Where Are We Now?
In July 2023, the import market seems quieter than it has been in years, but recent months remind us of the potential shortages and challenges that have haunted the public health sector.
It's essential to remember the journey the global medical supply world went through from 2020 to 2022. During those turbulent times, we, in the global logistics industry, witnessed firsthand the complexity and fragility of the global supply chain in a public health emergency, which was further plagued by healthcare supply chain issues.
The pandemic response was an unprecedented global event, placing tremendous pressure on the health system and supply chain. From Personal Protection Equipment (PPE) such as medical gloves, masks, and respirators to COVID test kits and vaccines, manufacturers, and North American importers, including domestic manufacturers, scrambled to meet demand.
In 2020 and 2021, the demand for imported medical products like generic drugs and other vital supplies skyrocketed. At the same time, overseas COVID lockdowns and U.S. trucking constraints effectively stalled the North American supply chain.
In short, Americans faced product shortages and could not access crucial medical supplies when needed the most. These challenges were due to logjams at overseas factories and U.S. ports, underscoring the necessity for a more resilient system and perhaps a renewed focus on domestic manufacturing of generic drugs and other medical products.
How did we get here?
Mike Bowen, executive vice president of Texas-based mask and respirator manufacturer Prestige Ameritech, has stated that it was around 2005 that “The surgical mask supply went from being 90% U.S.-made to being 95% foreign-made in literally one year…”
To put things in perspective, about 82% of ICU ventilators are currently manufactured outside of North America as well as 98% of surgical gloves, amongst other medical goods.
Although there are US-manufactured pharmaceuticals, most finished pharmaceuticals are dependent upon Active Pharmaceutical Ingredients (APIs) which are the principal functional constituents of the drugs we take. An estimated 80% of the world’s APIs come from China, India, and a few other foreign origins. North American dependence on these sources was further stretched during the COVID-19 pandemic when India imposed a ban on the export of medicines.
It’s easy to look back on the heels of a pandemic and criticize the decision to move medical supply manufacturing overseas. However, these manufacturers made the same decision that thousands of companies have made since the turn of the century. The transition to foreign manufacturing for each of these was driven by low manufacturing costs and skilled overseas labor.
What should we do about this?
The most prevalent cons to reshoring to North America include the following:
1. ENVIRONMENTAL IMPACT
Beyond lower manufacturing costs, some medical suppliers have chosen overseas operations due to less stringent environmental regulations in other countries. By shifting manufacturing from overseas, there would be new environmental impacts near North American operations.
2. COST AND AFFORDABILITY
One of the main reasons manufacturers moved operations overseas was to take advantage of lower manufacturing costs and fewer regulations overall. If operations moved back to North America, companies would likely pass on the costs to the consumer. From personnel costs to taxes, nearshoring may be less cost-effective.
As manufacturers consider nearshoring, time will be a major factor in their considerations. It will take considerable time to build clean, safe manufacturing facilities. Additionally, it will take time to train workforces so that they can work safely and professionally. Aside from cheaper labor and operating expenses, overseas workforces are better equipped for large-scale manufacturing work. Getting things up and running in North America will take time.
Let’s take a look at the pros:
1. SUPPLY CHAIN RESILIENCE AND NATIONAL SECURITY
Make no mistake, access to pharmaceuticals and medical supplies is a matter of national security. COVID-19 highlighted the extreme vulnerability and the need for supply chain resiliency, but none was more impactful that the supply of medical supplies, essential drugs, and medical devices. American reliance on foreign partners, ally or not, for critical supplies, is not a safe or sustainable practice. What good is a medical supply chain if it fractures when we need it the most?
2. QUALITY CONTROL AND SAFETY STANDARDS
A primary advantage of reshoring production to the United States is the ability to administer rigorous FDA quality control and safety standards. By reshoring, the US would be better able to monitor and regulate the entire manufacturing process, reducing the risk of substandard or counterfeit drugs entering the market.
3. JOB CREATION AND ECONOMIC GROWTH
Relocating production back to the USA could lead to economic growth in current economically underperforming areas. Places like rural Minnesota, for example, have well-educated citizens, but little manufacturing. The same can be said for a myriad of areas around the USA. Simply put, reshoring production would supply significant employment opportunities for American workers across diverse levels of education and skill. Increasing domestic investment in production would likely foster American innovation and technological advancements in the medical sector, this would in turn drive long-term economic benefits.
4. SUPERIOR REGULATORY OVERSIGHT.
By bringing the production back to the USA pharmaceuticals and medical equipment and supplies would be subject to more stringent regulatory control. This would in turn foster higher standards of quality, safety, and efficacy of pharmaceuticals produced in the USA.
5. INTELLECTUAL PROPERTY PROTECTION.
Not every nation has the same defined views of intellectual property rights that we have in North America and the European Union. Many of the pharmaceuticals being produced in China and India were first developed in USA labs before entering full production status. Relocating production to the USA would provide a higher level of protection while reducing the risk of counterfeiting or other unauthorized replication of original and unique pharmaceuticals.
Overcoming Medical Supply Chain Challenges
There are clearly pros and cons to the points laid out above, however, our current medical and pharmaceutical supply situation is a matter of national security. The health of the American people is paramount in this debate, so manufacturers and American citizens must start to consider nearshoring production as soon as possible. It may require a public–private sector partnership to get this done, but spending money to address this issue is surely more advantageous and beneficial to the long-term safety of the American people than the innumerable hotspots around the world that are currently draining our resources with little domestic benefit.
For more information on optimizing your medical supply chain operations, contact ASF. Our team has the experience, knowledge, and proactive approach to transform your global logistics plan.
Meet Our Expert
This article is reviewed by Jeffrey D. Plumley, Chief Commercial Officer and Licensed US Customs House Broker.
Jeff has an extensive background in global logistics, spanning various freight forwarding executive management positions. As a Licensed US Customs House Broker, he has managed regulatory compliance and is a worldwide expert in Flexitank transportation logistics.
In addition to his strong forwarding and Flexitank background, Jeff was also Head of Regulatory Compliance and Sales for a major global logistics software provider. He has over 30 years of logistics experience and a strong leadership background having graduated from the Citadel.