As newcomers and established industry players vie for roles in a global market with surging demand for pharmaceuticals, airlines, forwarders and container manufacturers are trumpeting a wide array of new products and services.
Forecasts for the flow of trade in pharmaceuticals are eye-popping, with the global market value expected to exceed $975 billion by 2013. Norwalk, Conn.-based IMS Health forecasts global growth of 4 percent to 6 percent in 2010 to more than $825 billion.
IMS adjusted its projections upward in its latest forecast after stronger than expected demand in 2009. The IMS analysis takes into account such factors as the impact of the global economic downturn and the rising influence of health-care access and funding. There’s keen interest across the air freight industry in the business because health-care companies that produce life-enhancing and life-saving products worth tens of millions of dollars per shipment require reliable temperature control that can be monitored closely throughout the supply chain. A breakdown in the delivery process could lead to lost revenue, or worse, the loss of products that can be left worthless.
In recent months, Air Canada, American Airlines, British Airways World Cargo, Nippon Cargo Airlines and United Airlines announced cold chain initiatives tied to the lucrative health-care segment. At a recent cold chain distribution conference in Philadelphia focusing on pharmaceuticals, several airlines touted new cold chain offerings, and two U.S. companies unveiled plans for a temperature-controlled cargo unit load device they plan to lease for 20 percent less than competitors’ containers.
“Other carriers have finally figured out what Continental and a select group of other carriers have known for some time,” said Mark Mohr, Continental Airlines manager of product development and specialty sales, “and that is there are a lot of high-yield opportunities out there. It’s good to see the newcomers moving away from the general cargo ‘just put freight on the plane’ mindset.”
Continental has partnered with the market’s largest container supplier, Sweden’s Envirotainer, as its provider of passive unit load devices, and with U.S.-based CSafe Acu Temp as provider of active unit load devices, Mohr said.
The carrier’s ClimateSecure temperature-controlled service “is not a one-size-fits-all concept,” Mohr said. “We’re very much focused on understanding product handling requirements and then using our process framework to assist manufacturers and forwarders in creating a product specific (standard operating procedure) that is attainable and sustainable.”
Continental, the first airline to have stations accredited under Envirotainer’s Qualified Envirotainer Provider quality management program, saw its yields in the pharmaceuticals sector hold up throughout 2009 despite the economic downturn, Mohr said.
Although 2009 volume in the pharmaceuticals segment looks to be slightly lower than 2008 volume, the revenue declines seen with this type of cargo “are nowhere near the declines the industry has seen in hard freight volumes,” Mohr said. For 2010, the carrier expects growth due to the acceptance of the CSafe AcuTemp active RKN, the only active unit load device approved by the Federal Aviation Administration for use on U.S.-flag carriers, he said.
Continental also sees growth opportunities stemming from its new Houston-to-Frankfurt route and its two new 777-200s in 2010. The opening of the new perishables center in Houston should contribute to future growth, Mohr said.
Dominant European players in the cold chain arena include Air France-KLM, Lufthansa Cargo and Lufthansa subsidiary Swiss WorldCargo. Other players include Emirates Sky Cargo and Scandinavian Airlines.
“Swiss is a niche carrier, and we are playing an important role in the growing health care segment,” said Gerard Gobat, product manager, Swiss Celsius and Swiss Valuables. Swiss, which has also targeted other care-intensive markets involving the transport of valuables and value-added services, is not alone in eyeing emerging markets for temperature-controlled pharmaceutical shipments including China, India and South America.
Unlike some other airlines and integrators that are looking to cater to this sector, however, Swiss does not deal directly with pharmaceutical companies. “Our customer is the forwarding industry,” Gobat said, and, consequently, the niche carrier’s goal is to “build up relationships” with key partners — airlines, forwarders, suppliers and container manufacturers — to meet the requirements of the booming pharmaceuticals industry.
“It’s important to have close relationships so that you can react fast on any deviations and on implementing new ideas and talking to customers. As an airline, it is important not to have too many interfaces that are involved. And we are a lean organization in general,” Gobat said.
Swiss Celsius, the carrier’s special product for temperature-controlled shipments, targets the pharmaceuticals industry but can also be used for any commodity that requires strict adherence to a specified temperature range, he said.
Forwarders devoting more time and energy to cultivate commerce with the pharmaceuticals sector include Deutsche Post’s DHL Global Forwarding, and logistics giants Kuehne + Nagel and Panalpina.
In June, DHL Global Forwarding launched its first Life Science and Health-care Competence Center, located within a new 2,000-square-foot temperature control warehouse at Shanghai’s Pudong International Airport.
China, ranked ninth in the world’s pharmaceuticals market in terms of demand, is expected to continue its double-digit growth in future years and leap to sixth place by 2011, according to a Datamonitor forecast cited by DHL.
DHL says its move to bolster its cold chain logistics capabilities is in line with anticipated industry growth and increasingly sophisticated needs of Asia-Pacific customers. “This is another step that DHL is taking to deliver quality and efficiency in cold chain logistics to meet the increasingly complex needs of pharmaceuticals companies, chemicals laboratories and manufacturers,” said Steve Huang, managing director of DHL Global Forwarding China. “We are optimistic that this sector will continue to offer promising growth.”
The life science and health care industry has been surging in recent years with China emerging as a market with the greatest growth potential. The Asia Pacific pharmaceuticals market generated total revenue of $118.3 billion in 2008, up from $91.6 billion in 2004, providing a compound annual growth rate of 6.6 percent. China’s pharmaceuticals market grew the fastest with average annual growth of 21.1 percent during the period. That trend will continue with the government’s plans to provide improved health-care access to its growing population.
One U.S.-based container provider that made strides in 2009 and is poised for growth in the sector is CSafe, headquartered near Dayton, Ohio. CSafe is a joint venture between AmSafe and AcuTemp Thermal Systems, with locations in Washington state and Ohio.
CSafe announced in May that its flagship product, the AcuTemp RKN air cargo container, is the only compressor-driven air cargo container with approvals from both the European Aviation Safety Agency and the FAA. In November, CSafe became the first container manufacturer to incorporate the new International Air Transport Association label for time-and temperature-sensitive health-care products on its containers. The Time and Temperature Sensitive label is part of IATA’s 10th Edition Perishable Cargo Regulations Manual set to take effect in July.
“As the volume of temperature-sensitive shipments continues to grow in the pharmaceuticals and biotechnology sectors, we felt that early adoption of the new IATA specified label is a positive step in clearly identifying the contents for priority handling,” said Oliver Bootz, CSafe’s vice president of business development.
Taking a leadership role in adopting the new regulation for health-care cargo “reinforces our commitment to the cold chain from both performance and handling perspectives,” Bootz said.
CSafe’s containers have cooling and heating capabilities and can sustain consistent temperatures between plus-4 and plus-25 degrees Celsius while being exposed to ambient temperatures as extreme as minus-30 to plus-49 degrees Celsius. In addition, the containers eliminate the cost and environmental challenges associated with dry ice, refrigerated trucking and internal packaging, company officials say.
Brian Kohr, general manager of CSafe, said the Acutemp RKN has consistently demonstrated its ability to maintain a customer-desired payload setting resulting in no recorded product loss in 2008. This type of reliability is paramount to pharmaceuticals and biotech companies “that can have $48 million of product in our container at one time,” Kohr said.
Kohr said the cold chain pharmaceuticals sector is the fastest-growing market segment of air cargo and the highest margin area other than the transport of live animals.
Approximately 70 percent of pharmaceuticals products in clinical trials are temperature-sensitive. What’s more, the market has been growing at 6 percent to 12 percent, “and all the studies we see show that’s not going to change,” he said.
“When you are looking at high value life-saving or life-enhancing products, they are using high-end solutions,” Kohr said.
American Airlines, which officially launched its first comprehensive service for the temperature-controlled arena in September, has been “very pleased” with its reception and the feedback from customers, said Joe Reedy, vice president of cargo sales.
The carrier is working solely with Envirotainer as its partner, but the Dallas-based carrier will continue to evaluate its temperature-controlled service offerings as it goes forward. “Our plan is to use the benefit of the strength of our network and services to the temperature controlled industry, and, over time, that can take different forms,” Reedy said.
Reedy said the airline launched its temperature-controlled service after a pilot “involving a select number of customers and 10 lanes” and notes with satisfaction that “we’re still doing business with those guys.” There “are additional requirements” for the pharmaceuticals and health-care business, and that is something Reedy said will play to American’s advantage.
IMS underscores in its latest analysis that numerous factors could affect the growth of the pharmaceuticals industry, including shifts in regulatory standards. Air freight industry players must stay abreast of these developments as well as the more stringent security rules set to take effect in coming years.
“We are playing an active role with the Transportation Security Administration and are taking steps to ensure we are prepared for changes that are coming,” Reedy said. “We need to work with the forwarders and shippers to make sure that we are ready. This is a big topic for all air cargo, and there’s some unique aspects related to the pharmaceuticals industry.”
While most carriers with cold chain offerings focus on the high-margin pharmaceuticals market, there are good volumes to be found elsewhere in the temperature-management space.
Continental’s Mohr said other areas with potential include the transport of aircraft composites and non-pharmaceuticals products, including frozen lemon pulp for beverage production and frozen samples for fast food restaurants.