While air freight has long been the traditional method for transporting pharmaceutical cargo, a growing number of companies are switching to transportation by sea. Syed Abuzer Qadri, research analyst at Beroe, addresses the potential cost benefits and analyses case studies of pharmaceutical organisations that have made successful transitions.
Conventionally, pharmaceutical organisations have made use of air freight and trucking for their transportation requirements; only around 5% of their volume is moved through ocean freight.
Air freight is the fastest way of transporting pharmaceutical products with minimal damage or product deterioration. However, it is also substantially more expensive than the alternatives. In recent times, technological developments in ocean freight have given companies an alternative to look for, and many pharmaceutical manufacturers have considered shifting part of their volume to ocean freight.
What’s in it for pharmaceutical shippers?
A best-in-class pharmaceutical company on average spends about 3% of its revenue on logistics requirements; rising to 6% for an average firm. However, part of the volume could be shifted to ocean freight on the routes that have developed in terms of supportive infrastructure and technology. The initial target for transition is in the range of 20% of the air freight volume.
Three years down the line, the transportation mode composition could be shown as depicted in the figure shown.
Pharmaceutical companies can consider initiating the option of ocean freight as an alternative for noncritical shipments, and gradually moving towards increasing the volume movements.
A buyer’s perspective: risk mitigation and rewards
A pharmaceutical manufacturer can consider the alternative of ocean transportation, provided that the programme is initiated in a controlled manner. The cost savings produced can offset the risks involved, and many carriers provide a service through which they ensure compliance with pharmaceutical regulations and requirements as well. They should, however, exercise caution with their temperature-monitoring and insurance practices.
Temperature monitoring
Manual monitoring is one of the most common methods adopted by carriers for temperature maintenance. There are specific time slots allotted for the check depending on the criticality of the products carried in the vessel.
On-board monitoring is an advanced approach adopted by a few carriers. Software applications such as REFCON are installed and connected to the central server on the ship, thereby updating the information at regular, specified intervals.
Remote monitoring is the most advanced technology available for the job, in which satellite systems are used for real-time data updating. Data is transferred to the onshore server, which in turn updates the information on the systems on board.
Insurance
Currently, most insurance practices involve an agreement based on the weight of the shipment rather than the value. However, this engagement exposes the manufacturer to higher risk because the volume of high-value pharmaceutical shipments is very low. Manufacturers therefore wish to insure the shipments on value-based contracts, but most of the insurance companies are reluctant to take the responsibility as the liability at stake is too high.
To address this issue, one solution would be to engage a triparty arrangement whereby the products are insured and the liability is shared by the manufacturer, carrier and insurance company. This would not leave any one party with the full burden of bearing the loss.
Secondly, another solution that a leading pharmaceutical manufacturer practices to address the insurance issue is to ship the goods at their manufacturing value rather than the final price with the margin added. By this method, the value of the goods reduces significantly, enabling a direct arrangement with the insurance company itself.
Implementing the transition
Leading global pharmaceutical manufacturers have shifted their noncritical shipments to ocean. Previously, ocean carriers lacked the dynamic track-and-trace technology, which allows shippers to continually monitor shipments and their conditions.
These barriers have been overcome with the advent of applications such as ARTIQCOOL and REFCON. These are used by leading ocean carriers for real-time data exchange, achieving a high level of maintenance with minimal or no product loss. The manufacturers in question have followed the following road map for the transition:
- step 1: the products with longer validity or expiry duration can be considered for the transition
- step 2: origin and destination regions should have well-developed infrastructural facilities supporting refrigerated containers
- step 3: the chosen trade lanes should have well-connected ocean container lines offering cold chain services.
Which sea route to use?
There are major active regions and trade routes for the pharmaceutical shipments. The emerging markets are expected to join the pharmaceutical shipments by 2015.
The reefer capacity available in the market usable by pharmaceutical shipments with the major carriers on the above mentioned trade is sufficient to cater to the requirements.
With major carriers adding about 1,700 reefer containers in early 2012, other carriers too are now adding capacity on major trade lanes. In addition to the liners, major freight forwarders are increasing their service portfolio with priority deliveries tailored for pharmaceutical shipments.