Medical device industry wants priority at crowded ports

by: Matt Blois, Medically Necessary

The request: 
Last week, AdvaMed, the lobbying organization for the medical device industry, sent a letter to the White House asking the Biden administration to prioritize shipments of medical devices at crowded ports. 

The letter doesn’t include many details about how such an arrangement would work, and AdvaMed didn’t respond to questions about the request.

While the letter is addressed to the White House, the federal government doesn’t have the power to influence the prioritization of specific containers at most points in the long and complex supply chain for medical devices. 

The background: 
The demand for physical goods soared during the COVID-19 pandemic, putting a strain on ocean shipping routes from East Asia to the U.S.

In late May and early June, a COVID-19 outbreak at the Port of Yantian, a major port in China, slowed down supply chains even more.

The Port of Yantian has recently returned to full operations, but it could still take at least a month to work through a backlog of containers waiting for ships, FreightWaves reports.

(Chart: FreightWaves SONAR)

The letter from AdvaMed indicates that medical device companies are feeling all these trends acutely.

“The challenges at major U.S. and international ports — including container shortages, limited unloading space and insufficient trucking capacity — continue as purchasing behavior in this country has dramatically shifted during the pandemic,” CEO Scott Whitaker wrote in the letter.

The medical device industry is hardly alone in calling for help. On June 14, the National Retail Federation sent a similar letter to the White House calling on the federal government to address port congestion. 

The increase in spending on goods isn’t slowing yet, and some industry experts expect ocean transportation to remain difficult through 2022.

The problems: 
Willy Shih, a professor of management at Harvard Business School, said AdvaMed’s request doesn’t make much sense because the U.S. government doesn’t dictate which containers get space on ships leaving Chinese ports. It’s ocean carriers that make that decision, he said.

“What is President Biden going to do to alter that Chinese process?” he told FreightWaves. “How are you even going to do that? Unless what you’re going to do is send Air Force transports to pick it up.”

Prioritizing a few containers, on ships that carry thousands, for unloading after they arrive at U.S. ports would also be incredibly complicated, Shih said. It would likely make the unloading process less efficient.

“The cost, really, is screwing up everybody else and raising overall costs,” he said.

The U.S. government could conceivably lean on customs officials to make sure shipments of medical supplies move through smoothly, but that’s only one step in a long process. 

Rather than asking government officials for special treatment, Shih said the best way to overcome problems associated with crowded ports would be paying more for expedited service.

“There’s the market solution. You pay a … premium and you get premium service,” he said.  

Special treatment: 
In some cases, transportation companies are already giving priority treatment to shipments of medical products. 

“During negotiations with customers for space allocation we prioritize requests based on urgent PPE and other Medical cargo,” Nissim Yochai, EVP, trans pacific trade with the ocean carrier ZIM, told FreightWaves via email. “Prioritization also means expedited handling upon arrival, fast release and delivery to final destination.” 

ZIM also sets aside space for containers with personal protective equipment on its express service to U.S. ports. 

The long view: 
AdvaMed’s letter asks the White House to consider the recent ocean shipping problems as it develops a long-term strategy to make the health care supply chain resilient. But Shih said that’s shortsighted.

He recently authored an essay in Harvard Business Review arguing that the U.S. should instead focus its long-term strategy on increasing domestic production of medical supplies, especially PPE.

“If you want a secure domestic supply, you can’t let [domestic manufacturers] be the marginal producers,” he said.

However, that goal could be costly and difficult to achieve. In May, the American Mask Manufacturer’s Association reported that Chinese manufacturers were selling masks at prices that were less than the cost of materials. As a result, the trade organization warned that many members could soon go out of business.