Companies need to navigate the stormy waters of the Red Sea amid Houthi threats and global supply chain challenges

The United Arab Emirates (UAE) has established itself as a critical hub in the global pharmaceutical supply chain, attracting major players like Sanofi, Novartis, and Pfizer. This prominence is due to its strategic location, advanced logistics infrastructure, and conducive business environment. However, the stability of this hub is under threat due to increasing regional tensions, particularly the Houthi militia’s missile attacks on commercial vessels in the Red Sea, a vital conduit for global trade.

Lisa Anderson, president of LMA Consulting Group, captures the essence of the situation: “The rebels are not predictable in their attacks on ships in the Red Sea area.” These disruptions have led to significant logistical challenges, including the need for rerouting shipping lanes which, according to Anderson, “adds two weeks to the trip” when vessels are diverted around the Cape of Good Hope.

The impact on the pharmaceutical industry is notable, with increased transit times and freight rates affecting the cost structure and supply chain efficiency. The diversion of shipping routes to avoid the conflict zones has led to more than a 100 percent increase in shipping costs. This change disproportionately affects the delivery of pharmaceutical products, where timeliness and cost-efficiency are paramount.

“The strategic situation is complex at the minute, because there are so many problems in the Panama and Suez Canals, and there are only so many shipping routes,” Anderson says.”

Faced with these challenges, pharmaceutical may be reassessing their supply chain strategies. The industry, historically reliant on efficient, just-in-time manufacturing and delivery models, is likely contemplating more robust approaches to mitigate risks. Anderson mentions that some firms are considering regional manufacturing to reduce dependency on vulnerable shipping routes.

Anderson said some pharma firms are accelerating their shift to regional manufacturing, to reduce their exposure to shipping problems. “They had been reluctant to move to regional manufacturing because it represents a significant investment,” she explains. “But you have to make sure you are ahead of these types of problems. No one expected to have so many problems at one time.”

It’s worth noting that several major pharmaceutical companies declined to comment on this story, with one saying that they were “monitoring the situation.”

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