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The rising price of international logistics - inflation and macroeconomic issues increasing complexity and cost

By Amerisourcebergen

2022 has been another volatile year for every economic sector, including the global pharmaceutical industry; disruptions in the supply of raw materials and cross-border trade continue to impact supply chain complexities and costs. The pharmaceutical industry and logistics partners have risen to the challenge, collaborating effectively to deliver significant projects including COVID-19 vaccines, while continuing meaningful, life-saving research.

The lingering effects from the pandemic, supply chain disruptions, and geopolitical strife, however, will continue testing the resiliency of the industry and its ability to manage operating and manufacturing expenses efficiently. In 2023 three trends will continue to raise operating costs and pressure the industry to leverage innovation and expert partners to offset them:

1. Inflation

Major global unrest continues to impact society and economies worldwide, leading to shortages and disruptions in fuel supply and other critical raw materials. This is causing significant inflation in international markets and profoundly affecting the economies of most industrialized nations. Inflation has risen sharply globally, according to the International Air Transport Association (IATA) for the 38 OECD member companies (representing approximately 50% of global GDP), inflation reached a 30-year high of 10.3% in June1.

The biopharmaceutical sector faces similar inflationary pressure, negatively impacting the costs associated with pharmaceutical development and manufacturing, but more critically, the distribution of commercialized treatments to clinicians and patients. Although economists project global inflation to moderate slightly, the rise in labor costs and the soaring price of raw materials and energy will likely continue to affect the economics of drug manufacturing and drive costs higher for all commercial partners along their global supply chains.

2. Lack of available air cargo capacity

Available air freight capacity took a significant hit during the pandemic. Although capacity levels are recovering, global air cargo capacity (passenger, widebody) is still 28% less than pre-pandemic. This lack of critical capacity, in part, will continue to drive higher airfreight costs for pharma and its 3PL partners. It is a fundamental issue of supply and demand. World Courier data shows that airfreight costs have risen by around 50%, on average against pre-COVID levels.

3. Cost of fuel

Exacerbating the gap in available air freight capacity is the price of aviation fuel. Jet fuel prices rose by more than 70% during the first six months of 2022, marking one of the steepest increases since 2002. For airlines, the increase in jet fuel prices represents a significant challenge as this cost typically accounts for 20% to 25% of total operational costs2. Following Russia’s invasion of Ukraine in February 2022, Brent crude oil prices increased by more than 30% due to the sudden loss of supply from Russia, the third largest oil producer in the world. Demand, refining costs, and the price of crude accelerated jet fuel prices to their highest level in 14 years2.

Inflation’s side effects will continue to afflict pharma and its partners

Global economic uncertainty is driving cost and complexity into pharma operations at an unprecedented rate. Pharma’s extended global supply chains, increasingly involving multiple partners and markets – are only compounding the side effects of inflation and international instability.

“The knock-on implications for pharma could be significant; rising costs and inflation may limit investment opportunities and constrain drug development. For example, if Contract Research Organizations (CROs) are experiencing higher input costs and have less capital to invest, it might affect the volume, size, and scope of clinical trials the company can conduct.” Simon Brinckmann, Senior Director of Strategy.

The price of logistics is on the rise, and the value created by your logistics supplier should rise too

The pharma sector relies on the agility of its commercial partners to help overcome adversity and compensate for rising costs, and logistics solution providers are no exception.

Engaging with logistics partners that understand clinical trial operations and the complexities of pharma’s multi-faceted global supply chains is critical to ensure a robust end-to-end logistics strategy.

Providers must have the in-house expertise to design logistics solutions and be capable of leveraging global networks and technologies to ensure product integrity from the lab to the clinic, and from the factory to the patient.

The World Courier difference

World Courier is carrier agnostic, which means we operate with flexibility. Across our global network of dedicated team members, we monitor the safety and integrity of your product proactively, ensuring it reaches patients without delay. We plan for contingencies, so you don’t have to, leveraging our global capabilities and local, on-the-ground knowledge to navigate logistics complexities. We have a truly global network, dedicated teams on the ground in 50+ countries, 120+ company-owned facilities, and over 4000 team members. Our innovative distribution services for medications, including rare, orphan, and gene therapies, are customized and scalable to fit your product’s needs.

 

Sources

https://www.oecd.org/sdd/prices-ppp/consumer-prices-oecd-10-2022.pdf

2 https://www.iata.org/en/iata-repository/publications/economic-reports/soaring-jet-fuel-prices-now-trending-downward/