Some modal shift may be inevitable, but a renewed commitment to quality can keep high-value pharma cargo flying
No matter how cool we keep the supply chain, how fast we fly or how low fuel prices go, in this cost-conscious economy, there is no competing with one of the oldest and slowest forms of transport: seafreight.
Indeed, while demand for temperature-sensitive shipping is rising and airports build larger cool-chain terminals, airfreight’s share of the lucrative pharmaceutical market has shrunk from 17 percent in 2000 to just 11 percent in 2013, according to a 2014 report by research firm the Seabury Group.
Let’s face it – modal shift is already upon us for transporting pharmaceuticals. This has caused alarm among some cargo carriers that have counted on gaining market share in this US$64 billion business. But with a little understanding, cooperation and agreed-upon standards among the various players in the cool chain, the airfreight world can learn from this inevitable economic reality and retain the pharmaceuticals that they still carry, which just happen to be the highest-value ones.
The signs of the modal shift are everywhere. In 2014, Lufthansa Cargo shipped in excess of 65,000 tonnes of pharmaceutical products, or about 8 percent of its annual carry. “In past years we had steady double-digit growth figures in tonnages,” said Christopher Dehio, head of product and solutions management, temperature control, at Lufthansa Cargo. “However, in the last two years, growth was not quite as strong as in the years before.”
Julian Wann, global category leader, logistics, at Big Pharma firm Astra-Zeneca, said that about 55 percent of its global primary volume (20 million kg) is shipped by air and 45 percent by ocean. Four years ago, nine out of every ten of his pharma products were sent by air. “A major factor for this change has been the environmental benefits of using ocean routes, as there are 90 percent less emissions on the water and the slow steaming increases this,” he said.
According to some experts, this shift may have as much to do with the pharma industry as it does the airfreight business. “Over the past five years our air shipment count of pharmaceutical products has risen, but average weights per shipment have been declining,” said Phil Abbate, global vice president, pharmaceutical and healthcare, for logistics firm UTi Worldwide Inc. “We attribute this shift to an increasing number of mature products that are being converted to ocean.”
With more generic drugs hitting the market and some patents expiring on blockbuster medications, Big Pharma has less of a profit margin today. “This has led to an influx of procurement-driven purchases,” Abbate said. “That, plus a bad economy, has driven companies to cut costs. And what’s the first place you look when you’re cutting costs? Move it on the ocean. One customer used to ship five to six ULDs a week – now it’s all going by sea.”
At the same time, the demand for cool-chain handling is growing. “Look at the therapies coming out today,” Abbate said. “It used to be they were shipping simple molecules, but now they’ve turned into complex biologics, all of which need even more temperature control.”
More than just price
With airfreight rates sometimes as much as 78 percent higher than seafreight rates per kilogram, cost is an obvious driver of modal shift. However, poor service, questionable cargo integrity and supply-chain transparency have become serious problems.
“The airfreight service is reliable, but not the time- and temperature-sensitive services offered by the forwarders, handling agents, airport and airlines,” said Steef van Amersfoort, chairman of the Dutch Airfreight Shippers Council. “To ensure time- and temperature-sensitive services for your shipments, you need to know how and where your shipments are handled, including the priority given. We cannot rely on ‘Don’t worry, we take good care of your shipments’ services.”
Of all AstraZeneca shipments that were made last year across all modes, Wann said 80 percent of all reports of mishandled products, or “excursions,” originated from the airfreight sector; about 18 percent of the excursions came from road transport and just 1 percent came from ocean vessels.
“We do a lot of prediction analysis on [excursions], and, nine times out of ten, it’s because it’s been sitting out on the cookie sheet in the hot sun,” Abbate said. In most cases, he added, the temperature spikes could be avoided with special handling, such as added thermal tarps to insulate the containers, or ensuring that the pharma containers are loaded on aircraft first so they don’t wait as long on the tarmac. “But people don’t want to pay for special handling.”
Despite the well-known risk of tarmac exposure, “even the most pharmaceutical-friendly of airlines will only tentatively commit to exposure under two hours,” he said. “No equipment or technology has been introduced to mitigate or reduce this constraint. So far the expectation is that the shipper will bear the additional cost of packaging.”
In recent years, many airports, ground handlers and cargo carriers have created high-tech cold chain storage facilities, such as Amsterdam’s Schiphol Cargo, the Lufthansa Cargo Cool Chain Center in Frankfurt, LuxairCargo’s Healthcare and Pharmaceuticals Center in Luxembourg and IAG Cargo’s network of Constant Climate Centers.
But even these facilities aren’t immune to excursions. Abbate described one case of a temperature-controlled Envirotainer that had been stored in a cool chain facility, yet still suffered an excursion. “When the shipper asked why, the ground handlers said, ‘Well. There weren’t any free outlets we could plug it into.’”
What Big Pharma wants
From the perspective of the pharma companies, airfreight is just one of an array of options that can be tailored to their various needs and product lines.
Simon White, Pfizer’s regional leader, quality operations, for Europe, the Middle East and Africa, said the company currently ships about 20 percent of its pharmaceutical products by air, and the rest by a mix of the other options. “We’re working to reduce the amount shipped by air because we can better control the quality with other modes,” he said. “With air transport there is a lot of variability in our ability to assess the quality of the service and to control handling, especially ground handling in certain destinations, such as the Middle East and countries where the government controls airports.”
As a result, Pfizer mostly uses air transport for higher-value biological and vaccine products, and when the speed of air transport can help meet an urgent need, or to avoid a stock-out situation, White said.
Only about 10 percent of AstraZeneca’s products are shipped via the cold chain, “but our 2014 acquisition of Bristol-Myers Squibb’s interests in the companies’ diabetes alliance is expected to increase that to around 20 percent,” Wann said. “The number of touch points and the different parties involved are a key element in the problems that the airfreight industry is experiencing. However, we have invested a lot of time and effort into making improvements with our airfreight partners and in 2014 we saw a reduction in delays and issues.”
Wann also suggests that carriers may not know the full extent of the integrity problem. “If there is an excursion in the temperature range on arrival at the destination, the delay may not be seen by the airline industry and the excursion will have to be investigated by the pharma company themselves. This does not necessarily result in a claim, but it’s clear that the airlines are not always able to see the whole extent of the issue.”
Reducing door-to-door transit time is often emphasized as a goal by carriers, but pharma companies say they are willing to give up a few days in exchange for safer handling. Wann said the standard six-day door-to-door shipment time would be “more than acceptable” for most shipments, provided the airlines demonstrate a consistently higher level of service with less variability.
Some of UTi’s pharmaceutical clients prefer to truck their shipments to an air hub with superior handling capability, “even if it means adding a transit day,” Abbate said. “For years a common practice for exporters of vaccines is to coordinate the release of shipments in order to avoid arrivals over the weekend, when there is a higher incidence of mishandling.”
For pharma shipments, Lufthansa Cargo’s Dehio said that “rather safe than fast” is the best policy. While airlines are good at speed, they can do little about factors such as complex customs documentation, clearance procedures and punctual pick-up – “issues that equally apply to sea and air freight,” he added.
Dehio said Big Pharma should be more involved in discussions with airport authorities who decide on infrastructure investments on airport premises. “To my knowledge, such discussions have already been taken up with sea ports but in air transportation such discussions seem generally to be left to the airlines with little or no influence. In some parts of the world Lufthansa has successfully engaged in such discussions. In others the efforts are futile, and you can imagine how difficult it is for a European carrier to exercise any degree of influence in some countries.”
Always a place at the table
While the reliability of seafreight may give ocean vessels a greater share of the cool chain pharma market, there will likely always be a place for airfreight for shipment of the most time- and temperature-sensitive products, such as vaccines and other complex biologics. There are also areas where the concentration of global pharmaceutical companies can produce enough volume to make sense for regular airfreight routes.
For instance, just last month Qatar Airways Cargo announced the launch of its “Pharma Express” – twice-weekly A330F service connecting Doha, Brussels and Basel. The freighter service ties in Qatar Airways’ extensive global network with the pharmaceutical nerve center of Europe, providing easy access to 146 life science companies in Belgium and the booming Swiss pharma and chemical industries.
Sebastiaan Scholte, chairman of the Cool Chain Association and CEO of Netherlands-based Jan de Rijk Logisitcs, said at least 70 percent of cool chain pharma shipments are between the U.S. and Europe, but he expects to see the fastest growth in China, India and the emerging economies of the world.
“These pharmaceuticals are being used all year round,” Schulte said. “We’re all getting older and the population is growing – it’s not like there’s a Christmas holiday peak. Growth by seafreight will also happen – we will continue to see some modal shift – but some pharma will definitely continue by air.”
Lufthansa’s Dehio predicts that the airfreight cool chain will become a more competitive business as more and more carriers join in. “I believe that there will always be a significant airfreight volume in all those cases where speed is of the essence and the values are so high that the necessary large seafreight volumes can no longer be insured,” he said. “All airplanes fly at the same speed, and have essentially the same technical status in air-conditioning. Therefore the distinguishing factor between competitors will be the capabilities and experience that can be displayed while the shipment is being handled on the ground.”
As more cool-chain products will be shipped in smaller quantities, air carriers will have to focus even harder on quality, Wann said. “I believe the pharma industry will continue to buy the right service, but as we become more evolved in the logistics capabilities, there will be challenges to airfreight being a value-added service.”
“Basically pharmaceutical companies need ‘pharma-grade’ service from the air carriers, forwarders and handling agents,” said Pfizer’s White. “We need to be sure that these valuable – in many cases life-saving products – have the high priority they deserve.”