Vaccine demand to stress but not soak up capacity, say transport executives
Editor’s note: RK’s President Rock Magnan was recently interviewed by the Journal of Commerce’s Bill Cassidy for a story on the impact of Covid vaccine distribution on warehousing and trucking. The story published Dec. 18, 2020. Rock’s comments are highlighted in this post.
By William B. Cassidy, Senior Editor, and Cathy Morrow Roberson, Senior Contributor · December 18, 2020
Logistics managers cheering the release and delivery of the first COVID-19 vaccines in the United States are also bracing for disruption the massive healthcare logistics campaign may or may not bring to their supply chains in 2021, as more and more capacity is needed to move vaccines.
In a normal freight market, the loss of the capacity needed to move 300 million doses — the amount purchased to date by the US from Pfizer and BioNTech and Moderna — might not be missed by others. But this is not a normal freight market. Capacity is tight everywhere.
“The vaccines are going to take priority over everything else,” John Janson, global logistics director for apparel shipper SanMar, said during a webinar Tuesday. “If you’re a next-day air shipper, that’s going to be a problem over the next several weeks and months.”
It may not be as big a problem — or a problem at all — for US truck shippers, but even dry-van truckload shippers could see an impact. President of truckload carrier CFI Greg Orr noted that it is not just vaccines that must be delivered, but also all the supplies and products needed to vaccinate more than 300 million US citizens.
“We recently shipped 30 odd truckloads of syringes across the US, to have them in place,” Orr said in an interview Friday. “And beyond syringes, there’s gauze and alcohol swabs and band-aids.” Those goods take up space, but get less attention than vaccines.
“They’re not part of Operation Warp Speed,” the US federal government’s plan to deliver 300 million COVID-19 vaccine doses, enough to vaccinate 150 million citizens, “and they’ll flow through the supply chain with less recognition,” said Orr. “But there’s still a lot of planning and preparation” that must be done before millions of people get the shot.
Hundreds of millions of additional syringes and other supplies have to be manufactured and shipped. Dry ice and refrigeration equipment will have to be manufactured and shipped. Different vaccines will have different transportation requirements, and go to different locations.
The extremely temperature-sensitive Pfizer/BioNTech vaccine, for example, is more likely to go to hospitals, while the Moderna vaccine, which will be easier to ship and store, may go to locations such as firehouses or clinics, Rock Magnan, president of RK Logistics Group in Fremont, California, told JOC.com.
“My wife, who works in a hospital, is getting the Pfizer vaccine,” said Magnan. “My son, who is a first-responder paramedic, will get the Moderna vaccine,” which may be approved as early as Friday. “We’ll see different distribution and storage situations for different vaccines.”
Pharmaceutical squeeze ahead
The complexity and scale of the distribution challenge may lead to unexpected complications that could have a knock-on effect on shippers who are far removed from the pharmaceutical and refrigerated supply chains that will bear the brunt of any disruption, logistics experts say.
“We’re just getting started,” said chief growth officer at SEKO Logistics Brian Bourke. “We’re only talking 20 million doses this month [December]. By April, that scale may get up to 100 million or more per month.” The larger the scale, the more opportunity for disruption.
But Bourke and other logistics specialists do not anticipate that much disruption, nothing on the scale caused by COVID-19, for example, or by the extraordinary restocking effort that has imports pouring into US ports in December and forecasts for high first-quarter demand.
“Trucking companies are shutting their doors right now, not because they’re closing down but because they can’t take any more freight,” Bourke said Friday. “We don’t expect the same [domestic] pressures and issues when the vaccine rollout is at full strength” in 2021.
“Your large consumer brands won’t see an impact,” J.J. Lewis, vice president of enterprise sales at GlobalTranz, told JOC.com. “The shippers that participate in the pharmaceutical world, the high-value reefer cargo shippers, they’re the ones who will see the impact.”
Lewis said it is not that those businesses will not be able to move their goods. They will just have to pay more and cope with delays. “If you’re in those sectors, you may want to get out in front of this, because in the next six months, the capacity is going to go to COVID-19 vaccines.”
“The vaccines will bump things down the whole pharma supply chain,” said Magnan, whose company is not handling vaccines but does have a cold-chain business. The pharmaceutical supply chain, he warned, “isn’t one that can be easily expanded in the short term.”
Others see potential for a broader impact. “The vaccine is going to test the market,” said Mike Regan, chief relationship officer at transportation technology provider TranzAct Technologies and chairman of the advocacy committee for the NASSTRAC shipper organization.
“Ideally, January and February would be slow months, and we’d have more capacity in the market.” That is doubtful in 2021, however.
“The ocean carriers have said this peak will continue through at least February,” said Regan. Importers, working to meet high demand, are bringing as much inventory into the US as early as possible, to ensure “they will be able to keep their supply chains running,” he said.
“Now, add to that the challenges of distributing the COVID-19 vaccines,” which resemble those posed by recoveries from natural disasters, said Regan. “I don’t think a lot of people have built this into their transportation scenario planning models for 2021.”
“We’re talking about 720 million doses being distributed between January and June and that’s a monumental task,” president of transportation research firm SJ Consulting Group Satish Jindel said. He believes less-than-truckload (LTL) carriers will pick up some last-mile vaccine loads.
“You’re going to have shipments with thousands of doses on a pallet or two going to hospitals, and I think that will more likely be LTL than truckload,” he said. He envisions truckload being used in the first mile, then airlines for the main haul, and LTL or parcel for last-mile delivery.
Jindel agreed with Magnan that vaccine distribution “will come at an expense where other shipments are likely to be pushed aside. Shippers, other than the federal government, need to be prepared to pay a high price for everything for the next six months. Every carrier will want to handle the vaccine.”
That will create opportunities, Jindel believes, for other freight to be pushed into the spot market, or to other modes, where shippers may be forced to pay a premium to have it delivered.
Spillover to passenger airlines
As vaccine distribution gains traction, domestic and international air freight will play a significant role. According to Seabury Consulting, between 11 billion and 15 billion doses will be needed worldwide. DHL estimates the need for about 200,000 pallets, 15 million cooling boxes, and 15,000 flights to deliver those doses.
“It [vaccines] goes on the plane first, it comes off the plane first,” president of the Americas at FedEx Express Richard Smith said in Dec. 10 testimony to the US Senate Subcommittee on Transportation and Safety. Whether there will be enough capacity for other freight is a concern.
“Cargo bellies of passenger airlines will be important in not only the distribution of COVID-19 vaccines but also to handle capacity overflows from other airlines and other modes,” executive director of the Airforwarders Association Brandon Fried told JOC.com Wednesday.
According to Fried, the biggest benefit of using passenger airlines is the redundancy in flight scheduling. “If your freight is bumped from the 10 p.m. flight for example, chances are good there’s a midnight flight for the same destination, so little, if any delays in final delivery,” he said.
Bourke said domestic air freight is one of the few modes where there is any “slack” in capacity. “We’re at 60 percent of pre-COVID capacity rather than 10 percent,” the international level, he said. “There will be a surge in demand for international air freight and that will have an impact.”
International air demand for vaccine distribution will see the biggest ramp-up as passenger airlines add capacity on routes that are not met by FedEx and UPS. However, even domestically, airlines such as Delta, United, and American likely could pick up overflow volumes.
“UPS has spent many weeks designing the supply routes for these vaccines. Capacity has been reserved in our air network, operating hubs, and ground operations,” Wes Wheeler, president of UPS Healthcare, told the Senate Subcommittee on Transportation and Safety Dec. 10.
Passenger airlines could also gain additional volumes from the consumer goods sector. “There also could be capacity shifts from truck to domestic air because of potential weather-related bottlenecks and trucking’s focus on manufacturer customers’ needs,” Fried told JOC.com.
A ‘small arena’ of truckers
The number of trucking companies involved in shipping COVID-19 vaccines initially will be small. “These are companies with defense contracts, specialized equipment, and tracking technology,” said GlobalTranz’s Lewis. “The government isn’t just putting out a bid for all this.”
Boyle Transportation, one of the carriers distributing vaccines, “serves the military and government sector as well as the healthcare sector, so we’re used to very strict standards,” co-president Andrew Boyle told Mark Willis of Sirus XM’s Road Dog Trucking Radio program.
Hauling the first load of vaccines from a Pfizer facility in Michigan “was almost like being in a space shuttle launch,” said Boyle. “The execution is going to fall on a lot of people in the blue-collar logistics sector. People working loading docks, truck drivers, pilots, and package sorters.”
But these are also people trained to handle sensitive medical equipment and products, training and skills the average truck driver does not have or need. “Most shippers aren’t using these carriers,” said Lewis. “It’s a small arena of carriers that can participate in this.”
That arena may expand if additional vaccines do not require extreme refrigeration. “There may be demand for more traditional carriers then, and that could affect more traditional shippers,” said Bourke. “But it won’t compare with the rush that’s happening right now.”
Still, shippers are likely to see higher rates, CFI’s Orr said. “There’s quite a few carriers playing the spot market more often now. If they have a choice to haul a load that can bring them some recognition, they’ll take that even if they need to reject a couple of existing customers.”
Shippers need to take these possibilities into account when budgeting for 2021, multiple sources said, even if they believe their distance from the vaccine supply chain inoculates them against potential disruption. They should remember how often they were surprised in 2020.
