Unpacking Total Landed Cost to break the habit of paying more for less

Cihan Likogullari, head of EMEA at Envirotainer, explores how calculating Total Landed Cost can help pharma companies make more informed decisions about packaging and the hidden costs that may come alongside it.

Key highlights:

• TLC is the overall cost of getting a shipment from one place to another - the total cost of “landing” a consignment where it needs to be.
• What you save on a cheaper packaging solution can be more than offset by hidden costs of air freight and auxiliary costs, and the probability of product loss.
• By understanding what costs occur in what parts of the cold-chain, more informed decisions can be made from a risk-cost approach.

When shipping vaccines or any other temperature-sensitive medical solution, pharmaceutical companies are choosing between two types of packaging: temperature-controlled or passive. Both have their place in the market. Both have advantages depending on the context. However, one assumed benefit often attributed to passive packaging needs careful consideration: low cost.

Pharmaceutical companies are accustomed to passive packaging. This often comprises disposable boxes with insulation and cool packs, usually using dry ice, frozen water or other freezing media that needs to be conditioned correctly. They’re environmentally unsound and have higher risks associated with them. But they’re a known entity and tend not to have up-front costs. This makes them appear as the seemingly less costly option.

But if you calculate the Total Landed Cost, it becomes clear that in most cases, active temperature-controlled solutions are the less costly alternative. Thinking that the cost of the box is the same as the cost of shipping often leads pharma companies to not realising that they are, in essence, paying more for an inferior solution.

How is Total Landed Cost calculated?

TLC is the overall cost of getting a shipment from one place to the other – the total cost of “landing” a consignment where it needs to be.

When comparing the costs of the containers, active temperature-controlled solutions do cost more than their passive counterparts. Using a TLC calculation illustrates that in most cases, what you save on a cheaper packaging solution is unfortunately more than offset by higher costs for air freight and auxiliary costs, not to mention the risk of product loss.

This might not always be clear to the decision-maker within the logistics team at a pharmaceutical company. Or it might not always be their problem to deal with, because the various costs associated with shipping pharmaceuticals using passive boxes are often spread over a number of different departments, making it difficult to see (and be responsible) for the whole picture.

The TLC of a shipment is the cost of packaging added to the cost of air freight, plus auxiliary costs and the probability of the cost of product loss. It’s an acknowledged calculation used in the industry, although some methodologies may not include every single saving.

Where are the hidden costs?

To understand how TLC can be lower for a premium product, it’s worth considering the costs beyond the container hire separately to see how they add up.

• Air freight costs

Airline rates are calculated using freight weight and volume. Space is limited now and will continue to be for months or even years. Towards the end of 2021, global flight capacity was 28 per cent below the same period in 2019. As a result, air freight cost is a high proportion of the overall TLC. To ship large volumes of pharmaceuticals, it becomes increasingly important to use packaging solutions that are as efficient as possible, reducing space and weight, which both increase costs. Active containers have a payload efficiency of 50 – 55 per cent compared to 15 – 45 per cent for passive. Overall, they can be up to 35 per cent more space efficient.

• Auxiliary costs

Active containers are simple-to-handle and can charge in as little as eight hours. They’re also designed as Unit Load Devices (ULDs) for a perfect fit on an aircraft and forklifting. On the other hand, passive solutions require more time and resources. Preparation can take up to five days, with coolants requiring up to three days for pre-conditioning, followed by manual assembly. The cost of handling is much lower with active.

• Product loss costs

This is often entirely forgotten and can be the biggest cost of all. Even just the suspicion of a temperature deviation in transit adds thousands in costs to investigate. If it’s found that a consignment has been damaged or doesn’t meet temperature regulations, it must be scrapped. This is expensive and touches all areas of the pharmaceutical business. It’s worth accounting for this because a small proportion of vaccines are degraded by the time they arrive at their destination. Active containers often make use of live monitoring, providing access to data about the status of the cargo. This can flag any issues and allow intervention if needed, reducing losses.

Calculating TLC is not as straightforward as looking at a price list. But it does help provide the full picture. By fully understanding what costs occur in what parts of your cold-chain, you can take more informed decisions and make sure you always have the right solution from a risk and cost perspective.

Why active solutions should be considered

TLC is a useful methodology pharmaceutical firms can use to support the case for an active solution. In doing so, they can maximise the safety of a shipment, and make it more cost effective too.

In short, it’s better and less expensive. Like having a luxury eco-bus to transport a group of people rather than a fleet of gas-guzzling motorbikes.

When viewed like this, there is an opportunity for the industry to break the habit of paying more for less – especially at a time when throwing precious resources away is counter to every sustainability goal the world is striving to meet.