Precious Cargo: Opportunities & Obstacles for Pharmaceutical Logistics
Pharma Logistics Today: A Brief Overview
In 2013, a top pharmaceutical retailer in the US decided to donate 375,000 doses of flu vaccine to the Laos People's Democratic Republic in light of a particularly serious flu season in the region.
The safe transportation of the vaccines from a US production facility to consumption in Laos presented several challenges, most important among them ensuring the integrity of the vaccine. This vaccine was travelling over 9,000 miles crossing 5 different countries, handled by multiple parties – production, packing, trucking, airline, forwarder, airport, seaport, rail, importer, exporter, wholesaler, retailer, pharmacists before reaching the patients.
Situations like these are common today where vaccines and preventive health care solutions are increasingly used in developing as well as developed countries. As a result, the key issue in pharmaceutical logistics today is about the safe and secure transportation of pharmaceuticals from production to consumption, all the while ensuring that integrity of the product is not compromised.
The Business Opportunity: Pharma Logistics by Air Freight
IATA estimated the value of global pharmaceuticals logistics market at USD 64 Billion in 2014. A significant portion of this value is shipment of temperature sensitive medicines as air freight that requires the shipment to be kept in a particular temperature range (+2 to +8 degrees Celsius) to ensure product integrity. Most of these products are biological in nature, which is where the time-critical advantage of airfreight becomes a gain for airlines.
From a healthcare industry perspective, the patent protection for some of the industry's most lucrative drugs will expire soon. This could possibly trigger a next wave of requirements for airfreight as these drugs will become cheaper to produce, triggering an increase in demand. Suppliers and distributors might employ different stocking and replenishing strategies that would challenge airfreight. Manufacturers are also becoming innovative in cutting costs and are experimenting with ways of presenting and packaging medicines. Instead of shipping large dosages in single package, manufacturers are experimenting with smaller dosages in lesser numbers for achieving lesser unit costs without compromising integrity.
According to WorldACD, the Amsterdam based cargo market data specialist, pharmaceuticals showed 9% year over-year growth in 2013. The data show that pharma's USD-yield was on average 49% higher than the general cargo yield. Europe generated 60% of the total and became the largest outbound market. South Asia and North America occupied second and third positions. It must also be noted that three of the largest pharma exporting countries are Germany, USA and India according to WorldACD data.
The most interesting characteristic of pharmaceuticals for airlines has been solid growth in volume coupled with stable yields, a combination that is quite rare in the airfreight business. The high value, price-inelastic pharmaceutical commodity business presents excellent and promising opportunities for the airline industry.
In the next piece of our series on pharmaceutical logistics, we'll explore some of the challenges that might face companies trying to take advantage of the need for effective transportation of vital drugs. More importantly, we'll show how the airline and IT industries can unite around cutting edge cargo software to fully take advantage of this key growth area.