AN oversupply of capacity in India's airfreight market is raising concerns that trouble is fast looming in the sector unless there is an explosion in retail demand to meet the rising supply of cargo space.

Meanwhile, industry experts fear that the current situation of overcapacity will place pressure on yields and prompt air freight carriers to try to push up volumes by scaling up operations in a bid to protect operating margins, reported India's Daily News & Analysis newspaper.

This, it said, explains the lacklustre response from the industry in the wake of Civil Aviation Minister Praful Patel's recent announcement that overseas investors may soon be allowed to purchase up to a 74 per cent stake in an Indian cargo airline, up from the present 49 per cent.

Some market watchers maintain that airfreight supply currently outstrips demand by 30 per cent. The problem stems from a large number of passenger aircraft recently entering the domestic market and foreign carriers increasing frequency to India, resulting in much greater cargo space in the bellyholds of aircraft.

"The government has estimated that the current 200-plus aircraft fleet strength of passenger airlines will grow to 600-800 in the next five years. All this adds enough capacity. Today, dedicated freighter operators like Lufthansa Cargo and others carry only 20 per cent of the total cargo; the remaining 80 per cent is shipped by passenger airlines," said UTi India managing director Rajiv Bhatnagar.

On the other hand, the entrance of overseas retail giants such as Wal-Mart, alongside the major domestic names, are expected to raise demand in the India market for air freight services and absorb some of the additional capacity in future. Experts also anticipate that the there will be a shift in demand away from land and sea transport to air.

The Airports Authority of India said that the four metro airports of Mumbai, New Delhi, Chennai and Calcutta handled 762,387 tonnes of international cargo in 2005, an increase of 10.79 per cent from the year before.