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Mode Shift in Freight Transportation

August 12, 2014

Have you ever heard of “mode shift” in the shipping context?

It refers to the change in the type of transportation used to move your shipments around. Mode shift is a trend that is often on the agenda at transportation conferences as many shippers choose ocean freight forwarding rather than air cargo freight for intercontinental transportation. The decrease in international air freight market share has been illustrated by FedEx Chairman Fred Smith at various events (see attached picture). While selecting ocean transportation might make sense for the majority of goods for economic reasons, one could wonder whether shipping more high value healthcare products by sea is similarly justified.

Consultant data suggests that mode shift is indeed taking place within healthcare logistics departments, even for complex, temperature-sensitive shipments. A few large pharmaceutical companies are claiming that they plan to transport 70% of their international freight by ocean in the short to medium term, including cold chain shipments. Since the switch from air to ocean is being driven by global quality departments who first need to collect data and analyze shipping profiles, the switch is happening lane by lane rather than product by product. Shippers are sometimes choosing air for product launches, and ocean for inventory replenishment and products in later stages of their economic life-cycle.

Despite much slower transit times resulting in significant inventory and lead time, ocean shipping has become an attractive option to shippers of healthcare products for a variety of reasons. The pharmaceutical commodity mix is changing and more price-sensitive generics are being produced in various parts of the world. Larger, more efficient container ships lead to lower transportation cost and limited CO2 emissions.

Interestingly, the reason put forward by healthcare shippers for the mode shift is often motivated by the reliability of ocean for temperature-controlled shipments rather than cost savings. For ocean shipping, the nature and length of temperature excursions are generally known in advance as excursions most often occur during loading and unloading when the reefers remain without power supply. The time spent on investigating temperature excursions for ocean shipping is usually negligible. In contrast, finding root causes and implementing corrective action for air transportation can take a significant amount of time. Ocean reefer containers capable of heating and cooling in the inside, coupled with tracking and monitoring visibility features, along with sealed doors for enhanced security are attractive technologies for many large shippers.

Even though simple dry containers represent the main supply of available containers, the number of temperature-controlled reefer containers has started growing again, as demonstrated by the increase in the availability of reefer plug-in points at harbors. However, the current limited supply of temperature-controlled containers on a specific shipping line requires long-term planning and disfavors short-term turnarounds. Additionally, steamship lines are sometimes hesitant to carry high value products, and insurance severely limits liability for ocean freight.

For shippers interested in ocean shipping for cold chain shipments, FedEx Trade Networks, the global freight forwarding arm of FedEx Express, offers solutions for ocean. FedEx Trade Networks is an expert in dealing with ocean cargo reefers and implementing standard operating procedures on specific ocean lines. It has built relationships with container shipping companies that share the FedEx commitment towards quality and reliability.

When speed is a top concern, FedEx Express shipments move as fast as possible, mostly at night, in the secure air carrier network owned by FedEx. The time spent on tarmacs at airports is very short for healthcare freight shipments. Integrators deal directly with healthcare companies, which facilitate communication and improvement. The occasional temperature excursions are most often still within acceptable limits determined by thermal stability studies. Shippers can also benefit from FedEx technical expertise to design appropriate shipping solutions and mitigate risks.

As a shipper, it is important that you inquire about the type of transport vehicles (airplanes, sea vessels, trucks, trains) used in the supply chain, and understand the risks and benefits associated with each of them.

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Christelle Laot

Technical Fellow

Dr. Christelle Laot joined FedEx Express in 2007, and is currently Technical Fellow in the FedEx healthcare industry vertical. In this role, she provides direction and raises awareness around trends, transportation regulatory frameworks and shipping solutions. Prior to her work with FedEx, Dr. Laot held managerial positions in R&D, innovation and strategy at Bayer in Germany for about six years.

Dr. Laot obtained PhD and MS in Chemical Engineering from Virginia Tech (USA), a Diplôme d’Ingénieur from UTC Compiègne (France), as well as an MBA from HEC Montreal (Canada).

View all Christelle Laot’s blog posts

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