COVID-19 and the vaccine supply chain

The prospect of transporting COVID-19 vaccines by sea has intensified the spotlight on the maritime industry’s cold supply chain and its ability to carry high-value pharmaceuticals.

At present, speed to market is seen as critical for stemming the spread of the pandemic, so the vaccines are being shipped by air to international destinations. Delivering them by sea is seen as a longer-term strategy; and certainly, the present urgency would have to calm considerably before enough confidence could be built to support delivery times in weeks, rather than hours.

While the majority do not expect the COVID-19 vaccines to be carried by sea anytime soon, there are some container lines, particularly those with established ‘cold chain’ infrastructure, partners and expertise, who believe opportunities could materialise within the next year and are preparing to capitalise.

Some are already moving other vaccines and they believe that sea transport will become ‘relevant’ to the transport of the COVID-19 variety when the output from manufacturers becomes more predictable.

In general, container-shipping lines have had success prising a growing portion of the global market for the transport of pharmaceutical products away from their air transport competitors. Pre-COVID, it was estimated that about 3.5 million tonnes of pharmaceuticals moved by sea each year, against 0.5 million tonnes by air¹.

Revenues for the broader ‘cold chain’ industry – the ‘refrigerated’ part of the end-to-end supply chain – itself were estimated last year at US$73bn, and growing².

Pharmaceutical shipments have been slowly migrating to sea transport for the past 20 years as confidence grew in the quality and security of the marine ‘cold chain’; for example, AstraZeneca, one of the makers of COVID-19 vaccines, has increased the proportion of wide array of pharma products it shipped by sea from 5% in 2012 to nearly 70% in 2017¹.

Because vaccines are volatile and valuable, it follows that their owners are only likely to entrust experienced cold-chain carriers to get their products to market. The Pfizer-BioNTech vaccine, for example, must be consistently stored at -70C, or it will be rendered unusable³. The vaccines of its competitors Moderna (-20C) and AstraZeneca (2C-8C) have less demanding temperature requirements, but they are still subject to stringent environmental quality and security controls during transport.

Aside from stringent environmental control requirements, risk assessments for insurance contracts for pharma shipments by sea need to consider the comparatively high product valuations per conveyance. As pharma shipments that travel by sea are generally larger than those sent by air, a totally lost COVID-19 vaccine shipment could potentially represent a loss as high as US$50m.

Because the COVID-19 vaccines are highly valuable and potentially volatile, insurance contracts need to be carefully constructed to respond to the characteristics of each shipment.

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With various factors placing stress on the global cold chain, it is important that shippers understand their exposure and how their marine cargo policy would respond to potential scenarios in the event of a claim.”

Thomas Stubler | Pharma Industry Cargo Lead, Willis Towers Watson.

With various factors placing stress on the global cold chain, it is important that shippers understand their exposure and how their marine cargo policy would respond to potential scenarios in the event of a claim.” Thomas Stubler, Pharma Industry Cargo Lead, Willis Towers Watson.

Standard limits to liability established by national regulatory bodies are likely to fall short of shipment valuations and as there is no standard template to limit liability globally, it’s important each policyholder for COVID-19 vaccines shares their unique risk profile to determine their insurance policy limits, agreed between the insurers and policyholders prior to policy inception.

Limits of liability are typically established according to the maximum value of the carrying conveyance, with the onus on the policyholder to provide proof. Insurers will generally provide limits up to the value of the cargo transported and most pharmaceutical companies have large insurance limits, which can be subject to limits on accumulation and can be substantial.

Limits per shipment are not specifically set for COVID-19 vaccines. But, as a loss under a transport policy would very likely result in a loss of sale (without any replacement being readily available), it’s likely the shipper of the vaccines would expect any compensation to be based on the selling price - at least based upon current scenarios. 

The vaccines’ retail price has been estimated by some manufacturers at $20-$25 per dose⁴. With the International Air Transport Association and the World Health Organization both expecting up to 25% of the vaccines to be ruined every year due to poor temperature control, it is easy to see how the financial risks could rise considerably for all parties⁵.

Also, because cyber attacks remain a real risk for such socially vital cargo - all parties should ask whether most marine cargo policies would respond to an attack that damaged all or part of their vaccine consignment. With recommendations in the form of the International Maritime Organisation’s (IMO) Cyber Security Guidelines, those involved in the distribution of vaccines will need additional comfort that their transportation providers are working towards compliance with the new guidelines and/or already have a robust framework in place to protect them from this emerging risk⁶.

Many marine cargo policies have multiple cyber exclusions that could rule out compensation for loss, damage, liability, or expenses stemming from an event with “malicious intent” to cause loss, whether directly or indirectly.

Also, ‘exclusion’ is a very broad term that is widely used in dedicated cyber policies, so insureds would be wise to ask whether their marine cargo policy would protect them in the event of shortfalls brought about by any cyber exclusion language. The issue of cyber has been under the spotlight since the Prudential Regulation Authority (PRA), mandated that from 1 January 2020 contracts of insurance in the London market need to be affirmative on cyber, as opposed to “silent”⁷.

In general, the prospect of clients transporting volatile and highly valuable COVID-19 vaccines will heighten scrutiny from the insurance community. In today’s market, marine insurers will want more details about most of the links in their client’s supply chain and its third parties, before underwriting. These questions could include:

• Carrier and warehouse vetting processes
• Details of any loss control or risk management protocols and tools, such as GPS tracking devices, temperature recording devices, etc, including whether those items are monitored by the policyholder’s employees, or third parties, even in warehouses
• Details of contingency plans in the event of a conveyance breakdown at any point within the transit from origin to final destination
• With respects to temperature-controlled shipments, how are the goods packed/transported to minimise the potential for changes in temperature?
• What security measures exist to minimise potential of theft and non-delivery of products

But any marine cargo insurance policies – even for experienced pharmaceutical carriers – will need to be re-examined to ensure they will respond to the risks inherent in carrying these precious goods.

Footnotes

¹ https://www.biopharminternational.com/view/poseidon-takes-pharma-supply-chain

² https://vrr.aero/this-is-vrr/news/2020/the-role-of-cold-chain-logistics-in-the-pharmaceutical-industry

³ https://www.ft.com/content/49d4a7ff-a20c-4ac2-84f7-d9dbab1d431f

⁴ https://www.forbes.com/sites/katiejennings/2020/11/17/how-much-will-a-covid-19-vaccine-cost/?sh=eefc5fc576de

⁵ https://www.cambridgenetwork.co.uk/news/transporting-temperature-sensitive-covid-19-vaccines

⁶ https://www.imo.org/en/OurWork/Security/Pages/Cyber-security.aspx

⁷https://www.lloyds.com/~/media/files/the-market/communications/market-bulletins/2019/07/y5258.pdf