Open Source Content Management

Knitting the Cold Chain

As MNCs continue to focus on manufacturing in India and the product shelf for Indian pharma companies will have more of biotech products, the cold chain is becoming a vital part for the industry. The need of the hour is better infrastructure capabilities, power subsidy, tax incentives, grants from the government, use of modern technology and integrated freight forwarders. By Arshiya Khan

Though not at the front end, logistic providers may become the weakest link in supply chain of drugs, by the time it reaches the end consumer. This is apparent by the recent spurt in cases of death caused due to the consumption of drugs and vaccines stored in improper conditions. The latest one being from Madhya Pradesh, where a nurse had carried vaccines home in a thermos flask and stored it in a refrigerator overnight before bringing it back in thermos and distributing it. These measles vaccines were administered by the Health Department at Anganwadi Centres, which is run by State Women and Child Development Department causing the death of four infants. This incidence reflects how critical and vital it is to maintain the required temperature in the supply chain of drugs.

This is well backed by numbers as according to a recent study conducted by the UK Medicines and Healthcare Products Regulatory Agency (UK-MHRA), 43 percent of critical and major product deficiencies are related to ineffective temperature control and monitoring during storage and transportation. Similarly, the World Health Organization (WHO) recently maintained that 25 percent of all vaccine products arrive at their final destination in a degraded state. Looking at these numbers, the importance of maintaining a drug while in transit is of utmost importance, as the financial loss due to this may be recovered by the company over a period of time, but what about the deaths caused due to consumption of such deteriorated drugs?

The next question is also whose responsibility is it to maintain the safety and efficacy of drugs? As K V Subramaniam, President and CEO, Reliance Life Sciences says, "Logistics is a vital component in the entire supply chain of pharmaceutical and biotech products. In nutshell, logistics deserves the same level of importance as any other function." Going by this, it will not be an over statement to say that they should therefore share equal responsibilities too. Also, given the high cost of conducting global clinical trials and the even higher cost of failure, regulatory agencies, pharma companies and CROs alike now demand that every party involved in the pharma and clinical supply chain - transportation and logistics providers included - conform to GxP guidelines. Therefore, the logistic providers have geared up to meet the demand and protocols. But they need an extended co-operation from the government too.

Transition of the cold chain saga

"Today, cold chain management is looked more in terms of regulatory compliance rather than its role in product quality and patient safety. This leads to documentary compliance ignoring the challenges in reality" - Ajit Tamhane Director, Lisa Line

"Since cold chain maintenance is an expensive proposition, it would be necessary for various service providers to share their resources in order to justify the capital requirement" - K V Subramaniam President and CEO, Reliance Life Sciences

Earlier pharma manufacturers had to make do with options that were available at that point of time. The typical cold chain provision involved gel packs or dry ice. But it was a tedious and high risk business, and not many manufacturers were willing to produce such goods. In addition to this, developed nations had their own manufacturing facilities so the demand for shipping such goods didn't arise. "Since the advent of globalisation we saw the world turning more flat, plus the liberalisation of our country's policies helped, developed nations could no longer keep manufacturing and maintain costs that could be rational to the masses. The natural extension was to outsource manufacturing to developing nations," says M Ajaz, Director, East West Freight Carriers. Hence the boom in the logistics industry specific to the pharma segment.

Elaborating he says, India has now positioned itself well in this space. At some point of time we had only vaccines and serums that required temperature controlled shipping, but now there are additions with clinical trials, blood samples, critical vials, and anti-venom. "Therefore, today we cannot only look at exports and imports. Expertise in handling such movements is required to transport goods domestically as well, and therefore the pressing need to have fully integrated logistics providers," feels Ajaz.

As the demand rises, the need for a more integrated chain becomes crucial. At present the regulatory scenario in this segment is not very concrete. Though there are Good Manufacturing Practices GMP principles for the manufacturers, packaging and storage of active pharmaceutical ingredients (APIs) and medicinal products are well defined in the form of regulations, guidance and recommendations. However, pharma logistic segment needs to relate cold chain management to GMP for the distribution practice namely Good Distribution Practices (GDP), points out Ajit Tamhane, Director, Lisa Line.

Given the sensitive nature of the industry it therefore becomes imperative for the logistics team to continuously monitor and maintain the temperature of the products during storage, transportation, distribution till the point of consumption. Therefore the advent of new technologies and automation required. As Robert Klinck - Vice-President, Sales and Marketing, DDN stresses on the fact that logistic providers must model solutions that protect temperature sensitive product throughout the entire transit cycle; from point of origin to final delivery to the distribution facility. He makes an interesting point that, "This service must identify the areas within the supply chain where the inventory is at risk. These areas of risk include transport via truck from the shipper, staging time at the port/or airport, what temperature range will the product be transported at while inside the aircraft, will the product require it to be offloaded on additional flights, and finally how is the product delivery to the warehouse."

Entry barriers

The market is dominated by private players and can be divided into two major segments. The first, surface storage, which forms 88 percent of the cold chain market, is valued at Rs 88 billion and is expected to reach Rs 352 billion by 2015. The number of cold storages stood at 5386 in 2008 up from 5101 in 2006. In terms of capacity, the cold storage capacity increased from 21.7 million tonnes in 2006 to 23.7 million tones in 2008.

The second segment, refrigerated (reefer) transport, which forms 12 percent of the cold chain market, is valued at Rs 12 billion and is expected to reach Rs 48 billion. In terms of volume, current reefer transportation business is about four million metric tonnes and is expected to reach 14 million metric tonnes within five years. Majority of the demand (62.5percent) for refrigerated transport is export driven. Though these numbers show positive growth, there are certain barriers that restrict players from tapping this segment.

As cold chain is a very capital intensive business, the returns are limited and the investment is huge, points out Saigal. Unless players are able to scale up quickly and achieve higher utilisations it will be hard to justify the high capital spending, he adds. And a large-size of cold chain has a payback period of approximately five years, he informs. This indicates that the cold chain market in India is at a nascent stage and cold storage facilities are currently available for only 10 percent of the agri-produce alone. The total market for cold chains in India valued at Rs 100 billion in 2008 is estimated to reach Rs 400 billion in 2015, indicating a plus 22 percent growth rate for the industry, according to Saigal.

Automate the chain?

"Service providers must identify the areas within the supply chain where the inventory is at risk. These areas of risk include transport via truck from the shipper, staging time at the port / or airport, what temperature range will the product be transported at while inside the aircraft, will the product require it to be offloaded on additional flights, and finally how is the product delivery to the warehouse" - Robert Klinck Vice-President, Sales and Marketing, DDN

"As cold chain is a very capital intensive business, the returns are limited and the investment is huge" - Manish Saigal Executive Director and Head - Transport & Logistics, KPMG India

Also as manual monitoring may not be 100 percent possible all the time, therefore there is a need to use temperature monitoring with automatic reporting, suitable alert systems so that appropriate timely actions are taken in case of deviations, suggests Tamhane. It is proven that such measures improve the quality of cold chain and also minimise wastage in long run, he adds.

The need of the hour is therefore to have a system/product/technology in place that can track and trace the product while in shipment till it reaches the end consumer. This is some what smoothened through the use of dataloggers. Informs Tamhane, during execution of contracts for import or export the temperature monitoring is done as per the requirement of buyer. Most of the buyers ask for temperature monitoring of the cargo. For incidental supplies the use of transport dataloggers is common. Many freight handlers are using their own temperature logging devices. But for regular shipments use of dedicated reusable Datalogging solution which can download data at supplier as well as at consignee end is recommended. Today multi-location data access is also possible for shipments. Most of the Datalogging devices involve manual downloading of data by swapping the datalogger to a device attached to a computer. But it is beneficial to use wireless Datalogging as this does not involve any manual intervention for data downloading. Today GPRS based Datalogging solutions are offering real time monitoring even during transit.

Also, for air freight the Unit Load Devices (ULD's) have to be sufficiently stacked with dry ice or gel packs to maintain the required temperature. Recent advances in technological development and initiative by airlines to introduce product specific ULD's for example envirotainers are great but have not reached the correct economies of scale to be a regular feature in belly space capacity. It will be a while before these are standardised, adds Ajaz.

As Saigal elaborates with a classic example, most of the modern cold storages are being planned for more and more automation. Mechanical equipments like pressure gauges, thermometers, physical logbooks etc. are being replaced with micro process controls and transducers and automatic recorders. The Information Technology, with suitable fully computerised and proper softwares are being developed and used. For example, Intel's spin off with industry's first wifi cold storage monitor is first of its kind and reinforces the same trend in more automation to control temperatures. But many small cold storages still heavily depend on old manual labour.

Need of the hour

"Setting up Free Trade Warehousing Zones is easy over the transportation of these drugs. Also the investments costs are manageable than the operational ones. If anything, the government should give power subsidy to the logistics providers in major metros" - Mahesh Malneedi President, MakroCare

"India's growth an outsourcing hub is making MNCs being particular about strict regulatory compliance and costs. This may require the pharma cold chain cargo to be consolidated and moved via ocean mode" - Sandeep Pingle Director - Marketing & Sales, DHL Global Forwarding

"The government should offer incentives to fully integrated logistics companies (benefits on electricity, tax, purchase of vehicles) to keep a check on this, a minimum turnover and incremental slab wise incentive scheme should be worked on, keeping in mind that better facilitation of export cargo will result in higher and better export earning Forex income to the government" - M Ajaz Director, East West Freight Carriers

The pharma logistics segment requires retaining the temperature at transshipment hubs, real time track and trace, qualified persons to handle pharma cargo, special packaging solutions that are cost effective, immediate custom clearance, and compliance to regulatory requirements at the origin and at the destination. These needs are not entirely met, and there are gaps, feels Sandeep Pingle, Director - Marketing & Sales, DHL Global Forwarding. Agrees Ajaz, as of now the cold chain does exist but the services are fragmented. There are manufacturers that have climate controlled storage on site, then there are individual warehousing companies that offer climate controlled storage, these warehousing units in order to be more cost effective use either ammonia based cooling technology or a liquid re-cycling plant. The next in the chain are the refrigerated vehicles, these use fairly modern technology. Ajaz informs that, the airport authorities have ensured that equipment and facilities at all international airports, but then again the general business is to cater to all perishable goods (flowers, fruit, meat, vegetable, pharma). There is no designated area or chamber for exclusive product storage. Every perishable commodity requires special handling and different temperature variants, he adds.

The Mumbai International Airport Private Ltd. (MIAL) has already installed four new cold rooms for pharma and has trained handling staff to ensure adherence to standard operating procedures. Organization of Pharmaceutical Producers of India (OPPI) has tied up with Delhi International Airport Limited (DIAL) to overhaul and add to the existing cold chain facility in the Capital. Under the project, DIAL is planning to construct 4,000 square metres of additional cold room capacity compared with the present cold room capacity of 400 square meters available in Delhi.

Ajaz also feels, the present cold storage capacity in India is grossly inadequate and with a positive future outlook for the pharma industry there is an urgent need to scale up and develop integrated cold chain facilities across India. "The government has taken initiatives in the incentive scheme of climate controlled storage of facilities for agricultural produce; the scope of products should be re-evaluated. The government should offer incentives to fully integrated logistics companies (benefits on electricity, tax, purchase of vehicles) to keep a check on this a minimum turnover and incremental slab wise incentive scheme should be worked on, keeping in mind that better facilitation of export cargo will result in higher and better export earning Forex income to the government," avers Ajaz.

However, Mahesh Malneedi, President, MakroCare feels, setting up Free Trade Warehousing Zones is easier than transportation of these drugs. Also the investments costs are more manageable than the operational ones, he believes, as operating costs for Indian cold storage units are almost double of those in the US. As Manish Saigal, Executive Director & Head - Transport & Logistics, KPMG India, shares the numbers, energy expenses make up about 28 percent of the total expenses for Indian cold storages compared to 10 percent in the West. Additionally, India's power deficit is about 10 percent, with a peak deficit of 17 percent leading to chronic power shortage. And the power shortage in the country could lead to significant impacts on cold chain sector, which is dependant on electricity for refrigeration. Saigal feels, the purpose of setting up cold chains will be defeated if the power supply is erratic. Along the same lines, Maheesh feels that if anything, the government should give power subsidy to the logistics providers in major metros. At present a majority of cold storages are located in the states of Uttar Pradesh, Uttaranchal, Maharashtra, West Bengal, Punjab and Gujarat. In fact 49 percent of the cold storage facilities are located in the states of Uttar Pradesh, Uttaranchal, Maharashtra and West Bengal, informs Saigal.

Loopholes, and hence the repercussions

Today, cold chain management is looked more in terms of regulatory compliance rather than its role in product quality and patient safety. This leads to documentary compliance ignoring the challenges in reality, feels Tamhane. 83 percent of the primary care physicians and paediatricians and 72 percent of the specialists (eg. endocrinologists, haematologists/oncologists, and rheumatologists) reported having experienced a break in the cold chain.

Four out of five of the physicians surveyed said they felt there was a need for a device to track temperature at the unit level and that they would have more confidence in companies that produce medicines with such tracking capabilities, as reported in the journal in Life Science Leader.

Ways to recuperate

To keep a tab on this, Pingle informs that DHL has launched Life Science Competence Centers in key locations in India and worldwide. These augment DHL's on-going innovations in the industry by filling in the gap in the existing supply chain, by providing improved temperature controlled handling and storage, greater product transparency and visibility, and complete end-to-end logistics capabilities.

Additionally, the company has invested in imparting training to the personnel handling pharma shipments. The company is also collaborating with its vendors to educate them on the needs of the pharma sector, so that effective solutions are devised and implemented. The company is also reaping the benefits as pharma would constitute approximately 10 percent of is airfreight export volumes, informs Pingle.

Whereas US based DDN knows the tricks of the trade, which is apparent from its business model. Many companies move boxes, but DDN excels in complex, high-touch product handling, with multiple controls and system redundancies that guarantee product integrity and security. Some of which would be, high touch biologic handling, client-specific SOPs tailored to meet the high-touch product's needs, and orphan drug fulfilment - direct to physician or to specialty pharmacies. No wonder it has some of the big names as its clients in the kitty ranging from large Indian companies to SMEs. DDN is the largest 3PL service provider in the healthcare industry in the US and supports over 100 pharma companies in the US, Europe and India. DDN is strictly focused on the life science industry which provides focus on satisfying pharma, biotech and medical device requirements.

Also, East West Freight Carriers has ventured into warehousing, climate controlled transit facility, synergy creation with specific service providers, and has also ensured a streamlined process with cross value creation all of this. And this is working for them too, as pharma segment contributes approximately eight percent of its total revenues which is growing, and we would like to be in the mid 20's with this, hopes Ajaz. The company has a separate unit for the storage of vaccines, serum's and blood samples.

Lisa Line is active in pharma, food and diagnostic/laboratory market. More than 60 percent of its revenue comes from pharma segment. And its maximum clients are from vaccine and biological manufacturers/exporters. Tamhane informs that many biopharmaceutical companies are closely working with Lisa Line to develop cold chain monitoring strategy from beginning to end.

Players need to work along with the government in addressing these challenges. The various government incentives and initiatives are likely to resolve or improve the current state of challenges facing the sector. The PPP route is a viable proposition for players to undertake cold chain activities, feels Saigal.

Since cold storages are highly concentrated in few regions and in few commodities, companies need to identify new pockets and segments of growth which in turn will improve their presence and also provide diversification benefits, adds Saigal.

Growth drivers

Few industries pose as much of a challenge to shipping and logistics as the life science industry. The size of the Indian vaccine market is around Rs 10 billion growing at 25-30 percent annually. "And as there is a major shift in the product portfolio of leading pharma companies, many of them are bringing to the market products developed through advanced technology like vaccines, which requires maintenance of a proper cold chain right from the manufacturer's premises till it reaches the patients, feels Saigal. Also as Indian pharma companies are increasingly seeking opportunities to supply drugs to the world market, thus cold-chain management practices will be required to achieve this goal, adds Saigal.

Ajaz underlines an interesting point, as India is making tremendous progress in the healthcare sector; it is probably the only country that is building a fully integrated medical city and healthcare parks at multiple locations. Within the sub-continent the country ranks as the best medical and healthcare supplier and internationally we are developing as a medical destination. Pharma will be crucial to the sustainability of such large scale demand, but contrary to this, he complains of the lag as within the logistics space they have not been able to make progressive development. "The whole chain is still fragmented and why wouldn't it be, we haven't been awarded an industry status yet and are yet to receive government incentives. This has restricted a freight forwarder to come out of the usual and think and develop differently. An alternative to investing into all of the above business models is to create synergies," he opines.

Growth in this sector is being propelled by tremendous growth in organised retail, shift towards government initiatives and demand from pharma sector, notes Ajaz.

Of the more than 130 biotechnology drugs and vaccines approved by the US Food and Drug Administration (FDA), 70 percent were approved in the last six years. At the same time, there are more than 350 biotechnology drug products and vaccines currently in clinical trials, targeting more than 200 diseases. Many of these biotechnology drugs are temperature-sensitive. It is estimated that the temperature-sensitive segment is growing at a rate of about 15 percent per year.

Visible trends

Future trends identified in this space include rail based reefers, product specific cold chain facilities at airports, warehousing management, fully integrated logistics service, education and information access. Also India's growth an outsourcing hub is making MNCs being particular about strict regulatory compliance and costs. This may require the pharma cold chain cargo to be consolidated and moved via ocean mode, feels Pingle. It is also possible that pharma companies will outsource their storage of temperature controlled finished goods to logistics players, who can also handle freight. They would prefer to move the cargo on an end to end basis so that there is control on the supply chain, Pingle adds.

With more clinical trials and clinical research being outsourced to India, the last leg temperature sensitive transportation to cities beyond C class will require investment in highly validated temperature controlled boxes and last mile transportation, he adds.

Citing an interesting point, Subramaniam says, since cold chain maintenance is an expensive proposition, it would be necessary for various service providers to share their resources in order to justify the capital requirement. So clearly there seems to be sufficient avenues of growth for the logistics market in India. This opportunity will be doubled if the service providers also tap the rural market, feels Malneedi.

Therefore, going forward a lot of consolidation is expected to take place with many players merging and weak players leaving the market. Another two-three integrated cold chain players are likely to emerge while current strong players would try and achieve scale and higher utilisation levels. Players who are able to achieve scale and create a strong foothold in the market will dominate the industry and would create strong entry barriers for others, says Saigal. But this will be possible only when there is enough support from the government too.

arshiya.khan@expressindia.com