Poseidon wants ocean to be the default mode for temperature-controlled shipments
There has been a slow and steady movement among pharmaceuticals shippers in recent years toward the use of ocean freight and away from air cargo. So much so, that the shift of temperature-controlled products from air to ocean has actually put a dent in the global numbers reported by the air cargo industry in the last few years.
As the AJOT has previously reported, much of this modal movement has been motivated by a desire to reduce supply-chain costs. Pharmaceuticals companies are under the gun by governments around the world to control their product prices, and ocean freight saves shippers lots of money.
But airfreight has long been the default mode for pharma shipments and remains so, even though time-sensitive shipments make up no more than 15% of those shipments, according to Alan Kennedy, a pharma supply chain consultant and an architect of Poseidon, a program that seeks to move more pharmaceuticals shipments to ocean.
There is also a dirty little secret that the air cargo industry has only recently begun to confront: that they have a poor record of maintaining cold-chain product integrity, a factor of supreme importance to pharmaceuticals shippers. (See sidebar on page 4) AstraZeneca has reported that 80% of its global shipments were experiencing temperature excursions. That’s the same company that has most aggressively moved from air to ocean: by the end of this year it expects to ship 70% of its volume by sea.
Questions and Answers
All of which raises a few questions. Why do most pharma shipments move by airfreight? Why don’t pharmaceuticals companies pay more attention to their supply chains? Why haven’t the companies done more about optimizing their logistics choices?
Pharma companies have long seen themselves as all about innovation and not so much about transportation. And, as long as they were making profits hand over fist, supply-chain issues didn’t make it to the executive suite and the board room. That is now changing, as the companies need to worry, not only about quality, but about costs. That’s the short answer to the first two questions.
As far as the third question goes, something is now being done about it. The Poseidon program was launched in London on February 1, and nine big pharma companies - Merz, Novartis, GSK, Merck, Actelion, Roche, Allergan, UCB, and GSKBio - have joined the initiative. Poseidon’s supply partners network includes Maersk, Marsh, DowDuPont, Pelican Biothermal, Logtag Recorders, Klinge Inc., and Sonoco Thermosafe.
“Many pharma companies are already using ocean freight, but for many it’s still a toe-in-the-water exercise,” said Kennedy. “Although the huge cost-saving potential is a massive inducement, there has been some nervousness around issues such as insurance coverage and the cost of stock tie-up.”
Poseidon’s point is to make ocean the default mode for long-distance pharmaceuticals transportation, and it is working toward that end by promoting tighter supply chain integration. Again, this is a trend that has prevailed for decades in other industries - such as automobiles, petrochemicals, electronics, retailing, aerospace, and construction—but only lately has it made the agendas of the pharma companies.
“The various upstream and downstream players in the pharma-logistics chain see major advantages in working more closely with pharma manufacturers,” said Kennedy. “However, the move from air to sea represents a big step for most pharma companies, which are reluctant to move from their comfort zones.”
The Poseidon model is being designed to provide an off-the-shelf, door-to-door less-than-containerload service, compliant with Good Distribution Practices (GDP), “with all known risks identified, addressed, and insured,” said Kennedy. “The network of shippers and logistics partners that Poseidon brings together interacts to design the optimum value ocean freight solutions.”
The program is also tackling insurance and inventory concerns. Insurance arises as an issue because shipping lines typically offer only limited coverage and it can be difficult to obtain adequate coverage through the traditional market because insurers are not experienced at, and are wary of, covering high-value pharma shipments moving by ocean. This is related to “a persistent misconception relating to the possibility of container loss at sea,” said Kennedy. “The reality is that the incidence of container loss as a proportion of total container transits is infinitesimally low. Even allowing for catastrophic losses there are less than 1,700 containers lost at sea each year, out of 120 million annual container shipments.”
Poseidon consignments are being backed by a comprehensive end-to-end insurance scheme providing full-value indemnity in the event of an insured loss. “This coverage is possible because we have pro-actively risk-managed with our insurance partner Marsh from the inception of the project,” Kennedy explained.
Floating Warehouse Approach
If Poseidon is to work, pharmaceuticals companies will also have to get used to having their inventory spend more time in transit. “The question of having working capital tied up in goods in transit is one that needs to be put against the overall savings to be made,” said Kennedy. “A floating warehouse approach where goods in transit are recognized as imminent stock can be used to reduce the scale of cold-chain storage at the receiving end if the goods are being shipped on a regular, scheduled cycle.”
Ultimately, Poseidon seeks to change the logistics and inventory practices of pharmaceuticals companies. “There is growing doubt among pharma supply-chain professionals that the conventional competitive tendering model for logistics procurement is fit for the modern age,” said Kennedy. “It has long been recognized in other business sectors that lowest bid procurement rarely delivers optimum value. Competitive tendering will almost always incur hidden costs down the line.” The transition toward an alternative model is the goal of the cooperative environment - “where mutual trust and respect can develop”- that Poseidon aims to provide.
Kennedy expects more pharmaceuticals companies, big and small, to be signing up with Poseidon, but some of them may be awaiting the results of an upcoming proof of concept. “This pilot will constitute a large-scale process-validation,” Kennedy explained, “involving the intercontinental transportation, and rigorous monitoring of multiple test reefers containing different pharma products and different protection permutations.” The project, which is scheduled to be completed by the end of July, will provide Poseidon “with unparalleled pharma ocean freight data.”