Cold Chain: Mitigating risk in a topsy-turvy world
Biomed, pharmaceuticals, and food lead the list of high-value commodities moving through complex modal networks to both new and well-established markets. But emerging markets are where shippers are seeking the biggest margins—and facing the largest hurdles.
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Operational excellence to expedite delivery of “cool” cargoes has been embraced by carriers, shippers, and intermediaries alike as they concentrate their efforts to capture market share in the topsy-turvy world of temperature-controlled transportation.
Nils Markman, global director of operations for World Courier, a London-based research firm specializing in biomed logistics, notes that the rise of targeted therapies and the globalization of specialty pharmaceutical commercialization present a host of opportunities for manufacturers.
“The foundational premise is clear,” says Markman. “More commercial and clinical trial drugs are being shipped to more patients in more countries than ever before—all while healthcare is becoming more innovative and more accessible at the same time.”
With these opportunities, however, come great challenges. The increase of global clinical trials for high-value cold chain products means that the stakes—and the costs—for each trial have risen dramatically. The distribution of specialty medications to emerging markets means that the total supply chain must be evaluated more stringently.
Today, the industry operates in an environment where there is no “acceptable loss” of product or samples.
And as a result, global manufacturers must constantly evaluate the advances in technology, processes, and resources that keep cold chain products safe. “They must remain vigilant over the growing and diverse risks in the supply chain and understand the need for increased expertise from their partners,” says Markman. “They must now stay focused on continuous improvement across all parts of their supply chain to ensure that drugs are delivered safely and effectively, while risks are mitigated appropriately.”
Risk must be addressed
Variations in temperature can partially or wholly void a shipment and lead to millions of dollars in lost sales for the company, say analysts at Deloitte Consulting. Furthermore, it’s not uncommon for companies to add multiple linkages to a global supply chain with little thought to the complexity and risk associated with its extension.
“Many companies realize flaws in their cold chain only after it has reached a level of complexity that’s difficult to simplify,” observes Adam Windnagel, a business analyst with Deloitte in London. He adds that talent, market costs, and local market access often drive corporate deployment decisions. “However, as companies grow the ‘interlinkages’ of the cold supply chain are not always given full consideration.”
Windnagel says that growth of activities such as bulk, fill/finish, packaging and distribution add complexity across the network. And given the potential and significant risk to both patient health and fiscal impacts, companies should consider the implications of a location’s access to cold chain infrastructure.
Deloitte analysts note that each company’s business model, global market, and operations infrastructure vary.
However, when evaluating cold chain as a factor in site selection decisions, they advise global logistics managers to consider the following questions:
How many product movements are necessary?
Can co-location of operations such as bulk, fill/finish, and packaging reduce number of product movements?
Do the operations have proximate access to transportation facilities with cold chain capabilities?
Can the location meet proximate access and global access needs with cold storage capabilities that meet your product needs?
Is the location of the operation able to readily access growth markets?
- Does the location and its place within the network allow for flexible growth?
“Companies that invest adequate time to understand and answer these questions in advance can often avoid long-term supply chain problems,” says Raj Vohra, a senior manager at Deloitte. “The capital investments in operations along the bio-pharmaceutical network are significant, and it’s often difficult, expensive, and time consuming to unwind a complex supply chain.”
As a consequence, say analysts, it only benefits companies to strategically factor in considerations for near- and long-term plans along with other relevant operation drivers such as talent, tax, and costs when making site selection decisions for operations throughout their value chain.
To overcome many of these challenges, global logistics managers continue to rely on guidelines created by The International Air Transport Association (IATA). This massive Geneva-based sanctioning body recently welcomed the decision of Brussels Airport to become the first European hub for pharmaceutical freight using IATA’s global certification program for shipping cold-chain pharmaceuticals.
Called the IATA Center of Excellence for Independent Validators (CEIV Pharma), the program conducts training and on-site assessments to provide the expertise needed to transport cold chain pharmaceutical products across the world. “The CEIV Pharma program provides shippers with the tools to ensure that they are operating to the highest standards,” says Tony Tyler, IATA Director General and CEO. “It will give pharmaceutical companies confidence and assurance that their cold chain logistics requirements are being met through an independent certification process.”
Brussels Airport is inviting a group of 10 local stakeholders—ground handlers, freight forwarders, truckers, and airlines—to undergo the CEIV Pharma training, bringing the cargo community together for the common goal of becoming certified. Because the program goes beyond the Good Distribution Practices (GDP) covering air transport requirements, it’s particularly attractive to logistics managers who value the extra confidence this certification brings.
“The pharmaceutical industry has relied heavily on the airline industry for its speed and efficiency in transporting high-value, time-, and temperature-sensitive cargo,” notes Tyler. “However, until this year, there were no global certification standards that could be internationally recognized and implemented.”
The global pharmaceutical industry will spend $8.36 billion on cold chain logistics in 2015 and is expected to expand to more than $10 billion by 2018. Meanwhile, multinationals are developing more complex “biological” based medicines—as opposed to chemical-based medicines—including hormone treatments, vaccines, and complex proteins that require ever more cold chain refinements.
“Brussels Airport is aiming to strengthen its position as a leading gateway for the handling and transportation of pharmaceutical freight in Europe,” says Steven Polmans, head of cargo at Brussels Airport.
Along with certification, leading cargo airports in the U.S. are seeing more investment in cold chain infrastructure. Philadelphia’s International Airport, for example, recently welcomed the opening of a $5 million, 25,000-square foot temperature-controlled warehouse facility operated by American Airlines Group Inc.’s cargo division. According to Thomas Grubb, manager of cold chain cargo for American Airlines, this is the first of its kind built by a commercial air cargo company. The facility can store medicines and medical devices at consistent temperatures.
“We are seeing an increased demand to obtain such medications and increasing complexity of the products themselves,” says Grubb. “And given our proximity to drug makers located on the eastern seaboard, major pharma companies ship from here to emerging markets in South America and Africa.”
Deutsche Post, DHL Group and FedEx have also been ramping up development of cold chain facilities domestically. Shippers using these services include Teva Pharmaceutical Industries, Pfizer, Merck, and GlaxoSmithKline.
Lynden International Logistics has an equally impressive client base in North America and has recently announced its expansion in the Greater Toronto Area (GTA) with the opening of a second location in Milton, Ontario. “The new 65,000-square-foot facility expands our capacity in the GTA and adds to our network of locations in Canada which includes Toronto, Calgary and Vancouver,” says Kevin Gillies, vice president and general manager at Lynden.
The farm-to-fork movement has also added extra pressure to cold chain demands in food services, says Bob Biesterfeld, vice president of North American truckload for C.H. Robinson. “Customers in northern regions are coming to expect the availability of fresh tropical fruit all year long,” he says. “As the world shrinks, so too does our idea of seasonal produce and regional products.”
Biesterfeld recalls that in 1980 only 33 percent of perishable goods were shipped in refrigerated containers—a number that jumped to 90 percent by 2010 and remains there today. “Temperature controlled products can now withstand longer transit times without spoiling, and consumers around the world can experience exotic foods and goods without leaving their local grocery store.
Pier-Luigi Sigismondi, chief supply chain officer at Unilever, is the author of Enabling Trade From Farm to Fork, a recent report commissioned by the World Economic Forum. His global take on the issue is somewhat more circumspect. “Transport costs are the most important challenge cited by developing country suppliers in connecting to global value,” he says.
According to Sigismondi, initiatives to improve underlying infrastructure are typically government-led, but private-sector involvement is critical in ensuring efficient allocation of resources along key transport corridors. “Regulations affecting transport services should be designed to help enable competition, scale, and standardization,” he says.
“Development of technologies to facilitate efficient movement and storage of crops is also important, and must be tailored to the constraints of specific value chains.”
Sigismondi says that private ownership can help to overcome the challenges of mobilizing capital for investment in these improved technologies and logistical arrangements. “But logistics managers already have access to the private sector tools and services to achieve most of their distribution strategies,” he adds. “New technologies are accelerating the global cold chain trend.”
About the AuthorPatrick Burnson, Executive Editor Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]
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