume and
70 per cent by value is done through maritime transport.

22
India has 12 major and 200 notified minor and intermediate ports. Under the National
Perspective Plan for Sagarmala, six new mega ports will be developed in the country. The
Indian ports and shipping industry plays a vital role in sustaining growth in the country’s
trade and commerce. India is the sixteenth largest maritime country in the world, with a
coastline of about 7,517 km. The Indian Government plays an important role in supporting
the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100 per cent under
the automatic route for port and harbor construction and maintenance projects. It has also
facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports,
inland waterways and inland ports.

2.7.1 Market Size

Cargo traffic handled by India’s major ports increased 4.97 per cent year-on-year to 616.62
million tons (MT) during April 2017-February 2018. The highest growth was witnessed by
Cochin Port at 17.63 per cent, followed by Paradip at 15.56 per cent, Kolkata at 14.29 per
cent and Jawaharlal Nehru Port Trust at 6.37 per cent. Container traffic saw the highest
growth during this period at 8.37 per cent year-on-year and reached 8,302 TEUs.

During 2016-17, major and non-major ports in India have accomplished a total cargo
throughput of 1,133.09 million tons, an increase of 5.7 per cent previous year 2015-16. The
growth in cargo handled at major and non-major ports in 2016-17, were 6.8 per cent and
4.2 per cent, respectively. The share of major ports in the total traffic handled by Indian
ports increased from 56.5 per cent in 2015-16 to 57.2 per cent in 2016-17.

The country’s major ports handled a combined traffic volume of 647.76 million tons during
2016-17, registering an annual growth rate of 6.80 per cent. The major ports recorded the
highest ever capacity addition of 100.37 MT in 2016-17, thereby raising the total capacity
to 1065 MT per annum, as against a capacity of 965.36 MT per annum in 2015-16.

The government has taken several measures to improve operational efficiency through
mechanization, deepening the draft and speedy evacuations. The Department of Industrial
Policy and Promotion (DIPP), Ministry of Commerce and Industry, reported that the Indian
ports sector received FDI worth US$ 1.64 billion between April 2000 and September 2017.

23
2.7.2 Investments

The Indian Minister for Shipping, Road Transport and Highways, announced a massive
investment in India’s ports and roads sector, which is likely to help boost the country’s
economy. The Indian government plans to develop 10 coastal economic regions as part of
plans to revive the country’s Sagarmala (string of ports) project.

The zones would be converted into manufacturing hubs, supported by port modernization
projects, and could span 300–500 km of the coastline. The government is also looking to
develop the inland waterway sector as an alternative to road and rail routes to transport
goods to the nation’s ports and hopes to attract private investment in the sector.

2.7.3 Government Initiatives

Some of the major initiatives taken by the government to promote the ports sector in India
are as follows:

 Model Concession Agreement (MCA) was approved to make port projects more
investor-friendly and make investment climate in the sector more attractive.
 Project UNNATI has been started by Government of India to identify the
opportunity areas for improvement in the operations of major ports. Under the
project, 116 initiatives were identified out of which 86 initiatives have been
implemented.
 The Ministry of Shipping, Government of India, released Rs 25 crore (US$ 3.86
million) as grants-in-aid to Jawaharlal Nehru Port Trust (JNPT) and Rs 50 crore
(US$ 7.72 million) to the Government of Karnataka for Karwar port, for
infrastructure development under the Coastal Berth Scheme of the Sagarmala
programme.

2.7.4 Road Ahead

Increasing investments and cargo traffic point towards a healthy outlook for the Indian
ports sector. Providers of services such as operation and maintenance (O&M), pilotage and

24
harboring and marine assets such as barges and dredgers are benefiting from these
investments.

The capacity addition at ports is expected to grow at a CAGR of 5-6 per cent till 2022,
thereby adding 275-325 MT of capacity.

Under the Sagarmala Programme, the government has envisioned a total of 189 projects
for modernization of ports involving an investment of Rs 1.42 trillion (US$ 22 billion) by
the year 2035.

Ministry of Shipping has set a target capacity of over 3,130 MMT by 2020, which would
be driven by participation from the private sector. Non-major ports are expected to generate
over 50 per cent of this capacity.

India’s cargo traffic handled by ports is expected to reach 1,695 million metric tons by
2021-22, as against 643 million in 2014-15, according to a report of the National Transport
Development Policy Committee.

Within the ports sector, projects worth an investment of US$ 10 billion have been identified
and will be awarded over the coming five years.

Exchange Rate Used: INR 1 = US$ 0.0155 as on March 04, 2018

2.8 Indian Air Freight Industry

The civil aviation industry in India has emerged as one of the fastest growing industries in
the country during the last three years. India is currently considered the third largest
domestic civil aviation market in the world. India is expected to become the world’s largest
domestic civil aviation market in the next 10 to 15 years, Union Minister of State for Civil
Aviation, Government of India.

According to International Air Transport Association IATA, India will displace the UK for
the third place in 2025.

25
The Civil Aviation industry has ushered in a new era of expansion, driven by factors such
as low-cost carriers (LCCs), modern airports, Foreign Direct Investment (FDI) in domestic
airlines, advanced information technology (IT) interventions and growing emphasis on
regional connectivity.

2.8.1 Market Size

Air traffic in India rose 15.80 per cent year-on-year to 280.24 million during April-
February 2017-18. Witnessing a growth of 18.50 per cent over the previous year, total
passenger traffic stood at a 264.97 million in FY17. India’s passenger traffic grew 15.80
per cent y-o-y to 280.24 million during April-February 2017-18.

As of March 2018, there are nearly 550 commercial aircraft in operation in India.

2.8.2 Investment

According to data released by the Department of Industrial Policy and Promotion (DIPP),
FDI inflows in air transport (including air freight) between April 2000 and December 2017
stood at US$ 1,608.51 million.

India is estimated to see an investment of US $25 billion in the next decade in the airports
sector, and traffic growth of 13 per cent, according to Morgan Stanley. According to them,
the share of air travel in air and rail travel combined in India will grow to 15.2 per cent by
2027 from 7.9 per cent now.

Capex plans to the tune of Rs 65,000 crore (US$ 10.08 billion) have been finalized by the
Airports Authority of India with Rs 17,500 crore (US$ 27.13 billion) for the next five years
and around Rs 22,000 crore (US$ 3.41 billion) for brownfield expansion in Delhi, Mumbai,
Hyderabad and Bengaluru by private operators and around Rs 21,000 crore (US$ 32.55
billion) for greenfield airports.

Key investments and developments in India’s aviation industry include:

 AAI is going to invest Rs 15,000 crore (US$ 2.32 billion) in 2018-19 for expanding
existing terminals and constructing 15 new ones.

26
  The Airports Authority of India (AAI) will undertake new development works at
Lucknow, Deoghar, Rajkot and Allahabad airports. The objective is to improve and
develop airport infrastructure to meet growing traffic demands. AAI plans to
construct new integrated passenger terminal building at Chaudhary Charan Singh
International Airport, Lucknow at an estimated cost of Rs. 1,230 crore (US$ 190.65
million). The new terminal will be able to handle 4000 passengers during peak hour
and 6.35 million passengers per annum.

2.8.3 Government Initiatives

Some major initiatives undertaken by the government are:

 Allocation to Civil Aviation Ministry has been tripled to Rs 6,602.86 crore (US$
1,019.9 million) under Union Budget 2018-19.
 Prime Minister of India launched the construction of Navi Mumbai airport which
is expected to be built at a cost of US$ 2.58 billion. The first phase of the airport
will be completed by end of 2019.
 Under the second round of Regional Connectivity Scheme (RCS 2) the government
has awarded 325 routes to airlines as well as helicopter operators with the objective
of enhancing flight services to hilly and remote areas. Under the scheme airline
operators have to offer half of their seats at discounted rates and helicopter
operators can offer up to 13 seats at lower fares with the government providing
Viability Gap Funding (VGF) or subsidy to airlines and helicopter operators.
 Constructing 17 highways-cum-airstrips are the government's priorities and it will
start work on them this year, Union Minister Nitin Gadkari has said. The projects
are designed in such a fashion that the roads will double up as airstrips and traffic
will be stopped when an airplane lands or takes off. The road and air connectivity
will also provide better access to remote areas.
 Airport building and modernization projects worth over Rs 19,300 crore (US$ 2.99
billion) have been recommended green clearance, in line with the Government of
India’s focus on improvement in regional air connectivity.

27
2.8.4 Road Ahead

India’s aviation industry is largely untapped with huge growth opportunities, considering
that air transport is still expensive for majority of the country’s population, of which nearly
40 per cent is the upwardly mobile middle class.

The industry stakeholders should engage and collaborate with policy makers to implement
efficient and rational decisions that would boost India’s civil aviation industry. With the
right policies and relentless focus on quality, cost and passenger interest, India would be
well placed to achieve its vision of becoming the third-largest aviation market by 2025.

In the coming 20 years, Indian companies will buy 2,100 new planes worth US$ 290
billion. Also, domestic air traffic in India is expected to cross 150 million in FY19, on the
back of unprecedented capacity induction by airlines*.

Exchange Rate Used: INR 1 = US$ 0.0154 as of March 01, 2018.

2.9 Different types of Logistics Providers

 First party logistics providers (1PL) are single service providers in a specific
geographic area that specialize in certain goods or shipping methods. Examples are:
carrying companies, port operators, depot companies. The logistics department of
a producing firm can also be a first party logistics provider if they have own
transport assets and warehouses.
 Second party logistics providers (2PL) are service providers which provide their
specialized logistics services in a larger (national) geographical area than the 1PL
do. Often there are frame contracts between the 2PL and the customer, which
regulate the conditions for the transport duties that are mostly placed short term.
2PL’s provide own and external logistics resources like trucks, forklifts,
warehouses etc. for transport, handling of cargo or warehouse management
activities. Second party logistics arose in the course of the globalization and the
uprising trend of lean management, when the companies began to outsource their
logistics activities to focus on their own core companies. Examples are: courier,

28
 express and parcel services; ocean carriers, freight forwarders and transshipment
providers.
 Third party logistics provider - The most significant difference between a second
party logistics provider and a third-party logistics provider is the fact that a 3PL
provider is always integrated in the customer's system. The 2PL is not integrated,
in contrast to the 3PL he is only an outsourced logistics provider with no system
integration. A 2PL works often on call (e.g. express parcel services) whereas a 3PL
is almost every time informed about the workload of the near future. Another point
that differs 2 and 3PL is the specification and customizing of services. A 2PL
normally only provides standardized services, whereas 3PLs often provide services
that are customized and specialized to the needs of their customer. This is possible
by the long term contracts that are usual in the third-party logistics market. So there
are customized logistics services are needed the contracts in the 3PL segment have
to be long term, because customizing always costs money. A cost effectiveness for
the third-party logistics provider is only given over longer periods of time with a
stable contract and stable profits. In contrast to that second party logistic services
can’t be customized, concerning to the fluctuating market with hard competition
and a price battle on a low level. And there we have another distinguishing point
between 2PL and 3PL: Durability of contracts. 3PL contracts are long term
contracts, whereas 2PL contracts are of a low durability, so that the customer is
flexible in responding to market and price changes.
 A fourth party logistics provider has no own transport assets or warehouse capacity.
They have an allocative and integration function within a supply chain with the aim
of increasing the efficiency of it. The idea of a fourth-party logistics provider was
born in the seventies by the consulting company Accenture. Firms are outsourcing
their selection of third-party logistics provider and the optimization process of the
integration of these to a PL as an intermediary. That reduces costs and the 4PL have
to have an overview about the whole logistics market to choose the ideal 3PL for
all operative logistic activities. For being able to provide such an ideal solution
fourth party logistics providers need a good knowledge of the logistics branch and
a good IT infrastructure. A fourth party logistics provider selects the 3PL providers

29
 from the market which are most suitable for the logistical issues of his customer.
Unlike the allocative function of a 4PL in the supply chain, the core competence of
a 3PL provider is the operative logistics.
 Fifth party logistics providers (5PL) - provide supply chain management and offer
system oriented consulting and supply chain management services to their
customers. Advancements in technology and the associated increases in supply
chain visibility and inter-company communications have given rise to a relatively
new model for third-party logistics operations – the “non-asset based logistics
provider.”

2.9.1 3PL

Third-party logistics (abbreviated 3PL, or sometimes TPL) in logistics and supply chain
management is a company's use of third-party businesses to outsource elements of the
company's distribution and fulfillment services. Third-party logistics providers typically
specialize in integrated operation, warehousing and transportation services which can be
scaled and customized to customers' needs based on market conditions, such as the
demands and delivery service requirements for their products and materials. Often, these
services go beyond logistics and include value-added services related to the production or
procurement of goods, i.e., services that integrate parts of the supply chain. When this
integration occurs, the provider is then called a third-party supply chain management
provider (3PSCM) or supply chain management service provider (SCMSP). 3PL targets
particular functions within supply management, such as warehousing, transportation, or
raw material provision.

The global 3PL market reached $750 billion in 2014, and grew to $157 billion in the US;
demand growth for 3PL services in the US (7.4% YoY) outpaced the growth of the US
economy in 2014., As of 2014, 80 percent of all Fortune 500 companies and 96 of the
Fortune 100 used some form of 3PL services. The global third-party logistics market is
predicted to grow at around 5 percent CAGR during 2016 to 2024 (forecast period). Its
companies operate for the shipping industry to supervise logistic undertakings (forecasting,
warehousing, & conveyance management software). The market will attain a size of about
USD 1, 054 billion by 2024.

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2.9.2 Types of 3PL

Third-party logistics providers include freight forwarders, courier companies, as well as

other companies integrating & offering subcontracted logistics and transportation services.
Four categories of 3PL providers

 Standard 3PL Provider: this is the most basic form of a 3PL provider. They would
perform activities such as, pick and pack, warehousing, and distribution (business)
– the most basic functions of logistics. For a majority of these firms, the 3PL
function is not their main activity.
 Service Developer: this type of 3PL provider will offer their customers advanced
value-added services such as: tracking and tracing, cross-docking, specific
packaging, or providing a unique security system. A solid IT foundation and a focus
on economies of scale and scope will enable this type of 3PL provider to perform
these types of tasks.
 The Customer Adapter: this type of 3PL provider comes in at the request of the
customer and essentially takes over complete control of the company's logistics
activities. The 3PL provider improves the logistics dramatically, but does not
develop a new service. The customer base for this type of 3PL provider is typically
quite small.
 The Customer Developer: this is the highest level that a 3PL provider can attain
with respect to its processes and activities. This occurs when the 3PL provider
integrates itself with the customer and takes over their entire logistics function.
These providers will have few customers, but will perform extensive and detailed
tasks for them.

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CHAPTER-3
COMPANY PROFILE
 COMPANY PROFILE

3.1 Panalpina

The beginnings of Panalpina's history are closely linked with Rhine shipping. In 1935, the
then parent company's business activities shifted successfully into the forwarding sector
following the takeover of Hans im Obersteg, a Panalpinall-known forwarder whose roots
go back to 1834. The 1940s saw further companies taken over and new ones set up in
Europe and the United States, marking the inception of a transatlantic network of branches.

The company became independent as "Alpina" in 1954 and was renamed in 1960 to
"Panalpina". The new and striking emblem symbolized the group's uniform global identity.
At the time, the name signified the "conquest" of the Alps by haulage services linking
northern and southern Europe; today it stands for the Panalpina Group's global operations
spanning six continents.

1950

The company witnessed rapid growth in the 1950s and 1960s, establishing numerous new
branches in North America and later in Latin America, Africa, Asia and Australia. During
the 1970s, Panalpina increased air freight volumes to and from the USA. Air Sea Broker
AG was founded, laying the cornerstone of what is still today a successful strategy of
centralized procurement and management of global air freight and ocean freight capacity.
Nigeria's booming oil business also gave Panalpina a major boost during this period.
Following the takeover of the Houston-based J.P. Harle Group in the late 1970s, the
company began building up its activities in this segment. It is now the undisputed world
market leader in the oil and gas industry supply chain.

1969

In 1969, the Ernst Goehner Foundation, which had been set up by one of Switzerland’s
leading entrepreneurs of the 1950s and 60s, acquired the first 40% of Panalpina's share
capital. Gradually adding to this stake during 1980s, it became the company’s sole
shareholder.

32
1980

During the 1980s and 1990s, Panalpina further strengthened its position in specific
segments. Among other things, it launched combined air freight and ocean freight
operations to the Far East and Europe, Africa, Oceania and India, and initiated scheduled
air freight services Luxemburg and the United States, South Africa and Brazil. In 2004,
Panalpina’s successful long-term commitment to freight services to and from emerging Far
Eastern markets reaped an appropriate reward: China granted the company a coveted “A”
license, enabling it to develop its own operational organization in this promising market.
In the same year, the Group consolidated its market leadership in the oil and gas business
by taking over the Scottish firm Grampian International, and strengthened its position in
Asia by buying the South Korea-based International Aero-Sea Forwarders.

2005

In 2005, Panalpina further strengthened its leading market position in the oil and gas
industry by acquiring the Singapore-based logistics provider Janco Oilfield Services and
the NorPanalpinagian Overseas Shipping Group.

Since 22 September 2005, Panalpina has been listed at the SIX Swiss Exchange.

3.2 Services provided by Panalpina

Panalpina focuses on core industries to provide industry expertise, tailor-made solutions

and value adding solutions to meet needs today and in the future.

The Industry Vertical teams combine the appropriate products and services from Panalpina
portfolio of Air Freight, Ocean Freight, Logistics Service or Supply Chain Service
offerings to create solutions that match particular demands. These can range from the
excellence of Panalpina’s freight forwarding products right the way through to designing
and implementing an end to end, integrated supply chain solution.

33
3.2.1. Aerospace

Panalpina Industry Vertical Aerospace strives to reduce complexity of its customers by

providing highly customized and reliable solutions whilst reducing risk, costs and
providing a seamless transparency.

The aerospace industry and with it, it’s supply chains is continuously evolving and growing
in complexity as a result of aerospace segmentation, shifts in geographic focus,
modernization of production and the growing speed-to-market requirements. Panalpina
focuses its services on oversized parts, helicopters, smaller manufacturers, original
equipment manufacturers, as Panalpinall as niche services.

To address this challenging environment Panalpina identifies, develops and deploys

customized solutions to meet Panalpina clients’ unique needs. Panalpina’s Panalpinall
establish airfreight product includes a global charter network that offers a highly
competitive and flexible service to even the most demanding customers.

By partnering with Panalpina, Panalpina customers will benefit from collaboration with
Panalpina trained staff, Panalpina extensive industry knowledge and work processes.

3.2.2. Automotive

The automotive industry’s complex supply systems pose a particular challenge and require
expertise in information design, process planning and operations efficiency. This is because
the delivery of components from numerous companies in different countries must be
carefully coordinated to ensure a smooth manufacturing and assembly process.

Panalpina therefore provide transportation and logistics services that enable customers to
optimize supply chains, meet tighter production schedules, and operate on the basis of lean
production principles.

Panalpina utilize continuous improvement techniques for

 Manufacturing
 aftermarket logistics

34
  vehicle transport:
 Inbound Production
 Aftermarket Parts Logistics
 Specialty Vehicle Transport

The Panalpina Group is one of the world‘s leading suppliers of forwarding and logistics
services, specializing in global supply chain management solutions and intercontinental air
freight and ocean freight shipments as Panalpinall as customized supply chain management
solutions for manufacturing units.

Panalpina’s manufacturing specialists are strategically located in key areas around the
world to cover global and local requirements. With Panalpina extensive expertise,
infrastructure, global network and state-of-the-art IT systems, logistics solutions can be
implemented locally and replicated globally. Panalpina local business units allow us to
understand and share trends and local customs procedures, enabling us to maximize end-
to-end delivery and cost effectiveness.

Manufacturing services Panalpina experts will work with costumers to provide tailor
made solutions to meet specific supply chain requirements. Panalpina manufacturing
services include:

 Process improvement
 Process optimization
 Process design and maintenance
 Service implementation
 Spare parts management
 Pick and pack
 Door-to-door delivery

3.2.3. Chemicals

In today’s competitive business environment, the chemical goods supply chain has become
more complex, leading to increased logistics and transport spending due to rising labor and

35
fuel costs, tightening security controls, environmental aspects as Panalpinall as unreliable
deliveries. Within this dynamic environment, Panalpina identify and develop customized
solutions to meet needs and provide dedicated on-time delivery to worldwide destinations.

Panalpina chemicals services:

 Health and safety environment and quality management systems based on ISO
certification including subcontractor management (e.g. ISO 9001, ISO 14001,
CHSAS 18001)
 PanGreen initiative (certified CO2 reduction program and CO2 calculation tool)
 Global regulatory, safety and security compliance
 Special containers for air and ocean freight to maintain product integrity during
transportation
 Dangerous goods event management and handling capabilities
 Product specific packaging solutions - Classification, Labelling and Packaging
(CLP) / Globally Harmonized System (GHS)
 Fleet and asset management
 Freight management and execution
 Dedicated customer service desks at strategic locations
 Performance measurement control by customized key performance indicators and
scorecards
 Supply chain event management
 Lead logistics service provider concept
 Best-in-class IT solutions

3.2.4. Consumer and Retail

Today the supply chain environment, and consequently the consumer and retail industry,
are facing different challenges than in the past. Panalpina has become global, distances
longer and the economy more fragile. Furthermore, the industry is characterized by
increasingly demanding and informed consumers.

36
Visibility solutions provide customers with an insight into processes on a shipment, an
order and item or on a SKU level. Based on that visibility, exception reporting can be
conducted, which makes supply chain fully transparent and controllable (order and vendor
management, event management, and performance management).

Solutions to improve cash flow lead to cost efficiencies by looking at the supply chain from
a holistic perspective (direct to store, due date management, customs and duty solutions).

Cargo management results in the reduction of transport costs by focusing on the

consolidation of flows and achieving the optimal utilization of containers (buyers’
consolidation, multi-country consolidation, LCL consolidations and overflow
management).

Hub solutions focus on supplying customers and vendors with services prior to and during
consolidation so that customers can concentrate on core activities (milk run, bonded
Logistics Park, cross dock and Logistics Value Added Services).

Global network solutions aim to reduce the complexity in global organizations and to
provide a centralized approach to freight management without compromising local actions
and decision making (global customer service desk, control to Panalpinar, freight
management and collaborative platform including LLP and 4PL solutions).

Supply Chain Analytics allow customers to make informed decisions in order to improve
supply chain (Supply Chain Optimization, Network Optimization, optimization of service
levels, transport modes and inventory levels).

3.2.5. Energy and Project Solutions

Making major moves Panalpina specialized service for the energy and capital projects
sector has the scale, breadth and capability to match the ambition of Panalpina customers’
projects. Energy and capital projects are major endeavors. Their lifecycle can span from
ten to more than 20 years. Panalpina are Panalpinall-equipped to deal with the world’s
biggest projects — the majority of which are in the oil and gas industry, but also in the
mining, industrial, petrochemicals and renewables sectors. With Panalpina knowledge,

37
experience and global force of skilled professionals, Panalpina are able to craft a
transportation solution for any heavy or oversized move.

Global coverage

Panalpina leverage on Panalpina extensive global network to get the right personnel in
place to take on any project. Panalpina team includes heavy-lift engineers and experts in
regulatory compliance, planning, execution and monitoring. These professionals can
handle every aspect of multi-modal transport to create tailor-made, end-to-end solutions —
even in the remotest places on Earth.

Energy and Project Solutions provides a variety of services, supporting Panalpina

customers throughout the entire lifecycle of their projects. Panalpina are available to help
from the earliest planning stages, assisting customers in contract bids and providing
detailed advice. Panalpina can also engineer installations for out-of-gauge and heavy-lift
transports and make changes to existing infrastructure as needed.

3.2.6. Supply Chain Optimization

Supply Chain Optimization (SCO) is the process of identifying inefficiencies in supply

chains and creating solutions that reduce cost, enhance service and improve processes –
often in response to market changes or individual business objectives. Using sophisticated
simulation and benchmarking tools, Panalpina re-design entire supply chains based on
strategic or tactical needs. From the smallest changes in operations to relocating an entire
facility, SCO does anything and everything to make improvements.

Optimization considers:

 Total cost-to-serve
 Reliability
 Responsiveness
 Lead-times
 Environmental sustainability

38
3.2.7. Government, Aid and Relief

Serving the government, aid and relief sector is very demanding. It is a complex and
dynamic environment that shifts with the geopolitical landscape, and where humanitarian
crises or natural disasters require an agile and rapid response. Panalpina has stringent
policies in place, working only with pre-approved countries and organizations and vetted
customers to ensure compliance with international laws and regulations. With Panalpina
solid track record in this sector, the global network and Panalpina unique charter and
emergency solutions, Panalpina can accommodate even the most difficult missions and
offer bespoke transport services for a wide variety of cargoes.

Panalpina has long-term working relationships with many customers in the government
sector. Panalpina also work with several charitable organizations across the world and
regularly support a major non-profit organization to fly much-needed relief goods such as
shelters and medicines to countries where there is a humanitarian crisis. Some of the
destinations are very austere locations where upholding an unbroken supply chain can be
especially challenging for items such as temperature-sensitive vaccines against polio,
yellow fever, and malaria.

In emergency situations, the Panalpina Charter Network is critical for providing solutions
at short notice and under great time pressure. Panalpina have the right contacts
internationally and work with trusted partners on the ground at destination, in order to get
access to countries and have goods distributed fast and reliably.

3.2.8. Telecom

The growing importance of mobile high-bandwidth services, i.e. being connected anytime
and anywhere, video communication, as Panalpinall as media-driven entertainment, has
stimulated and will continue to stimulate significant investments in wireless
telecommunications infrastructures. At the same time, millions of mobile subscribers are
registered every day and drive basic mobile infrastructure investments.

39
Panalpina telecom services

 Vendor Managed Inventory

 Supplier Consolidations
 Direct to Market (D2M)
 Reverse Logistics
 TAPA-compliant Operations
 End-to-End Management, from production to final site delivery and installation

Considering the highly vulnerable nature of telecom products, Panalpina has developed
industry-specific solutions focusing on a highly secure supply chain from which mobile
phone manufacturers and distributors, in particular, will benefit.

Experienced security teams have been assigned to strategic locations. These teams assess
and improve transportation routes on a daily basis. This set-up guarantees low-risk
exposure with regard to theft or damage to valuable products with an unmatched time-to-
market performance.

3.2.9. Perishables

Panalpina’s perishables industry focus provides a first-class logistics service with

dedicated and passionate employees, a global network, and a responsive, agile and
customer-centric approach.

Panalpina offer a fresh approach with flexible transportation and logistics solutions with
many modes of transport to choose from, depending on urgency and consignment size.
These include temperature-controlled air freight, ocean reefer freight, temperature-
controlled road and Panalpinaier services or a combination of the above. Panalpina offer
value-added services such as cool chain management, consignment documentation and
forwarding procedures that meet the industry’s temperature and food safety requirements
throughout the entire supply chain.

40
Key benefits:

 High security and safety measures throughout the entire supply chain
 Speed to market (e.g. product launch or stock-out)
 Full end-to-end supply chain visibility
 Global regulatory & security compliance
 Validation and qualification of transport solutions or trade lanes
 Robust cold chain management and operational capabilities (temperature-sensitive
handling)
 Value-added services such as re-labeling and secondary re-packaging
 Product-specific global network

3.2.10. Fashion

FASHION: The fashion industry has sophisticated and demanding consumers who require
multi-channel offering, brand experience, personalization and increased product
differentiation. This leads to shorter product life and increased need for innovation,
flexibility and enhanced order fulfilment certainty. The major needs in the industry include:

 Reducing logistics cost

 Sensing and responding to changes in consumer demand
 Building sustainability and security into supply chains
 Managing promotions and new product releases
 Improving order fulfilment

Panalpina has the ability to support the customers by being responsive, agile and customer-
centric in their approach to the fashion industry. Together with the customers, they
establish and implement solutions, which meet the needs and responds to the predominant
challenges of the industry. Their dedicated fashion team is focused on the industry and
takes pride in being constantly driven within a culture of innovation, flexibility and
persistence. Staying one step ahead in the fashion industry requires a team that goes beyond
the basics.

41
Panalpina experts are located in strategic key areas around the world and provide customers
with access to global solutions built on local needs. Being local allows them to understand
and share trends, local habits and developments, which allows them to maximize the end-
to-end services and cost effectiveness.

Panalpina’s fashion services: The fashion industry relies on time-definite delivery to

consumers. Their tailor-made services address the special requirements of the industry and
ensure that the products reach the consumer on time. This is achieved by seamlessly
connecting all parties involved in the supply chain to ensure availability of the right
product, in the right quantity, in the right condition, at the right place and time.

By utilizing proven, best-in-class IT solutions they can proactively manage end-to-end

processes and product movement. Their technical set-up supports product visibility,
scheduled and exception reporting as Panalpinall as an array of mutually agreed key
performance indicators.

Panalpina takes its role and responsibility for security in the supply chain very seriously
and treat it as an integral part of their daily business. Panalpina provides and applies
comprehensive security standards throughout the global network to protect the products as
Panalpinall as their own personnel, offices, data and warehouses.

Panalpina experts work with the customers to provide tailor-made solutions in order to
meet the customer’s specific supply chain requirements.

Key services offered include:

 Vendor management and buyers consolidation

 Garments on Hanger (GOH) Special Handling
 Direct to store
 Cross dock and DC bypass
 Deconsolidation
 Customs and duty management

42
Customized IT Tools:

 PO management
 Alert management and reporting tools
 EDI

Panalpina works closely with their customers to design an optimal supply chain that adds
value to the company and delivers cost savings.

Key benefits provided:

 Reducing end-to-end logistics costs

 Improving order delivery fulfilment
 Improving load utilization
 Ensuring a flexible and responsive supply chain

3.2.11. Healthcare

The healthcare industry is characterized by growing research and development efforts.

This, along with the need to maintain product integrity and security, have led to rising
logistics and transport costs. Within this dynamic environment, Panalpina identifies and
develops customized solutions to meet the needs and provide dedicated just-in-time
delivery to global destinations. Proven procedures and processes are integrated in their
global quality management system and described in standard operating procedures (SOPs),
in order to protect the integrity of their pharmaceutical products in transit.

Panalpina offers flexible transportation and logistics solutions and also offer value-added
services, such as order confirmation, consignment documentation, and forwarding
procedures that meet the industry’s hygiene, temperature, and pressure requirements
throughout the entire supply chain. Their dedicated healthcare specialists have in-depth
industry knowledge and extensive expertise in supply chain consulting, implementation,
and execution.

43
Panalpina experts work with the customers to provide tailor-made solution to meet their
specific needs. Besides their core air and ocean freight products, they offer healthcare-
specific services like:

 Special safety and security measures including F DA-registered office and

warehouse facilities
 Quality and HSE management system based on ISO certification including
subcontractor management
 Numerous TAPA A certified warehouses
 Best-in-class IT solutions
 Special containers for air and ocean freight to maintain specific temperature ranges
 Temperature data recording during transport and analysis
 Cold chain event management
 Humidity control
 Compliance with current GDP (Good Distribution Practice)
 Direct distribution, door-to-room and hospital delivery
 Product-specific packaging solutions

Key Benefits: They work closely with customers to design an optimal supply chain that
adds value to the company, delivers cost savings, optimizes processes and provides
additional major benefits like:

 High security and safety measures throughout the entire supply chain
 Dangerous goods handling capabilities
 Speed to market (e. g. product launch or stock-out)
 Full end-to-end supply chain Visibility and lot traceability
 Global Regulatory & Security Compliance
 Information confidentiality (e. g. clinical trials)
 Validation and qualification of transport solutions or trade lanes
 Robust cold chain management and operational capabilities (temperature-sensitive
handling)
 Value-added services such as re-labelling and secondary re-packaging
44
3.2.12. Hi-Tech:

The hi-tech industry requires fast and reliable logistics chains that link the industry’s key
production sites with distribution channels throughout the world. Technological
innovations combined with the world’s emerging markets, which are rapidly catching up
with developed countries consumer habits, continue to characterize this energetic
development. The adoption of new technologies has inevitably led to shorter product life
cycles. These, in turn, require more complex and sophisticated transportation and supply
chain management solutions.

They offer not only transport services that ensure the timely delivery of parts and products,
but complete end-to-end supply chain solutions. Whether the customers are in the semi-
conductor industry, the computer and electronics industry, or provide electronic
manufacturing services, Panalpina understands the business and requirements.

Panalpina’s dedicated hi-tech specialists have in-depth industry knowledge and extensive
expertise in supply chain consulting, implementation, and execution. Their specialists are
strategically located in key areas around the world based on the industry’s major strategic
markets and requirements. They ensure operational excellence across air freight, ocean
freight and supply chain management, thereby covering global and local needs.

Panalpina’s hi-tech services: Panalpina experts work with the customers to provide tailor-
made solution to meet specific needs. Besides their core air and ocean freight products,
they offer special hi-tech services like:

 Vendor Managed Inventory

 Distribution warehousing
 Supplier Consolidations
 Direct to Market (DZM)
 Reverse Logistics
 TAPA-compliant Operations

45
Considering the highly vulnerable nature of hi-tech products, Panalpina has developed
industry-specific solutions focusing on a highly secure supply chain. Experienced security
teams have been assigned to strategic locations.

These teams assess and improve transportation routes on a daily basis. This set-up
guarantees low-risk exposure with regard to theft or damage to the valuable products with
an unmatched time-to-market performance. Panalpina works closely with the customers to
design an optimal supply chain that adds value to the company, delivers cost savings, and
decreases time-to-market. They utilize their proven logistics expertise to drive innovation
and continuously improve all processes.

Panalpina customizes the operating practices to meet the supply chain requirements by
involving small and large supplier networks on multiple continents, designing creative end-
to-end solutions, optimizing communications and information management, and improving
delivery performance.

Complex logistics solutions require state-of-the-art support systems. They provide

software programs to support a smooth process flow, thus ensuring complete Visibility and
transparency within supply chain

46
CHAPTER-4
THEORETICAL
FRAMEWORK
 Theoretical Framework

4.1 Air Cargo

Air cargo is any property carried or to be carried in an aircraft. Air cargo comprises air
freight, air express and airmail.

4.2 Brief history of Air Cargo

The first cargo flight took place on the 7 November 1910 in the USA, between Dayton and
Columbus, Ohio. Philip Orin Parmelee piloted a Wright Model B airplane 65 miles (105
km) carrying a package of 200 pounds of silk for the opening of a store. Newspaper
clippings quoted the Wright brothers as stating he covered the distance in 66 minutes, but
the flight was officially recorded at 57 minutes, a world speed record at the time. It was the
first “cargo only” flight solely for the transport of goods.

4.3 International Air Transport Association (IATA)

The International Air Transport Association (IATA) is the trade association for the world’s
airlines, representing some 280 airlines or 83% of total air traffic. IATA offers over 400
titles consisting of standards, manuals and guidelines that cover a variety of aviation topics,
from Safety, Passenger, Cargo, to Security and more. Ensuring that the industry adapts and
adheres to these global standards and recommended practices underpins a safe, secure, and
integrated global air transport system. IATA supports airline activity and helps formulate
industry policy and standards. It is headquartered in Montreal, Quebec, Canada with
Executive Offices in Geneva, Switzerland

Safety is the number one priority for IATA. The main instrument for safety is the IATA
Operational Safety Audit (IOSA). IOSA has also been mandated at the state level by
several countries. In 2017, aviation posted its safest year ever, surpassing the previous
record set in 2012. The new global Western-built jet accident rate became the equivalent
of one accident every 7.36 million flights. Future improvements will be founded on data
sharing with a database fed by a multitude of sources and housed by the Global Safety

46
Information Center. In June 2014 the IATA set up a special panel to study measures to
track aircraft in flight in real time. The move was in response to the disappearance without
trace of Malaysia Airlines Flight 370 on 8 March 2014.

4.3.1 Security

Security has become increasingly important following the September 11 attacks in 2001.
Following a series of uncoordinated rules by different countries, the industry has developed
a Checkpoint of the Future, which is based on risk assessment and passenger
differentiation.

4.3.2 Services

 IATA provides consulting and training services in many areas crucial to aviation.
 Travel Agent accreditation is available for travel professionals. Full accreditation
allows agents to sell tickets on behalf of all IATA member airlines.
 Cargo Agent accreditation is a similar program.
 IATA also runs the Billing and Settlement Plan, which is a $300 billion-plus
financial system that looks after airline money.
 And it provides a number of business intelligence publications and services.
 Training covers all aspects of aviation and ranges from beginner courses through
to senior management courses.
 IATA manages the Ticket Tax Box Service (TTBS), a database of taxes for airlines.

4.3.3 Coding and decoding of Airports, Airlines, Cities and countries - IATA
Codes

IATA codes are an integral part of the travel industry, and essential for the identification
of an airline, its destinations and its traffic documents. The assignment of these codes is
governed by IATA Resolution 763, and it is administered by IATA headquarters in
Montreal. The codes are published semiannually in the IATA Airline Coding Directory.
They are also fundamental to the smooth running of hundreds of electronic applications
which have been built around these coding systems for passenger and cargo traffic

47
purposes. The International Air Transport Association's (IATA) Location Identifier, a
unique 3-letter code, is used in aviation to identify mainly locations of airports throughout
the world.

4.4 Different types air cargo

There are two types of air:

 General cargo,

 Special cargo, which requires special handling acceptance, warehousing and

shipment.

Special cargo includes:

 Heavy cargo (HEA),

 Human remains (HUM),

 Live Animals (AVI),

 Dangerous Goods (DGR),

 Diplomatic Cargo Shipments (DIP),

 Perishable Cargo (PER),

 Valuable cargo (VAL).

4.5 Priority in loading Air Cargo

 Weathering the Storm - Regardless of the aircraft’s configuration, passenger or

freighter, the load plan takes into consideration how much fuel is needed to operate
a given flight. Weather is a factor because, among other reasons, more fuel is
needed in adverse weather in case of re-routes, holds, or strong head winds.
 Personal Baggage - If you have ever been on a plane when the flight attendant
makes an announcement that the plane is weight restricted and they need volunteers
to be bumped, you understand the fate of split shipment cargo. That said, the cargo

48
 doesn’t give her the evil eye like all the passengers on my last trip did. It is essential
to remember that on passenger flights, the first thing to get bumped is the cargo.
Another factor affecting weight is the amount of personal baggage. You may have
read that luggage fees have reduced the total weight of baggage in modern times
(which should leave more capacity for cargo). However, the luggage fee effect is
greatly diminished for international trips where passengers still pack several heavy
bags for longer trips. If, at the last minute the weight and cubic measure of baggage
exceeds what was estimated, space is generally sacrificed and taken from cargo
operations.
 High Priorities - Unlike passengers, cargo shipments can neither volunteer to get
bumped for free miles or free trips. When one considers the high cost of air cargo,
it seems likely that some cargo shipments which are much more valuable than a
passenger ticket are bumped in the name of customer service. However, when the
flight is full, the load plan will take as much cargo as possible; and the priority is
not unlike the familiar First, Business, and Economy for passengers. Each air
carrier has a unique rate structure that allows for cargo to be booked at a higher
boarding priority. The more you pay the higher on the list your cargo sits.

The forwarder and the shipper have no control over the cargo once tendered to an air
carrier. We can request no cargo splits; however, what is more effective is choosing carriers
that prove to be reliable and efficient and that provide the best options for your individual
needs. If your cargo splits it’s extra work on clearance and delivery, but it is not uncommon
and usually doesn’t cause much delay at destination (if you partner with the right
forwarder).

Fortunately, there are two main steps you can take to avoid and/or minimize the occurrence
of split shipments:

 You can limit the number of pieces that make up a shipment by packing more into
a carton or building efficient pallets, or book ULD’s if your cargo is the right size
 Book your cargo at a higher service level.

49
4.6 Hub-and-Spoke Operations

The Hub-and-spokes system was developed as one of the results from the US airline
deregulation. Prior to establishing this system, airlines operated point-to-point routing
which was often not cost efficient. The concept of the Hub-and-spokes system was to
concentrate traffic to one airport- the major hub from smaller national airports (known as
the spokes) or other means of transport, and then the gathered group of passengers would
be transported from the major hub to another major hub.

The development of this system had enabled travelers a more integrated travelling system
and experience, where passengers originating from smaller regions had the ability to make
transits at a major hub where connecting flights too many other destinations are possible.
At the era of point-to-point travelling passengers may have to make land transport to
smaller towns, whereas the hub-and-spoke systems increases possible city pairs they can
enter into. However at the same time the frequency of flights in and out of many smaller
airports had decreased as a result of major airlines exiting the market of these smaller
airports and concentrate on more profitable connection routes.

Figure 4.1 Hub and Spoke model

50
4.6.1 Implications to airports

 Distinctive role between large and small airports - Larger airports take up the role
of being the major hub, where airlines gather their traffic brought in by smaller
secondary airports. Smaller airports only served a small amount of large hubs where
travelers are then transferred to other routes. This system tidies up the routing
system as airlines were no longer forced to operate less popular routes by
government restrictions in condition to their more profitable operations, only
essential air services were maintained.
 Risen importance of large city hubs - Airports that were chosen by airlines to act as
their large hub are normally those that serve larger cities or have easy access to the
central business districts of a main city in that country. Due to the larger travelling
demand the size of these airports are usually larger and can handle more capacity
at once. This had favored airlines to use the hub facilities as their major transiting
point. As a result of this system, many airports in major cities had expanded their
airport to attract airlines to use their facilities and bring more traffic. Gradually as
traffic increases rapidly into these larger hubs the need of an efficient and effective
airport management scheme was necessary. Airports such as LAX in Los Angeles,
USA and LHR in London, UK are often packed with transiting passengers as they
are the major international and national gateways, waiting times and delays at these
airports can often cause problems. Many years after deregulation, most of these
larger hubs are now at or reaching their maximum capacity and need to either
further expand of have a second airport to shed off congestion.
 Decreased services at smaller airports - The decrease in service of smaller airports
by full service airlines were one of the major disadvantages as a result of the
deregulation, as airlines no longer needed to serve these routes if they appeared
non-profitable to their yield factor. Smaller airports were potentially left idle and
had only essential services running by. As a result of that, this encouraged the
entrance of low cost carriers- LCC (refer to Low-cost Carriers for more details) as
they were favored by low airport fees, discounted accommodation and car rental
package offers and even commission from the local tourism board to operate at

51
 their airport. The airports in return need not to invest largely in improving their
facilities to gain passenger flow, as they would not have had enough capital to
support such large expansion.
 Domino effects in delays - As the result of large capacity at large hubs in the hub-
and-spoke system, the on carriage of passengers are easily affected by a small delay
on any one end. For example a small delay from spoke A airport has caused a delay
into the major hub; as a result, the connecting flight at the major hub, with
passengers gathered from other flights (from spokes B and C) may be delayed by
waiting for the passengers to arrive from spokes A; ultimately the domino effect is
that the larger group of passengers are delayed to their next hub destination. Had
the hub been one of the many transiting points for a passenger from spoke B, then
further flights would have been affected and so forth.

4.6.2 Implications on airport systems and architecture

 Landside areas - The landside area generally needs to be flexible for changing
traffic structures and increasing demand. This implies, that terminals will be
expanded or if possible newly build. Airport planners are forced to ensure short
distances between gates for transfer passengers. Since satellite concepts can cater
for these needs, new terminals will most certainly be planned in such a scheme. If
this is not feasible, fast connecting times can be ensured by the installation of people
mover systems within the terminal or outside train systems can be put in place to
connect different terminal buildings.
 Airside areas - Apron size will be extended for a flexible use of gates to guarantee
smooth operations and fast handling of different aircraft types - especially regarding
aircraft size and capacity. Runway and taxiway systems need to adapt to future
traffic volume. Existing airports however will most probably have problems to
expand the airside areas due to scarce land resources and possibly environmental
concerns resulting from negative externalities such as noise and pollution. These
problems are the reason for public inquiry and therefore long planning and
expansion processes in many countries. Prominent recent examples being Munich
or London Heathrow.

52
  Ground access systems - Since hub airports not only need a great portion of transfer
passengers to make use of the benefits of the hub-and-spokes system but are also
dependent on the passengers in the airport catchment area, ground access systems
will be of high importance. If the airport is aligned to a High Speed Train Network,
the catchment area can be extended and the number of travelers will most likely
increase. This can even have the effect that short haul flight connections to the hub
might be replaced by train services.

4.6.3 Implications to airlines

 Freedom in routings for profit - The routing strategy of being able to gather
passengers in a hub facility from outlying spokes, allowed airlines to serve more
markets with their existing resources- i.e. crew and fleet. Airlines were no longer
obliged to take up non-profitable routes in order to run other profitable routes
assigned by the government that controlled the air space. Airlines could exit out of
routes that did not bring in profit, concentrate on routes to major hubs that were
more profitable and make strategic connections at the hub, so there were increased
possible route combinations with the same amount of resources. As a result of
increased combinations of routing, there had been an increase in passengers as
airlines could afford to use limited services to transfer passengers from all spoke
locations into one major hub and then deliver these passengers to another large hub
in one larger aircraft.
 The formation of airline alliances - The hub-and-spokes system has encouraged
the development of many airline strategies such as the flexibility in rearranging
airline routings and schedules where an airline’s network in comprehensive enough
in their dominating area. Where this is often financially impossible for many
airlines, the next best option is to form airline alliances. Airline alliances allow
airlines to expand their network by code-sharing flights with airlines in the same
alliance. Most alliances share the same terminal in the hub and have ticket and
baggage interlining facilities to provide a one-stop experience to their passengers
and shorten connecting times.

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4.6.4 Advantages of hub-and-spoke

The following two points are the major advantages that the hub-and-spoke system had
initially brought to the airline business; however some disadvantages had been developed
later due to changes in external environmental factors.

 Encouraged the rapid growth in the airline business - The hub-and-spoke system
since developed after deregulation, has allowed a rapid growth in size, competition
strategy and traffic demand in the airline business. However, as suggested by Wells
and Younger (2004 4) this had resulted in operational inefficiencies at periods of
slow economy; with airlines resulting in very poor financial performances. As a
result of this, some airlines restructure their business model to return to the point-
to-point system and move out of the constant need for a large hub, and utilize hubs
in a more uniform matter in terms of arrivals and departures. This phenomenon is
known as the rolling hubs.
 Efficient use of scarce transportation resources - The system has less number of
routes connecting all spokes enabling a more efficient use of scarce transportation
resources. This however had small airports and economies of smaller regions
suffering as per the reduced capacity. As a result this encouraged airports to agree
with low cost carriers to offer low airport fees and commissions from local
businesses to bring in traffic and passenger flow. The passenger market favored this
type of airline business as lower fares were rolled out to the market from these
smaller hubs; which caused great competition to full service carriers that were
operating with large amount of airport fees to use large hubs, and can no longer
return to these small hub markets as it is not cost efficient and are dominated by
low cost carriers.

4.6.5 Disadvantages of hub-and-spoke

Besides the aforementioned advantages, the hub and spokes system also holds risks for the
airlines and the airports which are highlighted in the following sections.

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 Congestion and delays at hub airports - To limit waiting times and provide a large
variety of possible connections for passengers at the hub airport, it is essential for
the hub airline to schedule as many incoming and outgoing flights as possible
during a short time frame. This results in high traffic peaks during these times and
often causes delays due to scarce airside facilities such as taxi- or runways. At the
same time the hub-and-spokes-system however allows hub airlines to increase their
benefit exponentially by adjoining an additional destination to the network
compared to point-to-point-carriers. This implies for a hub airline that usually the
tradeoff between the costs due to congestion (refer to Airport Congestion for more
details) and the benefit of serving new markets is positive. Therefore the airline has
an incentive for adding more traffic despite a rising congestion level. The point-to-
point carriers at the airport which cannot capitalize on such an exponential benefit
however suffer from the increasing number of flights. Another reason for
congestion stems from the fact that many airports do not limit the number of take-
offs and landings. One possibility for airlines to prevent further congestion and
coevally increasing the passenger count is the use of larger (feeder) aircraft.
However, doing so, new challenges occur if these aircraft with more passengers are
delayed. More travelers will miss their connecting flights which would result in a
poor utilization rate of the hub-hub connection and reduces the profitability of a
carrier. This problem is especially critical for the operations of the A380.
 Discontinuous use of airport facilities - The merging of traffic in a hub-and-spoke-
system implies a traffic structure consisting of high peaks at certain times a day
when airport facilities are highly in use. At some airports, costly additional capacity
and infrastructure (e.g. runways) are required to cater for the demands at these
peaks. During off-peak hours, as traffic is less, terminal and airside facilities are
used inefficiently or even idle. The temporal discrepancy between capacity and
demand will continuously result in either congestion and delays or underutilization.
 Airport dependency - Hub airlines and the corresponding alliances have selected a
limited number of airports on each continent through which they route their traffic.
For these few hub airports in turn, they represent a high share of their business. As
airport capacity is limited and usually not sufficient for other extensive networks,

55
 and the necessary slots at attractive times are not available, other airlines tend to
choose alternative options. For the airport, this dependency on one major hub
airline has advantages and disadvantages: as long as the airline is stable and
successful in the market the airport can be sure of a consistent operation and
therewith a steady income stream. As soon as the airline however struggles, this
will have negative repercussions on the airport and might severely jeopardize
(profitable) operations at the airport.

4.7 Air waybill

An air waybill (AWB) or air consignment note is a receipt issued by an international airline
for goods and an evidence of the contract of carriage, but it is not a document of title to the
goods. Hence, the air waybill is non-negotiable.

The air waybill is the most important document issued by a carrier either directly or through
its authorized agent. It is a non-negotiable transport document that covers the transport of
cargo from airport to airport. By accepting a shipment, an IATA cargo agent is acting on
behalf of the carrier whose air waybill is issued.

Air waybills have eleven digit numbers which can be used to make bookings, check the
status of delivery, and a current position of the shipment.

Air waybills are issued in eight sets of different colors. The first three copies are classified
as originals. The first original, green in color, is the issuing carrier's copy. The second,
colored pink, is the consignee's copy. The third, colored blue, is the shipper's copy. A fourth
brown copy acts as the Delivery Receipt or proof of delivery. The other four copies are
white.

4.7.1. Functions of AWB

The main functions of an airway bill are:

 Contract of Carriage: Behind every original of the Air Waybill are conditions of
contract for carriage documents.

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  Evidence of Receipt of Goods: When the shipper delivers goods to be forwarded,
he will get a receipt. The receipt is proof that the shipment was handed over in good
order and condition and also that the shipping instructions, as contained in the
Shipper's Letter of Instructions, are acceptable. After completion, an original copy
of the air waybill is given to the shipper as evidence of the acceptance of goods and
as proof of contract of carriage
 Freight Bill: The air waybill may be used as a bill or invoice together with
supporting documents since it may indicate charges to be paid by the consignee,
charges due to the agent or the carrier. An original copy of the air waybill is used
for the carrier's accounting
 Certificate of Insurance: The air waybill may also serve as an evidence if the carrier
is in a position to ensure the shipment and is requested to do so by the shipper.
 Customs declaration: Although customs authorities require various documents like
a commercial invoice, packing list, etc. the air waybill too is proof of the freight
amount billed for the goods carried and may be needed to be presented for customs
clearance

The format of the air waybill has been designed by IATA and these can be used for both
domestic as well as international transportation. These are available in two forms, viz. the
airline logo equipped air waybill and the neutral air waybill.

Usually, airline air waybills are distributed to IATA cargo agents by IATA airlines. An air
waybill shows:

 the carrier's name

 its head office address
 its logo
 the pre-printed eleven digit air waybill number

It is also possible to complete an air waybill through a computerized system. IATA's e-Air
Waybill (e-AWB) programmed and multilateral e-AWB Agreement remove the
requirement for an air waybill to be issued as a paper document and therefore allow for
electronic air waybill documentation. Agents all over the world are now using their own

57
in-house computer systems to issue airlines' and freight forwarders' own air waybills. IATA
cargo agents usually hold air waybills of several carriers. However, it gradually became
difficult to accommodate these pre-numbered air waybills with the printed identification in
the computer system. Therefore a neutral air waybill was created. Both types of air waybills
have the same format and layout. However, the neutral air waybill does not bear any pre-
printed individual name, head office address, logo and serial number.

4.7.2. Validity of AWB

An air waybill is a contract—an agreement enforceable by commercial law. To become a

valid contract it has to be signed by the shipper or his agent and by the carrier or its
authorized agent. Although the same individual or organization may act on behalf of both
the carrier and the shipper, the air waybill must be signed twice one each in the respective
carrier and shipper boxes. Both signatures may be of the same person. This also implies
that the air waybill should be issued immediately upon receipt of the goods and letter in
instructions from the shipper.

As long as the air waybill is neither dated nor signed twice, the goods do not fall within the
terms of the conditions of the contract and therefore the carrier will not accept any
responsibility for the goods. The validity of the air waybill and thus the contract of carriage
expires upon delivery of the shipment to the consignee (or his authorized agent).

4.7.3. Responsibility for completion

The air waybill is a contract—an agreement between the shipper and the carrier. The agent
only acts as an intermediary between the shipper and carrier. The air waybill is also a
contract of good faith. This means that the shipper will be responsible for the haul also be
liable for all the damage suffered by the airline or any person due to irregularity,
incorrectness or incompleteness of insertions on the air waybill, even if the air waybill has
been completed by an agent or the carrier on his behalf. When the shipper signs the AWB
or issues the letter of instructions he simultaneously confirms his agreement to the
conditions of contract.

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4.7.4. Non-negotiable

Waybills are non-negotiable documents unlike bills of lading which are negotiable. The
words non-negotiable are printed clearly at the top of the air waybill. This means that the
air waybill is a contract for transportation only and does not represent (the value of)
merchandise mentioned in the box nature and quantity of goods. The ocean bill of lading,
if negotiated, may represent (the value of) the goods and must be endorsed by the party
ultimately accepting the goods. Although the AWB is a non-negotiable document, it can
be used as a means of payment. This can be done only through the intermediary of a bank
and only when the carriage is subject to a letter of credit. The air waybill executed
according to the terms of a letter of credit allows the shipper to present the original of the
air waybill to the bank and collect the billed value of the shipped goods from the bank. The
amount paid by the bank to the shipper will be debited to the consignee who ordered the
goods. At the destination the carrier will only hand over the goods to the consignee on
receipt of a bank release order from the consignee's bankers.

The goods in the air consignment are consigned directly to the party (the consignee) named
in the letter of credit (L/C). Unless the goods are consigned to a third party like the issuing
bank, the importer can obtain the goods from the carrier at destination without paying the
issuing bank or the consignor. Therefore, unless a cash payment has been received by the
exporter or the buyer's integrity is unquestionable, consigning goods directly to the
importer is risky.

For air consignment to certain destinations, it is possible to arrange payment on a COD

(cash on delivery) basis and consign the goods directly to the importer. The goods are
released to the importer only after the importer makes the payment and complies with the
instructions in the AWB. In air freight, the exporter (the consignor) often engages a freight
forwarder or consolidator to handle the forwarding of goods. The consignor provides a
Shipper's Letter of Instructions which authorizes the forwarding agent to sign certain
documents (e.g. the AWB) on behalf of the consignor.

The air waybill must indicate that the goods have been accepted for carriage, and it must
be signed or authenticated by the carrier or the named agent for or on behalf of the carrier.

59
The signature or authentication of the carrier must be identified as carrier, and in the case
of agent signing or authenticating, the name and the capacity of the carrier on whose behalf
the agent signs or authenticates must be indicated.

International air waybills that contain consolidated cargo are called master air waybills
(MAWB). MAWBs have additional papers called house air waybills (HAWB). Each
HAWB contains information of each individual shipment (consignee, contents, etc.) within
the consolidation. International AWBs that are not consolidated (only one shipment in one
bill) are called simple AWBs. A house air waybill can also be created by a freight
forwarder. When the shipment is booked, the airline issues a MAWB to the forwarder, who
in turn issues their own house air waybill to the customer.

4.7.5. Air Waybill Number

The AWB number has 11 digits and 3 parts.

The first 3 digits are the Airline Prefix

The next 7 digits is the Serial Number of the AWB

The last digit is the Check digit

The check digit is derived by dividing the 7 digit Serial Number by 7. The remainder
determines the Check Digit. Example: Serial Number 8114074 divided by 7 is 1159153
with remainder 4. Therefore the Serial Number + Check Digit is 81140744.

4.7.6. Different types of Airway bills

(I) Master air waybill (MAWB) - Master air waybill is a transport document, which is
used in air shipments, issued and signed by the air cargo carrier or its agent, generally on
a pre-printed carrier's air waybill format, evidences the terms and conditions of the
carriage of goods over routes of the carrier(s).

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Main features of a master air waybill (MAWB)

 Master air waybill generally issued on a pre-printed air waybill form of an issuer
carrier.
 Master air waybill issued and signed by the carrier or an agent on behalf of the
carrier.
 A master air waybill (MAWB) is subject to IATA Rules and one of the international
air conventions (Warsaw Convention, Hague amendment, Montreal Convention,
etc.)
 Master air waybill is signed by the actual carrier and states the terms and conditions
of the carriage, as a result consignee may have protection in case the goods are
damaged or lost in transit.

(II) House air waybill (HAWB) - House air waybill is a transport document, which is
used in air shipments, issued and signed by a freight forwarder, generally on a naturel air
waybill format, evidences the terms and conditions of the carriage of goods as specified by
the freight forwarder.
Main features of a house air waybill (HAWB)
 House air waybill generally issued on a naturel air waybill format.
 House air waybill issued and signed by a forwarder without indicating any
signing authority either carrier or as agent of the carrier.
 An house air waybill (HAWB) may or may not be subject to IATA Rules
and one of the international air conventions (Warsaw Convention, Hague
amendment, Montreal Convention, etc.)
 House air waybill is signed by the forwarder and states the terms and
conditions of carriage for the forwarder company's perspective. House air
waybill does not contain actual carrier's carriage contract, as a result shipper
stated on the house air waybill is not the direct participant of the carriage
contract indicated on the master air waybill.

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 Figure 4.2 – Difference between HAWB and MAWB

4.8 Air Cargo Tariff

Air Cargo Tariff means tariff containing rates, charges or provisions governing the
application of such rates or charges, or the conditions of service, applicable to the
scheduled transportation of cargo in foreign air transportation. Airfreight rates cover
transportation from the airport of loading to the airport of discharge. Airlines that are
members of the IATA comply with Tariff rules issued by IATA. From 11th September
2002, Air Freight Rates are negotiable to extreme level.

Tariff doesn't mean it is the actual price. Rate on Air Way Bills are mentioned based on the
actual weights, Date of shipment and Commodity basis. Volumetric Air Freight -
Chargeable Weight

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With dense cargo the actual weight and the chargeable weight are the same, this changes
when goods are bulky. Airlines calculate the chargeable weight of cargo by dividing the
length x width x height (In cms) by 6000. When the figure you get is higher than the actual
weight, the cargo is volumetric air freight and the air freight rates will be based on the
higher figure.

4.8.1. Additional Charges

There are additional charges that make up the air freight quote, they include, Airline
Handling, Security Charges, Customs Entry, Local Pick Up and Delivery to the airline.

4.8.2. Charges are covered in Air Cargo Tariff

 Air Freight Rate

 Fuel Surcharge
 Insurance Surcharge or War Risk Surcharge
 Security or Scanning or Screening Surcharge
 Air Way Bill Surcharges or Miscellaneous Charges
 Dangerous Goods Surcharge
 Express Rate Surcharge

4.8.3. Following Charges do not covered

 Pick-up of goods from factory/door

 Delivery of goods to consignees door
 Terminal handling charges in both origin and destination airport
 Storage charges or demurrage charges in both origin and destination airport
 Customs clearance in both the country of origin and destination
 Any duties and taxes that may have to be paid
 Marine Insurance

4.8.4. Weight Criteria

 Gross Weight: This weight is declared by the Shipper and verified by the Agent
and Airline.

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  Volume Weight: This weight is calculated as per the dimension of each package. A
formula is applied to calculate the Volume Weight.
 Chargeable Weight: As per the rule of IATA, the higher weight will be taken as
Chargeable Weight. Some time it can be Gross Weight itself. Some other case,
Volume weight can be chargeable weight if higher than Gross Weight.

4.8.5. Volume calculation method

 Measurement in Centimeters (cm)

 Measure the Carton/Pallet along the greatest length, width and height and
 For example; 68 cm (L) X 42 cm (W) X 22 cm (H) = 62832 cm3.
 Now divide 62832 cm3 by 6000 = 10.472. This result is in Kilograms and for 1
Carton/Pallet/Parcel.
 Multiply the result in Kilograms with Total Number of Cartons to get the total
volume weight.
 Comparison of Weights
 Check what is the Gross Weight declared by Shipper or verified self.
 Now compare the gross weight to the volume weight. If any weight is higher by
0.250 gram, that weight will be taken as Chargeable weight.

4.8.6. Chargeable Weight

In some case, even though the Volume weight is higher than Gross weight or Gross Weight
is higher than Volume Weight, the next available slab weight is taken as chargeable weight.
This is as per IATA rule of whichever is lower on rate and whichever is higher on Weight.
In order to establish the chargeable weight, it is calculated as 1 metric ton = 6 cubic meters.

4.9 Air Freight Rates

The way airlines calculate air freight rates, the more you have the cheaper the rate, usually,
there are exceptions, but these are rare. Airlines offer air freight rates to the market at
various break points usually, Minimum (A flat price) and then a per Kg price based on
under 45Kgs, plus 45Kgs, plus 100Kgs, plus 300Kgs, plus 500Kgs and plus 1000Kgs.

64
Sometimes it is cheaper to round up to the next breakpoint, but the freight agent should do
this automatically.

4.9.1. Rate Slabs

 M - Minimum Rate up to certain Weight or per shipment

 N - Normal Weight or below 45 Kgs
 +45 - Above 45 Kilogram.
 +100 - Above 100 Kilogram.
 +250 - Above 250 Kilogram.
 +300 - Above 300 Kilogram.
 +500 - Above 500 Kilogram.
 +1000 - Above 1000 Kilogram.
 +2000 - Above 2000 Kilogram.
 +5000 - Above 5000 kilogram.

All rates are per kilogram except Minimum.

4.9.2. General Cargo Rates

Tariff given for the General Commodity shipments. This is further divided based on the
transit period of Normal, Express and Time Definite.

 Normal: Under this Rate class, the airline can take transit time up to 20 days.
 Express: Goods transported to destination within 48 hours under Express Mode and
a higher price is charged than Normal rate.
 Time Definite: The Delivery of goods will be within a certain time frame. Tariff
will be higher than Express rate.
 Express and Time Definite goods are accepted only on the On-line destinations
where an airline use own aircraft.

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4.9.3. Special Commodity Rate

Airline offers special rates for specific commodities which are lower than general cargo
rates. This rates apply to certain goods with specific descriptions. However, nowadays most
of the airlines are stopped this special commodity rates except Perishable and Dangerous
goods for which separate rates are filed. Dangerous goods and Perishable goods rates are
offered for On-Line destinations only.

4.9.4. Unit Load Device (ULD) Rate

Most popular air freight containers and pallets, otherwise known as Unit Load Devices
(ULDs). Using standardized ULDs makes it possible to pack in large quantities of goods.
It also saves time and labor costs during loading. ULD pallets and ULD containers are
made from sheet aluminum and profiles/profile frames. Their standardized construction
means that, for example, aircraft cargo nets snap straight into place and heavy pieces of
cargo can be secured without any problems.

The different containers and pallets each have their own IATA code which uniquely
identifies them. Air freight pallets and containers are designed to be suitable for different
types of aircraft and this must be taken into consideration when choosing ULDs. For this
reason, the compatible types of aircraft are also given on the list. ULDs are used for the
storage of cargo on the aircraft and are divided into two types; Pallets and Containers.

Cargo on the Pallets are secured to its rim by a net and made according to the load ability
into the allotted aircraft type. Various types of Containers are providing by the Airline
based of the aircraft used to serve a location. Cargo is secured either by the container doors
closed or a door net being secured to the rims of the container walls and floor.

The rates are charged as per ULD Maximum Weight e.g. LD3: Chargeable Weight 700
Kgs.

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4.10 Consolidated Air Freight Service

A way of benefitting from the higher breakpoints is to use a consolidated air freight service.
Consolidations are where shipments from 2 or more shippers are grouped together to get
lower freight rates from the airlines. Freight agents that advertise cheap air freight rates
often use consolidators, these are companies that have negotiated deals with airlines and
pass the discounted rates to other freight companies. A company that only uses
consolidators usually doesn't have sufficient buying power with the airlines.

The downside of using a consolidated air freight service is the destination charges, because
there is more than one consignee, the consolidation is sent to an agent at the destination
airport, they will break down the consolidation into the individual consignments and charge
a handling charge to the importer. Destination handling charges billed by agents can be
higher than the airline charges.

Cargo shipping method in which a freight forwarder at the port of origin combines several
individual consignments to make up a full container load. This arrangement allows the
goods to be shipped as containerized-cargo that offers greater security at lower shipping
rates. At the port of destination, the consolidated shipment is separated (deconsolidated or
regrouped) back into the original individual consignments for delivery to their respective
consignees. Also called grouped shipment.

Benefits of Consolidated Shipping

 Cost savings. Oftentimes, shippers will only use half or two-thirds of a trailer, but
have to pay for the entire space. Consolidation services combine multiple LTL
shipments that are heading in similar locations into a full truckload, and you pay
only for the space your freight takes up.
 Reduced chance of damages. Where LTL uses a hub-and-spoke distribution method
with multiple touchpoints, consolidation uses a model that significantly reduces the
handling of the product as freight moves from shipper to consolidation center to
receiver/consignee. With fewer touchpoints there’s less opportunity for product to
be damaged.

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  Speed to market. A consolidation strategy can help get your freight delivered where
it needs to be, on your schedule. A provider with large freight volumes can put a
plan into place that puts your freight on a truck and on the road, better utilizing
truck space and a swifter transportation delivery model.

Challenges of Consolidated Shipping

 Finding a Carrier. Not all carriers are willing to carry consolidated shipments
because of the added complexity. When you find a carrier willing and able to
move consolidated shipments, you need to be cognizant that they are charging
you correctly.
 Organization and Planning. Consolidated shipments require more organization
and planning than FCL shipments. As a shipper, you need to be aware of pricing
methods, dimensions, timing, and other specifics in order to make sure your
shipment gets where it needs to go safely and promptly.
 Time. Consolidated shipments can take more time than FCL shipments because
of the added steps (consolidation and deconsolidation). As a shipper, you need
to be aware of this and plan accordingly.
4.11 Role of air freight forwarding company in the import and export
An air freight forwarding company is hired by importers and exporters to expedite their air
cargo supply chain.

They act as organizer of the following supply chain processes:

 Export and import handling

 Customs clearing
 Air transport and delivery

(i). Elements considered by freight forwarding companies prior to shipment

As an appetizer to our lengthy discussion on freight forwarding, below is a list of some of

the elements a freight forwarder has to consider to ensure your shipment arrives to its
destination as you want it:

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  Gas Charges
 Distance
 Goods value
 Handling costs
 Package type
 Service type
 Tolls
 Transport chain
 Volume
 Weight

(ii). Transacting with the carrier

Airline carriers have a different process when accepting cargo for air freight. Most of which
are due to the additional security they need to perform to ensure you are not loading
dangerous goods into their craft.

It would be difficult to get your cargo land a space on the plane for customer on their own.
But it would be a stroke of luck if costumer gets their parcel on board the plane without a
freight forwarder – that’s how important a freight forwarding company is to the import and
export process.

(iii). Negotiating airline pricing

Air cargo is sold for a fixed price or a fixed rate per kilogram. The law of supply and
demand dictates that the higher the demand for air freight space results to a higher rate.
Thus the rise in freight rates during or whenever the holiday season is arriving, which
begins September and ends in December. These carriers know very well that demand for
air freight would heighten and they take it as a good opportunity to earn money. It’s not
every month that freight rate is at its peak. They do suffer from low freight demand. So it’s
just a give and take process.

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(iv). Booking your cargo

After the freight forwarding company settles the price for your cargo, they will now prepare
the airline booking for the shipment together with its confirmation.

This will ensure your space is reserved on their aircraft. This confirmation will contain the
following data:

 Assigned Airline (Master) Air Waybill number

 Origin and final destination
 Type of goods
 Flight date and number
 Issuing agent and its contact details
 Volume, weight and dimensions of shipment
 Eventual assignment to customer or agent’s allotment

This will be validated against the airline’s capacity, commodity and revenue management
criteria, and prior to confirmation to complete the booking process.

(v). Preparing the shipment

The official document between the forwarder and the airline carriers is referred to as the
Master Air Waybill (MAWB). This serves as:

 Communication of the applicable contract terms, conditions and liability to all

parties involved
 Proof of delivery (POD) of the goods to the carrier
 Provide handling instructions to all parties involved and basis for invoicing for both
the airline and the freight forwarding company
 Act as an insurance certificate (if applicable and indicated on the Airway bill) and
key for other related documents required at Customs

However, for the purpose of ensuring all the different customers of the freight forwarding
company is properly tracked, freight forwarding companies makes a House Air Waybill

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(HWB) for each shipment. This becomes the shipment contract between the end-customer
and the forwarder.

After this HWB is fixed, the freight forwarding company now coordinates the goods to
ensure it is ready for carriage (RFC) which includes:

 Correctly packing and labelling the cargo

 Customs clearing the goods for export (if required)
 Preparing the goods for import handling and clearance (if required) at destination

Once the goods are ready for carriage, the freight forwarding company will now order the
transport of the goods. Otherwise, it can be temporarily stored at the warehouse while
awaiting shipment.

(vi). Other processes a freight forwarding company has to consider

Other than these basic processes, other important processes a freight forwarding company
has to consider includes:

 Planning and controlling transport orders, airline slot-times, flows of goods, and
necessary documents
 Repairing or improvising to ensure the cargo arrives at its destination
 Maintaining a structured and standardized network of commercial and operational
agreements
 Handling claims on behalf of the customer (as applicable)

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Figure 4.3 Total procedure of Air Export

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CHAPTER-5
METHODOLOGY

&

ANALYSIS
5.1 Methodology

Objective – To identify destinations which have scope for consolidation of Air Exports in
Panalpina, Hyderabad.

Data is obtained from secondary source, i.e. Panalpina office

5.1.1. Steps followed to analyze the data

Step 1 - Collection of air export data to various destinations and charged weight.

Step 2 - Filtering the available data and elimination of incomplete data to get correct final
results.

Step 3 – Using Pivot tables in excel software to classify number of Air way bill issued to
each destination in a year, 1 airway bill represents one shipment.

Step 4 - Identify top destinations based on number of airway bills issued.

Step 5 - To find the charged weight of shipments and identifying month wise date.

Step 6 - Identify top destination based on charged weight.

Step 7 – For each destination identify most number of airway bills issued and based on that
identify the scope to consolidate freight to that destination for that particular time period.

5.1.2. Limitation of Analysis

 The scope of analyzing is limited to 1 year.

 Destinations having top five number of airway bills issued will only be able to
consider for consolidation of cargo.

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5.2 ANALYSIS

By analyzing the data given these are to top ten destinations for which cargo is being
exported.

 SZX - Shenzhen, China

 RGN - Yangon, Myanmar
 KIN – Kingston, Jamaica
 AMS - Amsterdam, Netherlands
 FRA - Frankfurt, Germany
 BUH - Bucharest, Romania
 MSQ - Minsk, Belarus
 MEX - Mexico City, Mexico
 VNO - Vilnius, Lithuania
 PHL – Philadelphia, Pennsylvania
Out of these top 10 destinations only 7 destinations have regular shipments enough for
consolidation. Remaining freight cannot be consolidated due to less number of shipments.

Table 5.1 – Top 10 destinations to which airway bills were issued

Count of AWB Number

Row Labels SZX RGN KIN AMS FRA BUH MSQ MEX VNO PHL
JANUARY - 10 1 - 3 - 5 - - -
FEBRUARY - 11 10 - 4 - 13 2 3 -
MARCH 10 10 7 - 3 - - 6 -
APRIL 11 3 2 - 1 - 1 - 7
MAY 5 4 4 - 3 - 1 2 - 6
JUNE 15 4 11 5 4 5 - 6 6 2
JULY 7 - 1 17 1 14 1 3 - -
AUGUST 6 11 6 1 - 1 - 3 - -
SEPTEMBER 14 17 9 - - - 1 2 1 -
OCTOBER 11 7 5 1 - 1 - - -
NOVEMBER 15 - 4 1 1 1 - 2 - -
DECEMBER 9 - 17 1 3 - - 2 2 -
Grand Total 103 77 77 26 23 22 22 22 18 15

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 Count of AWB for each destination
20

No. of AWB issued 15

10
5
0

Months
RGN SZX PHL BUH AMS BRU FRA KIN VNO TLV MSQ

Figure 5.1 – Count of AWB for each destination

From the above table no 5.1 and bar diagram (fig5.1) we can analyze the top destinations
to which airway bills were issued. By this we would be able to identify top destinations for
which there is scope for air cargo consolidation. SZX had most number of airway bills
issued even though there were no shipments in the months of January and February.

Table 5.2 - Volume of Charged weight to top 10 destinations

Charg. Weight
MONTHS SZX RGN KIN AMS FRA BUH MSQ MEX VNO PHL
JANUARY - 101442 310.5 - 9988 - 10616.5 - - -
FEBRUARY - 129426 6843 - 5283.5 - 4449.5 496 2160.5 -
MARCH 19716.5 79871 9103 - 11391 - - - 13958 -
APRIL 25660 8162 321 - 4004 - 4004 - - 29102
MAY 11715 23320 1550 - 3871 - 3608 1732 - 29160
JUNE 37918 14575 5365.5 19700 4504 19700 - 7313 4504 10826
JULY 17002 - 1269 41993 5896 41993 5896 1988 - -
AUGUST 16740 61252 6248 2800 - 2800 - 3542 - -
SEPTEMBER 31465 103485 9279 - - - 2992 647 8899 -
OCTOBER 28438 38478 1002.5 1800 - 1800 - - - -
NOVEMBER 37858 - 3862 76 0 2772 - 4398 - -
DECEMBER 24523 - 4744.5 143 8116 - - 3300 6604.5 -
Totals 251035.5 560011 49898 66512 53053.5 69065 31566 23416 36126 69088

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 Charg. weight for each destinations
140000

CHARGED WEIGHT
120000
100000
80000
60000
40000
20000
0

MONTHS
SZX RGN KIN AMS FRA BUH MSQ MEX VNO PHL

Figure 5.2 Charged weight for each destination

From the above table 5.2 and bar diagram (fig5.2) we can analyze the top destinations
based on the amount of charged weight. We can observe in the graph RGN has shipments
which had highest amount of charged weight.

SZX – Shenzhen, China

Highest number of air export shipments are form HYD to SZX in the year 2017 (See Table
5.1). Except in the month of January and February every month shipments were handled
to this destination. Total charged weight of 251035.5kgs of freight was forwarded to SZX
in a whole year. Highest number of shipments were in the month of June – 15 shipments
and total of 103 shipments whole year.

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 No. of AWB to SZX
16
14

No. of AWB Issued

12
10
8
6
4
2
0

Months

Figure 5.3 No of AWB to SZX

From fig 5.3 we can identify that the peak months for shipments of cargo from HYD to
SZX are in the months of March, April, June, September, October, and November. Total
charged weight shipments was amounted to 251035.5kgs which is second highest after
RGN.

There was scope for consolidation for shipments as the airway bills were issued to same
destination sometimes on the same day or within next day or two. So these kind of
shipments could be consolidated. There were shipments having 400kgs or more as
chargeable weight so consolidating other smaller shipments could gain more profit on
handling even small shipments.

As Panalpina is having a good warehousing facility at the airport it could be easy for doing
the consolidation process with proper coordination with the shipper.

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 Table 5.3 No of AWB & Charg weight to SZX

SZX
MONTHS No. of AWB Charg. Weight Shp. having same ETD
JANUARY 0 0 0
FEBRUARY 0 0 0
MARCH 10 19716.5 7
APRIL 11 25660 9
MAY 5 11715 3
JUNE 15 37918 11
JULY 7 17002 4
AUGUST 6 16740 5
SEPTEMBER 14 31465 12
OCTOBER 11 28438 9
NOVEMBER 15 37858 8
DECEMBER 9 24523 2
103 251035.5 70

By analyzing the data from table 5.3 we can find that out of 103 shipments 70 of them were
shipped from HYD on the same date to SZX, which means these shipments could have
been consolidated. The percentage of these is almost 65% - 70%. So with pre planning and
booking of space with airlines in advance the process of consolidation could be
implemented.

RGN - Yangon, Myanmar

This destination is having regular number of shipments which gives Panalpina a scope to
plan for consolidation shipments. Highest number of shipments were in September (17) of
a total of 77 shipments in 2017. The total charged weight accumulated to 560011kgs.

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 No. of AWB to RGN
18
16

No. of AWB Issued

14
12
10
8
6
4
2
0

Months

Figure 5.4 No of AWB to RGN

From fig 5.4 we can identify the peak months of the shipments of cargo to RGN, I found
that August, September had fairly high number of shipments based on number of airway
bills issued. We can observe from table 5.4 that from August to September this destination
had regular high volume shipments. In September 103485kgs was charged weight for 17
shipments, this gives scope for consolidation.

Table 5.4 No of AWB & Charg weight to RGN

RGN
MONTHS No. of AWB Charg. Weight Shp. having same ETD
JANUARY 10 101442 0
FEBRUARY 11 129426 0
MARCH 10 79871 0
APRIL 3 8162 0
MAY 4 23320 0
JUNE 4 14575 0
JULY 0 0 0
AUGUST 11 61252 6
SEPTEMBER 17 103485 8
OCTOBER 7 38478 4
NOVEMBER 0 0 0
DECEMBER 0 0 0
77 560011 18

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For this destination even though there are more number of shipments only in August,
September and February, cargo departed to RGN on same ETD which gives a scope for
consolidation of shipments. In all other months’ cargo was dispatched to RGN with
different ETD’s. From the analysis we can find out that the average amount of shipments
that could be consolidated is 20% - 25%.

KIN – Kingston, Jamaica

To this destination there is at least a single shipment from HYD to KIN. Which means
there are continuous shipments this destination. This gives Panalpina more reliability on
consolidation of cargo. Most number of airway bills were issued in the month of December
with a charged weight of 4744.5 and 17 airway bills were issued in December and a total
of 77 airway bills.

No of AWB to KIN
18
16
No of AWB ISuued

14
12
10
8
6
4
2
0

Months

Figure 5.5 No of AWB to KIN

From the above Figure 5.5 we can find out that in the interval of every three months there
is increase in the number of airway bills issued. Which means Panalpina could be able to

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plan for consolidation for every 3 months and advance booking of cargo space with the
carrier wouldn’t be a risk because there are continuous shipments for this destination.

Table 5.5 No of AWB & Charg weight to KIN

From the above table 5.5 we can find out that out of 77 total shipments 41 airway bills were
issued on the same date which means there was a scope for consolidation of those
shipments. 50% -55% of shipments had scope for consolidation.

Out of all destinations KIN has the best chance for consolidation as there are regular
shipments and during peak seasons there is scope for consolidation of more than 50%. So
for this locations Panalpina can book the cargo space in advance with the airlines and
consolidate the cargo.

These were the top 4 destinations for which there were regular shipments which gave a
scope for Panalpina to plan and consolidate cargo. The remaining destinations don’t have
regular shipments like the above destinations however in some months there is a chance
for consolidation. Some destinations like BUH, MSQ have 14-15 shipments in a single
month, which means only during those peak months Panalpina will be able to consolidate
cargo and rest of the shipments will have to be handled individually.

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AMS - Amsterdam, Netherlands - There were no shipments to AMS from HYD expect
in the month of June, July and one shipment each in August, October, November and
December. Out of 26 shipments in total 17 were in July alone. These 17 shipments account
to 65% of total shipments. By which we can say Panalpina has scope to consolidate cargo
during the month of July only.

FRA - Frankfurt, Germany - To this destination even though the shipments are regular
these cannot be consolidated because of low amount of shipments in a single month. In this
case Panalpina will have to just forward the shipments as they receive. Waiting to
consolidate cargo to this destination would result in incurring additional warehousing costs.

BUH - Bucharest, Romania – From HYD to BUH there were total of 22 shipments and
of which 14 of them were in July alone rest spread over the year. 14 of them were in July
were in July alone. So consolidation of cargo could be possible only in the month of July
only.

MSQ - Minsk, Belarus - There were a total of 22 shipments from HYD to MSQ and 13
of them were in February. This total shipments amount to 60% of total shipments. So to
this destination consolidation can be done only in the month of February

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 SUGGESTIONS

 These are the destinations to which consolidation is possible i.e. SZX, RGN, KIN,
AMS, FRA, BUH, MSQ for the whole year or most of the times only during the
peak months. However consolidation can be improved if there is good
communication between the shipper and the airlines.
 To top 3 destinations i.e. SZX, RGN, KIN there are continuous shipments
throughout the year in these cases advance booking of space with airlines will not
have risk of over paying for cargo space booked.
 To top destination having seasonal shipments Panalpina should coordinate with the
shipper in order to have clarity on the estimated amount of shipments that can be
handled in that month, so that it becomes easy to plan for consolidation of
shipments during the peak months.
 To destination having low number of shipments if possible they must be able to
acquire new customers to these destinations in order to make consolidation possible
to these destinations i.e. – MEX, VNO, PHL

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 REFERENCES

1.3PL

 https://en.wikipedia.org/wiki/Third-party_logistics
 http://cerasis.com/2014/02/07/third-party-logistics-services

2.Different types of cargo –

http://www.lot.com/pl/en/types-of-airfreight-lot-cargo

3.Cargo loading priority list –

https://www.shapiro.com/3-common-causes-for-air-cargo-split-shipments/

4.Air freight charges calculations –

http://www.beatmyfreightquote.com/quotes/air-freight-rates

5.Different types of ULD containers –

https://www.searates.com/reference/uld/

6.Air Freight rates –

https://www.airfreightbazaar.com/aircargotariff

7.Panalpina Facts

http://www.panalpina.com/www/global/en/home/AboutPanalpina/Key_Facts.html

8.Panalpina financial statements-

http://www.panalpina.com/www/global/en/home/investors/financial_presentation
s/interim_reports.html

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