Scores of major and minor third party logistics providers (3PLs) have found that offering “controlled-temperature” services can help shippers break into emerging markets and develop new revenue streams.
Growing global consumer demand for pharmaceutical, food, and medical goods in emerging and developing markets has never been higher, making cold-chain management one of coolest growth niches for third party logistics providers (3PL) that are able to specialize in broad-reaching, controlled-temperature shipping.
But with so many cold-chain options now available on the global landscape, choosing the right provider can be a challenging—and risky—proposition for shippers.
Are the stakes worth it? A recent market research study maintains that, on balance, they certainly are. According to the analysts at the Lyon, France-based market research think tank Ubiquick SAS, a major shift in cold-chain markets is already underway with even greater opportunities looming in the so-called “developing world.” The consultancy maintains that various regulatory initiatives embraced by governments are helping to advance the cold-chain network for U.S. food shippers, too.
“Due to the requirement of more cold storage and transport facilities, the leading cold-chain players are gradually moving towards emerging markets such as Asia and Latin America,” says researcher Andre Grotz, who contributed to the Ubiquick report 3PL Service Providers in the Food Industry Cold Chain.
And while North America remains the largest market for cold-chain logistics, global shippers understand that they can benefit from lessons learned in the domestic arena when doing business overseas.
Risk/reward
When the Washington, D.C.-based Global Cold Chain Alliance stages its annual May warehousing convention and expo in Hollywood, Fla., shippers will be given a more complete risk/reward picture, says Doug Thomas, vice chair of the International Association of Refrigerated Warehouses (IARW) Board of Directors.
“More and more emphasis is being placed on being certified for the Global Food Safety Initiative,” he says. “This is an international standard that will remove some of the risk, and provide more protection,” says Thomas. “When the shipper has the warehouse management and 3PL on the same page regarding international standards, they will have created a ‘sticky’ relationship that will be nurtured in business for the long-term.”
Thomas, who is also president and CEO of Bellingham Cold Storage Co. in Bellingham, Wash., says that creating legacy with the global 3PL is essential, even as consolidation ramps up.
“Shippers should still expect specialized service from both new and existing players,” says Thomas. “And while the door is by no means closed to enterprising 3PLs seeking a place in this market,” he adds, “they should offer the same assurances that the more established companies have.”
Bill Hendricksen, a board member of the World Food Logistics Organization, and CEO of Lineage Logistics in Colton, Calif., observes that processors and manufacturers are taking advantage of a 3PL’s cold-warehousing expertise. At the same time, he adds, they also benefit from the door-to-door logistics offerings.
“Increasingly, we are seeing more retailers looking to outsource their warehousing and store delivery distribution requirements,” says Hendricksen. “This makes sense when you consider that the shipper can conserve capital for operations and expansion purposes.” Lineage Logistics has become a major cold-chain 3PL as a consequence of ongoing consolidation, which for Hendricksen means added value for his customers.
“As costs and regulations continue to increase in North America, the one way to offset these challenges is with scale,” says Hendricksen. “With a larger platform it’s easier to invest in technology, comply with the new laws we are seeing from state and federal agencies, as well as working with lender partners for growth opportunities.”
Tracking pharma and healthcare
Before the advent of 3PLs, traditional wholesale distribution for biopharma was a fairly straightforward process, with shippers taking ownership of the product and handling the downstream process.
Evan Armstrong, president of 3PL analyst firm Armstrong and Associates, says that as lead logistics providers became more trusted business partners in the cold chain, manufacturers have relied on them to seize more control over some of their market channels.
“Healthcare products represent about 5 percent of total 3PL volume globally, and within that, perhaps 15 percent to 20 percent is pharmaceuticals,” says Armstrong. “Still, it’s a good business for 3PLs that have the special handling expertise, equipment, and storage capabilities, and they can command higher prices than more commodity-type logistics.”
Turney Thompson, vice president of Kenco’s Transportation Management division, agrees with Armstrong, noting that his company has been aggressively pursuing more business in this sector. “Supply chain integrity is key to this piece of the pharma transportation puzzle,” he says. “That means that every element must be secure, including tracking, tracing, and packaging. We are heavily reliant on WMS and TMS solutions, as you might imagine. But the cost is worth it for the shipper and the consumer. None of us can afford to cut corners.”
Judy Craig, vice president of sales at Kenco Logistics Services, notes that Kenco’s shipments of vaccines to Wal-Mart require end-to-end monitoring that is subject to continual upgrades. “It’s a zero-tolerance business,” she says, “and there’s no room for error in this controlled-temperature movement. If there’s a new or better way to trace it, we’ll find a way to fold that into our service.”
C.H. Robinson Worldwide Inc., one of the world’s largest cold chain service providers, has also invested heavily in information technology for pharma and healthcare industries. Most recently, it introduced a mobile app to extend the reach of its Navisphere platform that integrates with ERP to allow shippers access to critical information via Apple or Android mobile devices.
Tom Mahlke, the company’s chief information officer, says this connectivity has become a new standard for temp-controlled shipments. “Supply chains are constantly in motion, so having continuous visibility to each movement, especially in the cold chain, is a requirement now,” he adds.
Caveat emptor
New and proprietary advances in technology notwithstanding, shippers must demand a complete overview of cold-chain 3PLs before committing a single load, says Jim Darnell, managing consultant with Tunnell Consulting, a company focused on strategic, operational, and technical solutions for biotech and pharmaceutical companies.
“Cold chain failures have resulted in actions including litigation, product withdrawals, postponement of clinical trials, delays in product getting to the market, lost contracts, costly recalls, product loss, and damage to reputation,” says Darnell. “Certain temperature sensitive products such as vaccines are at particular risk.”
Darnell adds that The World Health Organization (WHO) estimates that about half of all vaccines are wasted due to temperature excursions as a result of poor cold-chain control.
As part of a basic check list for assessing cold chain providers, Darnell advises shippers to examine how their product is physically handled at all points throughout the cold chain, including airports and temporary dwelling areas.
“Service providers should be able to describe container orientation and time-on-the-tarmac,” says Darnell. “What is the range of exposure to high and low temperature extremes? What about the hand-off to ground transportation? Finally, shippers should know about possible delays at any one destination and if the 3PL is reliant on subcontractors.”
Another essential element in cold chain provider assessment, says Darnell, is certification for Current Goon Manufacturing Practice (cGMP). Both the Food and Drug Administration and WHO mandate that vendors and facilities measure up to this standard, which establishes and maintains a system for consumer protection and product quality protection. “The 3PL should define each step of the progression and track the manufacturing in the cGMP compliant process so that a complete history can be traced and any chance for error is eliminated,” says Darnell.
Remaining attentive to other valuable details like years of experience in life sciences cold-chain logistics and references are also a must, says Darnell. He suggests that shippers ask for “vendor-performed” mapping studies of transportation equipment and shipping lanes as well. Putting together a questionnaire on “deviation management” and “relationship and Customs,” is also a good idea.
But most importantly according to Darnell: “Trust, but verify. Conduct the audit as you would for any other critical supplier, validate responses to initial interviews, and require follow-up to any open observations in order to move forward with further qualification activities.”
Finally, he advises shippers to inspect facilities themselves, including cross-docking areas. While doing this, shippers should review “quality unit responsibilities” and level of oversight, while examining the 3PL’s overall operation.
“Cold-chain 3PLs should be part of your overall supplier quality management program,” Darnell concludes. “Establish quality agreements in tandem with service contracts and enforce those with every 3PL you use.”
(By Patrick Burnson, Executive Editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at pburnson@peerlessmedia.com).
