Hong Kong Logistics: The Cold Supply Chain
21 April 2021
Since the first case of confirmed coronavirus infection in Hong Kong was reported on 23 January 2020, the city’s logistics industry has been scrambling to adapt to the immense pressures exerted by the pandemic-induced increase in demand for PPE (personal protection equipment), medical supplies and e-commerce shipments, as well as the disruptions to the global supply chain caused by worldwide industrial shutdowns and travel restrictions in the wake of the pandemic.
Widespread citywide and national closures and quarantines have been shutting down factories and producers in the world’s supply chains since the outset of the Covid-19 outbreak. A large number of manufacturers across the world have been experiencing problems with supplies of raw materials, intermediate goods and finished products, forcing many to declare force majeure with their upstream or downstream counterparts as they find themselves unable to fulfil their contractual duties given the highly uncertain lead times.
Complicating the matter further are the stringent virus containment measures widely adopted by governments worldwide. The ailing aviation industry has been particularly badly hit – naturally so given that its raison d’être is the transport of people and goods. The passenger aircraft sector has seen its capacity slashed. As it accounts for more than half of the world’s air cargo, this has applied unprecedented pressure on global air traffic and, as a result, freight costs. Even worse, the uncertainty regarding lockdowns and traffic restrictions has made the competition for space and time difficult and unpredictable, even for major air‑freight integrators which operate their own cargo freighters. The same problems have been observed among ocean carriers, which have been revving up blank sailings (skipping certain stops on a specific route) and cancelling strings (suspending certain routes) at scale, giving rise to container and terminal congestion at several main ports, while others are facing a shortage of empty shipping containers or a lack of space on vessels.
While the full economic and financial ramifications on the global supply chain remain fluid, there is no doubt that the global supply chain is set for a major shake-up. The pandemic has exposed vulnerabilities rooted in the recent past decades of growing globalisation. The pandemic can be considered a so-called “black swan event”, forcing stakeholders to transform their global supply chains into digitally intelligent or smart models.
With the deployment of vaccines offering a ray of hope in the fight against the pandemic, the vicious circle of exorbitant freight cost and logistics constraints on the movement of goods and people is likely to be broken soon. Many logistics practitioners in Hong Kong are repositioning themselves to exploit the opportunities likely to emerge from the anticipated changes in supply chains in a post-Covid-19 world.
Louis Chan, Assistant Principal Economist (Global Research) at HKTDC, interviewed Fong Wai-ting, Head Country Management and Vice President of DKSH Hong Kong’s Healthcare section. He shared his views on how DKSH, a leading provider of Market Expansion Services for healthcare, consumer goods, performance materials and technology companies, is looking to grow its business in Asia, riding on Hong Kong’s reputation for quality and transparency.
Chan: How is the Covid-19 crisis reshaping the logistics industry?
Fong: The industry is experiencing a dramatic structural change amid fluctuating and unpredictable demand and supply changes that not only increase the complexity but also decrease the accuracy of any possible forecast.
Logistics infrastructure, located in mature or emerging markets or serving different demands such as airports, seaports, highways and rail systems, has been revealing its limitations. These have been exacerbated by the unprecedented demands on the extensive distribution network, with geographical shutdowns posing threats to fulfilment on a scale never seen before, and fast-evolving consumer expectations for same-day or next-day deliveries creating a far more complex retail and last-mile logistics narrative – that is, a more personalised consumer supply chain – for all logistics players.
The difficulty of preserving agility amid these uncertainties has shown the need for better resource deployment and the implementation of mandatory as well as voluntary safety and security measures. The pandemic-related challenges have increased people’s understanding and willingness to follow safety policies, particularly in the different Asian markets where demographics, economic developments, political environments, national policies, legal frameworks and domestic regulations are radically diverse.
Because we are anticipating that recovery will be boosted by vaccine provision, cold chain logistics are an increasing concern for everybody, especially so because the vaccines are a precious commodity with a high degree of volatility. Delivering vaccines to all corners of the world is in itself a complex undertaking, requiring a high-quality, reliable and predictable cold chain or a temperature-controlled (2-8°C for most vaccines) supply chain that includes all equipment and procedures used in the transport, storage and handling of vaccines from the time they are manufactured until they are administered.
Chan: Freight challenges and restrictions on healthcare and pharmaceutical supply chains have been prominent during the coronavirus outbreak. How have logistic players been keeping up with the pace amid worldwide logistics constraints?
Fong: To ensure a minimal disruption on the global supply of vaccines and other highly sought-after pharmaceutical products, logistics players have had to build a solid 360-degree strategy.
Take DKSH Hong Kong’s Healthcare section as an example. We’ve developed different scenario-based business continuity plans with different risk management strategies and regular drills to keep our resources and structures fit to meet the challenges they face, by preparing different contingent measures in collaboration with our own expert teams, third-party service providers and other industry players.
While the ups and downs of infection rates and lockdown measures have made unpredictability the only thing that is certain, technological advancement has made our life a tad easier. It allows us to engage digitally with colleagues, clients and customers – information exchanges, progress updates, reviews and planning discussions with our various stakeholders internally and externally – on a 24/7 basis.
To ensure our operations – and the supply of essential medical and pharmaceutical products – remained uninterrupted during the widespread lockdowns and travel bans (and also to protect our supply chain staff), we implemented what we call a “total quarantine solution” in consultation with epidemiologists from our health and security service partner International SOS. The hospital-like quarantine process has enabled us to safeguard the health and safety of our employees and our partners’ employees, and thus keep our services stable and reliable during this period of uncertainty.
Chan: Is automation a game-changer for the logistics industry?
Fong: Automation is definitely crucial for logistic players in order to maintain an intact, stable, efficient and effective operation – not only when human resources are severely compromised by stringent social distancing and virus containment measures during Covid-19, but also in response to the expected boom in demand for healthcare products afterwards.
A good case in point would be the automated guided vehicles (AGVs) that have been gliding along the pressure-treated floors of our 13,000 m2, GMP/GDP-certified distribution centre in the Mapletree Logistics Hub Tsing Yi since our expansion in 2018, alongside other long-term investment throughout the years on many other automated storage, sorting, retrieval and conveyor systems.
More recently, to prepare for the upsurge in demand for vaccine and pharmaceutical delivery, we’ve also put in place diesel generator sets with unlimited hours of operation, which are commonly used in leading data centres to ensure a continual reliability of power supply in the event of any external outages. Alongside these are individual power supply monitoring systems and medical-grade refrigerators and freezers which maintain superior temperature stability in our distribution and warehousing facilities. To optimise storage capacities, we’ve also invested in mobile rack systems to reorganise the rack aisles into areas for logistics and other functions. This is designed to create new space.
With modernised automation solutions, time and location become unbinding, while capabilities can be used to improve efficiency, offer 24-hour deliveries, scale up IoT networks, rethink standard operating procedures (SOPs), and reassign and retrain talents.
The lingering pandemic is widely considered to have been a wake-up call for an industry overhaul, providing strong incentives for logistics players to improve their hardware – such as cold chain storage and processing facilities that are capable of handling more demanding requirements (e.g. -15 to -25°C cold rooms for the handling of some virus masters and vaccines) – and software. This would include safe and effective management protocols for controlled drugs such as vaccines and various clinical diagnostic kits or samples, and the registration of qualified healthcare professionals such as registered pharmacists who are competent and eligible to process and dispense controlled drugs in preparation for the “new normal”.
It’s also worth noting that the trade remains very open to the idea of so-called “contactless delivery” using drones or other autonomous vehicles. These technologies are in fact no stranger to the logistics industry, as some companies are already using drones to do last-mile deliveries, while autonomous food and essentials delivery is commonplace in the hospitality industry. But of course, more widespread application will rely on a more tech-friendly regulatory environment, more tech-ready infrastructure and flexible traffic conditions, alongside product feature harmonisation in line with client and customer habits and quality benchmarks.
Chan: What about the vaccine logistics? Is Hong Kong ready to play a role there?
Fong: My answer is definitely yes. Since the onset of the pandemic, the majority of logistics players in Hong Kong have been putting money and resources into the development and enhancement of their cold chain capabilities to meet the market outcry for cold chain storage and distribution services.
Many Hong Kong logistics companies are trusted partners of international medical supplies and pharmaceutical manufacturers. At DKSH Hong Kong, we’ve well-established relationships with large vaccine manufacturers and over 97 years of experience of being their trusted partner to distribute vaccines even before the Covid-19 episode. Like other leading healthcare service partners in Hong Kong, we not only provide comprehensive cold chain storage and distribution solutions to our clients and customers, but also distinguish ourselves through top-notch automatic driven management systems, round-the-clock service teams and real-time temperature monitoring. As with our Thailand team, which has recently been tasked by the Thai government with storing and distributing the country’s first two million Covid-19 vaccines, our Hong Kong set-up is more than ready to meet the needs of the local, Greater Bay Area (GBA) and regional post-pandemic cold chain logistics market.
Having raced to the top of the global health and economic agenda following the Covid-19 pandemic, cold chain logistics is likely to remain the top priority for the global logistics industry. For Hong Kong, where trading and logistics is one of the four pillar industries, accounting for 21% of our GDP and 19% of the city’s total employment, logistics, maritime and aviation industries combined, it will continue to play a pivotal role in sustaining economic growth, gearing up in synchronisation with the upsurge in demand for better and smarter logistics solutions.
Hong Kong is coping with the growing demand for express and small parcel delivery during the pandemic by expanding the city’s express air cargo terminal to increase the handling capacity by some 50% to over a million tonnes per year after completion in 2022, and by building a new premium logistics centre which is going to bring an additional 1.7 million tonnes of air cargo per year to Hong Kong after it is scheduled to come into operation in 2023. In the same way, the city’s logistics sector is committed to applying smart technology to be in a better position to meet evolving needs, and enhance operational efficiency and productivity.
Wider adoption of technology would add value for our partners and consumers in the region and across the globe, thus raising our competitiveness as a regional logistics hub. To this end, the Hong Kong Government has rolled out a HK$300 million scheme to encourage the sector to adopt more technology and IT solutions.
I’m confident that Hong Kong’s logistics industry, with proper investment and regulatory proposals to help solve the implementation issues of new or proposed regulations, will become even more resilient after Covid and will continue to be a trustworthy partner for global healthcare and pharmaceutical businesses looking to further their business in the region.
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