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Pharmaceutical Manufacturing and Packing Sourcer

Up in the Air

As we venture into 2016, what are the biggest challenges and opportunities facing the pharma air freight sector?

The job of moving pharmaceutical products and ingredients around the world is big business. It has been estimated that around 6% of the gross revenues of the global pharma industry is spent on logistics, a sum that equates to something over €50 billion annually. For pharmaceutical and biopharmaceutical products, air freight is a particularly important mode of transport, and together with other perishables, accounts for about 15% of the total merchandise sent by air. This makes it the biggest and fastest-growing part of the air cargo business.

Although hit by the global recession in 2008, air freight is showing strong recovery in terms of market share as lower fuel prices start to bite and trading levels return to normality. Air freight is now expected to continue its growth trajectory and triple in size over the next 20 years or so.

Times of Change

But it is not going to be a painless ride. Transporting pharmaceutical products has never been a cheap or easy process, and the logistics industry has had to up its game significantly in recent years to meet the increasing demands of clients that, almost literally, have patients’ lives in their hands. Pharmaceuticals and biologics are expensive to produce and often very delicate to move. They can be sensitive to heat, cold, light, mishandling, and, ultimately, must be delivered to patients without loss of therapeutic properties.

And the challenges for air freight do not stop there. There are many drivers of change in the pharma cargo field, some of these stemming from the market and others from within the industry. Volatile fuel costs, low freight load factors and environmental demands are just some of the issues that are creating challenges and shaping opportunities for the air freight sector. Other transformational forces that are currently at work include:

Rise of Biologics
Biopharma companies now account for around 20% of the total global pharma market and show a compound annual growth rate of 8%. These large molecule products are often highly temperaturesensitive and require specialised storage and handling equipment. This necessitates significant investment in equipment, training and infrastructure to ensure product quality is maintained during long journeys when climatic, temperature and environmental extremes are encountered.

Heightened Digital Cargo Monitoring
Regulators around the world are scrambling to introduce reliable track and trace serialisation as drug counterfeiting becomes a pressing global issue. Legislation or self-regulation is already in place, or underway, in many jurisdictions around the world and both the US and Europe are expected to be fully serialised by 2018. Similarly, there are many exciting developments in digital temperature monitoring technology as the industry battles with ever-more forceful Good Distribution Practice (GDP) regulations and compliance becomes more stringent.

Impact of GDP Regulations
The GDP standards that are being put in place around the world present a major challenge to pharma logistics providers, particularly in view of the need to comply with dissimilar GDP standards in different countries and regions. The recent top level agreement between Luxembourg and Hong Kong airports to create a GDPcompliant airfreight lane between these distant locations demonstrates the degree of cooperation needed in order to provide pharma shippers with internationally valid GDP solutions. Similar agreements with other airports elsewhere, including the US, are also planned.

Modal Shift
Although there was a degree of modal shift from air to sea freight following the last recession, this trend has since slowed as the economic climate improves and as shippers come to realise that sea shipping comes with its own set of problems. Of course, many low-cost generics, controlled room temperature and small molecule drugs will continue to travel by sea, but this is a tendency that is likely to be offset by the steady rise of biological medicines. Nonetheless, the sea freight industry is making a big play for added-value pharma shipments, and the increased competition will serve to stimulate further investment and innovation in pharma air logistics.

Growth in Belly Freight Cargo
The explosion in global aircraft passenger volume has resulted in a corresponding rise in belly cargo capacity, and in the case of pharma cargos this now exceeds 50%. Belly space accounts for the bulk of air cargo capacity, yet its average load factor is abysmal. This surplus capacity and low utilisation is serving to drive freight prices down and to impact on the commercial viability of dedicated freighter traffic. In response, the cargo-only airlines are increasingly adopting a specialised and added-value approach to the market. Added-Value Pharma Freight Packages Not the sole preserve of freighter-only airlines but strongly championed by them, added-value pharma freight services have boomed in recent years as shippers seek ever-more robust logistics solutions to comply with increasingly onerous GDP and other regulations. In particular, the market is demanding more and more bespoke transportation solutions as complex biologics grow in importance.

Growth of Regional Hubs with Dedicated Pharma Infrastructure
In Europe, smaller high efficiency airports with low congestion and state-of-theart cold chain facilities, such as Findel in Luxembourg, are taking the lead in pharma and life sciences freight business. Their appeal derives not only from their geographical location, but also on fast throughput, dedicated handling services, strict GDP compliance and the availability of complementary road-feeder services such as that operated by Cargolux. Further afield, the Middle East, and in particular the airports of the United Arab Emirates, continues to set the pace for air freight growth and, with an annual growth rate exceeding 10%, its status as the premier air hub for East-West trade is undisputed.

Emerging Markets
As the pharma market in the US – the world's largest – approaches maturity, emerging markets are increasingly driving growth for pharmaceuticals. Developing economies, representing a huge potential demand, are expected to experience double-digit growth rates over the next few years with the Middle East and North Africa projected to grow at between 13% and 15%. This rapid growth will reverse the sector's current stagnation and fuel a huge expansion of pharma air freight over the coming years.

Continued Outsourcing
The US is losing its dominance as a pharmaceutical production centre as Big Pharma continues to outsource its manufacturing and other services to lowercost production centres in India and the Far East. This has huge implications for pharma logistics since it creates further demand for the highly controlled and regulated transportation of ingredients and finished products.

Increasingly Complex Supply Chains
As pharma manufacturers continue to outsource, as new companies enter the market, and as emerging markets evolve, the industry is finding itself faced with more and more complex supply chains that are subject to intense regulatory scrutiny and need to be tightly managed and controlled. This is causing pharma businesses to restructure and refocus their operations in order to manage the associated risks, in particular those relating to infrastructure. To this end, some organisations are championing the adoption of more fully integrated supply chains as a means of containing costs and reaping the strategic advantages of collaborative working.

E-Freight
Despite the fundamental importance of documentation to the transit of air cargo, the industry remains heavily reliant on paper as its principal transactional medium. This is changing, however, as the industry-wide IATA e-freight programme gathers momentum and drives huge benefits including trade facilitation, lower transactional costs, faster processing times and improved service.

Blustery but Bright
All of these factors and more are changing the face of the pharma air freight sector as it adapts to a new world of heightened competition, rapid technical progress, changing customer demands and an ever-tightening regulatory environment. As with all structural change, there will be winners and losers as some organisations drive the changes, other organisations adapt to the changes, and the remainder resist and fall by the wayside. However, for those companies that can see the fresh possibilities and seize the new opportunities, the future looks very bright indeed.

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