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New Year, Ongoing Challenges: The State of Healthcare Supply Chain Disruptions in 2024

Key takeaways:

  • Significant global disruptions continue to impact the U.S. healthcare supply chain in 2024.
  • Slowdowns in the Red Sea and Panama Canal, strained trade relations and ongoing international conflicts are casting a shadow over the efficient movement of goods worldwide.
  • Amid this continued uncertainty, the strategic shift to bolster domestic production and supply sources is imperative.

For more on this topic:

  • Read this report to learn how your organization can future-proof its supply chain and stay ahead of disruptions.
  • Download your copy of Premier’s 2023 Resiliency Guide for additional information on strategies to bolster the supply chain.
  • Watch our videos to see how Premier, our members and U.S. manufacturers (DeRoyal and Exela® Pharma Sciences) are supporting sustainable domestic production for vital healthcare supplies and pharmaceuticals.

Extreme weather and the lingering uncertainty of ongoing geopolitical tensions are casting a shadow over the efficient movement of goods worldwide.

These and other global disruptions are driving fluctuating fuel and materials pricing, intermittent availability of products produced overseas and overall uncertainty – forcing U.S. providers to scramble (yet again) to help ensure care continuity in the face of external pressures.

Through Premier’s 2023 Resiliency survey, U.S. healthcare and supply chain leaders anticipated these continued challenges and a broad range of potential risks for supply chains in 2024 – including labor, economic and market factors; raw materials availability and costs; and transportation, geopolitical and cybersecurity threats. More than 75 percent of respondents expected supply chain challenges to worsen or remain the same this year.

What follows is a current overview of key market updates as we start the new year, and guidance for providers on how to mitigate risk and potential disruptions.

Unrest in the Middle East

Following COVID-19 pandemic-driven challenges and more recently the Russia/Ukraine war, the Israel-Hamas conflict is adding to global supply chain unease.

  • Healthcare product and pharmaceutical suppliers may face challenges, including labor availability issues and production stoppages, and higher oil prices impacting indirect imports and transportation costs.
  • Attacks on commercial ships in the Red Sea carried out by Yemen's Houthis in support of Hamas have impacted vital sea-based shipping lanes. Six of the top 10 container carriers have diverted their routes away from the Red Sea, affecting 62 percent of global shipping capacity.
  • Shipping alternatives, such as Africa’s Cape of Good Hope to bypass the Suez Canal, can add 4,000 nautical miles (or 10-14 days) to the journey – potentially delaying product delivery times.
  • These diversions have financial repercussions. For example, container rates from Asia to the North American East Coast and Northern Europe have seen increases of 69 percent and 226 percent, respectively.

Most Premier suppliers are reporting proactive adjustments of their logistics strategies, rerouting shipments and increasing lead times to mitigate the impact of Red Sea disruptions. While some suppliers have already implemented changes to their shipping routes, others are closely monitoring the situation with contingency plans in place.

The conflict highlights the interconnected nature of global supply chains and how geopolitical unrest in one region can have ripple effects on logistics operations and supply chains around the world.

Weather’s Wrath on the Panama Canal

Commercial ships are facing long queues and delays to travel through the Panama Canal. An extended dry season has reduced the water levels necessary to allow vessels to pass through the canal’s locks – triggering a logjam of ships awaiting their turn and slowing shipments of healthcare and other products.

The Panama Canal is responsible for moving 80 percent of global trade, and Canal authorities have placed restrictions on daily vessel transits that are expected to remain for at least several months. Additionally, some ships are being forced to carry up to 40 percent less cargo to avoid hitting the bottom in low-water levels.

Beginning Jan. 16, the Panama Canal Authority (PCA) will increase the number of daily transits from 22 to 24 – compared to the typical 36-40 daily transits. Due to better-than-expected November rainfall and water-saving measures, PCA canceled its previous plans to reduce daily transits to only 18 vessel transits per day by Feb. 1.

Geopolitical Tensions and Global Dependencies

Global trade flows are shifting as importers increasingly look away from China, the world’s largest goods supplier. In 2023, Mexico surpassed China as the U.S.’s largest trading partner.

Despite this shift, China continues to play an integral role in manufacturing medical devices, pharmaceutical ingredients and other technological components. Meanwhile, Taiwan is a crucial player in semiconductor production, dominating the global chip industry with 65 percent ownership and producing 90 percent of the world’s most advanced chips.

In Aug. 2023, the Biden administration issued an executive order with the goal of preventing investments that might inadvertently benefit China’s military and surveillance capabilities. The order bans U.S. investments in Chinese entities focused on advanced semiconductors, artificial intelligence (AI) and quantum computers – areas integral to various industries, including healthcare.

With China and Taiwan crucial to healthcare operations, escalated tensions could create high risk for the healthcare industry – given the region’s overconcentration of supply for critical goods and raw materials, potential trade and transportation challenges, cost implications and cybersecurity concerns.

Premier developed a special report exclusively for our members with in-depth background on the geopolitical landscape and dynamics between China and Taiwan – to provide valuable insights to help navigate the complexities of operating in a global supply chain environment.

What We Can Do

Premier continues to monitor the global supply chain landscape and pursue proactive preparedness efforts, including ongoing supplier communications on contingency planning and continuous updates for our members.

Providers should consider rethinking inventory management strategies as manufacturer lead times have increased. Risk management and contingency plans, diversifying product categories, strong supplier relationships, and leveraging the power of Premier’s group purchasing organization can position providers for greater resiliency during this period of uncertainty. In addition, and alongside the Strategic National Stockpile (SNS), hospitals should maintain appropriate conservation and stockpiling strategies to help keep supply levels maintained.

Premier is continuously assessing product categories that are in unhealthy markets – when a category has two or fewer manufacturers representing 80+ percent of market share – are critical to patient care and can experience potential disruptions due to global supply chain issues.

As such, our Disaster Preparedness and Response team maintains Premier’s data-driven weekly product watch list (available exclusively for members) with actionable information to help mitigate or prevent clinical disruption. Examples of current categories we’re monitoring:

  • Surgical and Isolation Masks
  • Fetal Monitoring Devices
  • IV Therapy Products
  • Surgeon Gloves
  • Blood and Blood Products
  • Neurosurgical Critical Care Products

A Key Solution: Greater Domestic Manufacturing and Supply Sources

Geographic diversification in production and sourcing – including reshoring – continues to gain momentum.

Ninety-six percent of manufacturing CEOs are evaluating reshoring their operations, have decided to reshore or have already reshored – an increase from 78 percent in 2022. And three out of four U.S. healthcare supply chain leaders also say domestic manufacturing is an “extremely” or “very important” component to their organizations’ supply chain resiliency strategies, according to Premier’s 2023 Resiliency survey.

Increasingly, U.S. hospitals and health systems are seeking out diverse and domestic suppliers that can reliably provide product without the worry of higher global shipping costs and potential delays that can impact patient care.

Premier, together with our members, are investing in U.S.-based production. Through our initiatives:

  • Participating Premier members can diversify their supply sources at a price point competitive with overseas manufacturing.
  • Domestic suppliers have increased their production to protect providers from sporadic shortages.
  • We’re leveraging existing production capacity and automation for a more sustainable, long-term approach.

The collaborations with Prestige Ameritech, DeRoyal Industries Inc, Honeywell, PRINCO LLC, VGYAAN Pharmaceuticals and Exela Pharma Sciences provide unique value unlocked by Premier and our group purchasing organization (GPO), enabling differentiated access to high-quality, domestically made supplies and a host of pharmaceuticals.

If your health system shares in the belief that we need increased domestic resiliency and are interested in participating in one or more of Premier’s programs, please contact us.

Building a proactive culture around mitigating disruptions and improving resiliency is critical to our future success.

Amid an environment of ongoing uncertainty, Premier continues to arm our members with the information, support and solutions needed to both tackle cost imperatives and enable access to the vital products providers need to care for patients.

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