There is no disputing the substantial growth of high-yield pharmaceutical traffic, but as more and more players join the bandwagon, are pharma shippers getting all they bargained for? Donald Urquhart writes.
With an estimated $12 billion currently being spent on cold chain biopharma logistics, the International Air Transport Association (IATA) forecasts this figure will rise to a substantial USD16.7 billion by 2020.
And as this demand grows, more and more of it moves through specialist services rather than as general cargo.
But while this market is an attractive proposition for air cargo players it is a challenging vertical.
That there have been a rapidly growing number of pharma handling certifications speaks not only to the increasing traffic and the sharply rising shipper expectations, but indeed the recognition from the air cargo supply chain of the need to up its game.
Currently there are two main certification routes: The European Union’s Good Distribution Practices (GDP) and the more recent International Air Transport Association (IATA) Center of Excellence for Independent Validators in Pharmaceutical Logistics (CEIV Pharma) certification.
“There is a steady move towards IATA CEIV Pharma accreditation as the accepted standard required by carriers,” says Hong Kong Air Cargo Terminal Ltd (Hactl) chief executive Mark Whitehead.
“This is why Hactl was keen to join and support the Airport Authority’s initiative to establish Hong Kong as a CEIV Pharma hub. Success in pharma requires a single universal standard, and CEIV is the best prospect of achieving it,” Whitehead continues.
Indeed Hactl has been an early mover in this area, being the first handler in Hong Kong to achieve WHO GDP accreditation in 2014, and one of the first worldwide.
“And having over-specified for GDP – we then found it relatively simple to become Hong Kong’s first CEIV Pharma-accredited handler,” he adds.
For now, pharma is fairly consolidated to a few origins – in Europe that means just four countries represent 57 per cent of the total origin markets.
“There has been a certain amount of consolidation in global product manufacturing and guidelines from international and national regulatory authorities have driven this change, says Emirates SkyCargo manager of global cargo accounts, Julian Sutch.
Two huge markets that drive a lot of business are India and Israel, in addition to the obvious pharmaceutical companies in the US and Europe notes Strategic Aviation Solutions president, CEO and co-founder, Stan Wraight.
“These countries have a tremendous need for a direct airline, shipper relationship where total logistics chains are discussed and agreed as to quality standards and KPI’s,” he says.
While Europe has been a major source of pharmaceutical exports, Singapore Airlines Cargo (SIA) senior manager of key accounts of verticals, Adrian Goh notes the volume continues to grow and that brings new opportunities.
“The expectations for additional value-added services have also increased with this growth,” Goh says adding that Asia-Pacific volumes are also growing.
Demand into and out of Mainland China and Taiwan has seen pickup for Cathay Pacific, while Emirates SkyCargo has seen a strong increase in customer demand for transporting temperature sensitive pharmaceuticals to India, China and African markets.
And Finnair Cargo has seen growth in its key Nordic and central Asia regions.
In general, says Lufthansa Cargo senior product manager for temperature sensitive logistics, Chris Dehio markets where generic pharmaceuticals are produced generally have a stronger growth, such as India and China, than countries that produce original pharmaceuticals.
“As patents run out and blockbuster medication become more rare the pharmaceutical industry is developing in countries with low labour costs,” he says.
Pharma logistics challenges
The growth market of pharma transport also makes it easy prey for other modes, something that is made even more vulnerable by elements of the air cargo sector that is not fully prepared.
The biggest hurdle to a quality air cargo product for pharma is the disjointed relationship between airlines and ground handling agents (GHA), highlights Wraight.
“GHA’s must be treated as strategic partners in the value proposition,” he says.
For GHA’s to invest, they need commitment and a proper return on investment for ramp and warehouse processes and equipment.
“If you think they should handle specialties for the same price as consolidations, you miss the mark.”
AirBridgeCargo (ABC) Airlines deputy general director for pharma, Fedor Novikov echoes this, saying: “Long-term partnerships between different stakeholders still remain the cornerstone of the story to success.”
And indeed as Whitehead notes: “If an airline wants a substantial share, they need to actually talk to the shippers, and work together in each trade corridor to meet expectations and requirements for a safe and efficient product.”
Cathay Pacific manager for cargo customer solutions & airline partnerships, Clifford Kwok also highlights the gap on the ground, where there is “limited infrastructure in terms of both ramp protection and cool facilities offered by ground handlers at many airports.”
From a ground handler’s point of view, Whitehead agrees the biggest obstacle to further progress is the lack of adequate pharma handling provision – including certification – at many airports worldwide and the continuing slow progress of integrated supply chain information flows.
“Pharma manufacturers produce high-value goods which are prime targets for theft or forgery, and some of which become useless if they suffer temperature excursions. They quite rightly demand the necessary end-to-end controls, monitoring, security and (in the case of temperature-sensitive product) maintenance of consistent temperatures,” says Whitehead.
“The more forward-thinking carriers, handlers, RFS operators and forwarders have been putting the required infrastructure and procedures in place, and evidencing this with accreditations, but this is not happening on the global scene,” he cautions.
But the realisation of the importance of closing these gaps is slowly spreading in the industry according to Wraight who says, “solutions are being provided now especially in bio medicals by global carriers that recognise that its not what happens in the air that makes the difference, its what happens on the ramp and warehouses.”
The ocean threat
But this is taking time and in the meantime “there is a lot moving by sea that is simply there due to very bad experiences by air. The funds tied up in medicals by sea (other than generic drugs) very often justifies air. But, when the product arrives in bad or poor condition, any advantages on delivery time are irrelevant,” Wraight adds.
While noting that ocean and other forms of transport have some advantages from a cost perspective United Cargo president, Jan Krems says from their perspective their customers are looking to benefit from “greater speed, safety, security and control that air freight provides for their very sensitive commodities.”
“Beginning in 2015, through 2016 and into this year, United Cargo has become and remains the clear leader among US belly cargo carriers in volumes and revenues,” Krems says.
“We have experienced exceptional growth in our TempControl product, and we continue to win awards for the quality of our service for pharmaceuticals and other temperature-sensitive commodities,” he said.
“Airfreight is a premium-priced transport option, so we must understand and accept that its role has always been to help open up new markets for new commodities and products, and then inevitably certain volumes will transfer to other transport modes as supply chains mature and transport savings are sought,” adds Whitehead.
“Pharma volumes are growing strongly, and therefore so are airfreighted volumes; but there is some evidence that our market share has reduced slightly in the process.”
In a similar vein ABC’s Novikov says with the increasing number of new, innovative service providers, shippers are still mainly looking for “the most reliable and stable partners which can demonstrate that written procedures work and are being applied in real life, and that they don’t only exist on paper.”
He adds: “Transparency in transportation at all stages, as well as traceability are probably the most important pain points for the whole pharma supply chain, apart from, of course, execution of an unbroken temperature control logistics chain.”
“We have developed and are currently testing a new online traceability system that will help our customers to get all the information on their cargo movement at any stage of the transportation.”
In agreement that much of the industry is working in the right direction Wraight says that those who suggest the slippage in market share to ocean is through airfreight’s reluctance to satisfy shipper demands for visibility and control are providing a distorted view.
“The reality is that airfreight is moving in the right direction, albeit perhaps not fast enough. Meanwhile, it should not be ignored that ocean has its own considerable service challenges to overcome: Slow-steaming, deliberate reduction in capacity, increasing container rates, and port congestion.”
“Nor is ocean freight ideal for every circumstance: Higher-value pharma moves in smaller bulk, often struggling to fill ocean containers; this means less frequent shipments and slower supply chains, or reliance on LCL services that cannot provide the highest security,” he says.
“Air Carriers generally have a good solution for every type of requirement,” says Dehio.
“However the question is always what balance can you meet between the level of protection and what it costs,” he says.
But key to this is accurate and timely information on temperature. “Increasingly, customers are become more exacting in their requirements for processes to ensure product integrity. They are also seeking easier and timelier access to shipment data, such as real-time temperature readings throughout the transportation process,” says SIA’s Goh.
But this is an area Dehio thinks, that many carriers “still have room for improvement” noting that in some cases shipments could be exposed to ambient conditions for three hours and the next day for 10 hours and that is unacceptable.
But he adds that generally speaking there is an increasing drive amongst the health care industry to close gaps in temperature controlled, cool chain logistics.
But this requires immediate and reliable access to information such as position, temperature and other transportation parameters.
This requires temperature monitoring throughout the entire transport chain and this is the next step in the industry says Finnair Cargo’s managing director, Janne Tarvainen.
Finnair Cargo has been ramping up its pharma capability over the years and was in fact the first airline in the world to be certified under the IATA CEIV Pharma programme.
Included in this was a new cargo management system, SkyChain, back in December 2016 to improve shipment related data quality.
And once its brand new terminal, the COOL Nordic Cargo Hub at Helsinki Airport opens, SkyChain will be connected to the warehouse automation systems of the new 3,000 sqm state-of-the-art terminal.
“The integration of these systems will provide us with a whole new ecosystem that will enable proactive planning and steering of cargo flows and our resources.”
“In addition the new warehouse automation and the cargo management system will provide improved reporting capabilities in response to customers’ expectations of supply chain transparency,” Tarvainen says.
The trouble with temperature
Temperature data is a crucial tool, but it is not an easy proposition, nor is it cheap if you are supporting a very large global network.
Dehio says: “Even though many pharmaceutical companies don’t require the data themselves and avoid to build up infrastructure and resources to monitor the data, these companies will want to be convinced that the carrier and / or agent has access to this information – preferably in real time.”
He adds that Lufthansa’s Cool/td product is in continuous improvement and while it is already highly developed after being in the market for 10 years, the carrier is aiming to take it a step higher in dealing with some of the “more difficult issues to implement”.
One of which is the provisioning of temperature data in real time while another is to dramatically increase the level of protection during tarmac transportation.
But Dehio notes, “these are complex projects with a high level of required investments.”
“Generally the acquisition, processing and publishing of real time data is one of the more challenging issues as its involves many technical, commercial and legal aspects that cry to be solved,” he says.
In a global network of 300+ stations, infrastructure then becomes an issue.
“We are investing in developing this infrastructure but at some destinations it’s not possible, at others it boils down to commercial considerations.”
At the end of the day any investments need to be recovered.
“In an environment of declining yields a sharp pencil needs to be put to exactly where investments are call for and where they make no commercial sense.”