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Who gets a piece of the high-profit medical device logistics pie?
Release time:
2025-03-12 09:42
China's medical device industry is developing rapidly, bringing broad development opportunities for medical device professional logistics. However, due to the specialized nature of medical equipment, products, and distribution channels, medical device logistics in China has not received widespread attention, and the number of professional medical device logistics companies is very small. This is disproportionate to China's medical device market size of nearly 600 billion yuan.
【Core Reading】
1) A medical device market with a scale of nearly 600 billion yuan drives a logistics market exceeding 10 billion yuan;
2) In the four major sub-sectors of medical devices, leading logistics companies have yet to emerge, and professional companies are also few and far between;
3) The high-profit medical device market attracts many logistics companies to participate. Compliant operations are the right path, followed by continuously expanding network coverage.
1. Overview of the Medical Device Industry
The market size of the medical device industry has maintained a growth trend, and the market size is expected to exceed 600 billion yuan in 2019. In developed countries' medical and health markets, the consumption ratio of pharmaceuticals and medical devices is 1:1, while in China it is only 1:0.25. This shows that China's medical device market has enormous development potential, and the logistics market size will continue to expand.
1.1 Market Size Will Exceed 600 Billion Yuan
Influenced by national medical device industry support policies, the market size of China's medical device industry has maintained steady growth over the years. Data shows that in 2018, the market size of China's medical device industry was approximately 530.4 billion yuan, with a growth rate of approximately 19.19%. It is estimated that in 2019, the market size of China's medical device industry will exceed 600 billion yuan, reaching approximately 636.5 billion yuan. Based on the logistics and transportation cost accounting for approximately 1% to 2%, it can be concluded that the logistics market size in this field in 2018 may exceed 10 billion yuan.
1.2 Market Share of the Four Major Sectors of Medical Devices
Medical devices can be divided into four major sectors: high-value medical consumables (such as cardiovascular and orthopedic implants), low-value medical consumables (such as indwelling needles and syringes), medical equipment (such as medical imaging equipment), and IVD (in vitro diagnostics) (such as diagnostic equipment and reagents).
According to calculations by the Medical Device Research Institute, in 2018, the medical equipment market remained the largest segment of the Chinese medical device market, with a market size of approximately 301.3 billion yuan, accounting for 56.80%, and a logistics market size of approximately 30.13 billion yuan; followed by the high-value medical consumables market, with a market size of approximately 104.6 billion yuan, and a logistics market size accounting for approximately 4.2 billion yuan, or 19.72%; while China's low-value medical consumables market size was approximately 64.1 billion yuan, with a logistics market size of approximately 12.8 billion yuan, accounting for 12.09%, a year-on-year increase of 19.81%.
1.3 Upstream and Downstream Customer Groups of Medical Device Logistics
1) Upstream medical device manufacturers: Mid-to-low-end medical device products, ranking first in the world in terms of output
China has become an important global production base for medical devices, accounting for approximately 16% of the global medical device market share. In many mid-to-low-end medical device product areas, it ranks first in the world in terms of output, but the majority of China's high-end medical device market share is still occupied by foreign companies. In the field of high-value medical consumables, foreign companies account for the vast majority, mainly including large manufacturers such as Johnson & Johnson, Stryker, and Zimmer Biomet. In the field of in vitro diagnostics (IVD), the vast majority is still held by large foreign companies such as Siemens, Roche, and Abbott.
There are approximately 16,000 medical device manufacturers in China, with only 2 having an output value exceeding 10 billion yuan; there are more than 410,000 operating companies, with only 5 having an output value exceeding 10 billion yuan. According to statistics from the Medical Device Research Institute, there are currently 52 listed medical device companies in China, and the top five are listed below.
Among domestic listed medical device companies, the IVD market accounts for the largest proportion, with 23 listed companies, accounting for 44.23%; followed by the medical equipment market, with 12 listed companies, accounting for 23.08%.
2) Downstream channels: Medical and healthcare institutions account for a huge market share
In the downstream channels of medical devices, hospitals account for the vast majority. In 2018, there were 1 million medical and healthcare institutions nationwide, and 32,000 hospitals, including 12,072 public hospitals and 20,404 private hospitals. There were 950,000 primary medical and healthcare institutions, including 35,000 community health service centers (stations), 36,000 township health centers, 630,000 village clinics, and 228,000 clinics (infirmaries). There were 19,000 specialized public health institutions, including 3,469 disease prevention and control centers, 3,141 health supervision offices (centers), and 3,000 other institutions. Currently, the medical facilities in primary hospitals in third- and fourth-tier cities are not well-equipped. With the implementation of the new medical reform policy, the existing uneven distribution of medical resources will be improved.
2. Medical Device Logistics
The four major sectors of medical devices choose different transportation methods based on the characteristics of the products. Compared with pharmaceutical logistics, the transportation requirements are relatively simple. Except for in vitro diagnostic reagents that require cold chain storage and transportation, the transportation of other products is no different from general cargo transportation. In the entire logistics chain, in addition to the sales link, there is also a medical device testing link, that is, before medical devices are put on the market, they need to obtain a test report issued by a testing center designated by the National Medical Products Administration.
2.1 Large Medical Equipment: Full Truckload and Less-than-Truckload Transportation
Large medical equipment has the characteristics of large size, high value, and long replacement cycles, which also determines the differences in transportation modes for this category of medical devices. Compared with other categories of medical devices, due to the large size and high value of large medical equipment, in order to reduce inventory costs, zero inventory management is generally adopted; the logistics of most large medical equipment is directly from the manufacturer to the end user. In addition, this involves delivering products to specific departments and even assisting with installation.
2.2 Low-Value Medical Consumables: Less-than-Truckload Transportation
High product homogeneity and wide sales coverage to ensure product output are the characteristics of low-value consumables. Most of them use less-than-truckload transportation, with large batches and low value, and there are no high requirements for logistics operations. Enterprises pay more attention to the damage rate of goods and logistics cost control.
2.3 High-Value Medical Consumables: Less-than-Truckload and Full Truckload Transportation
Due to their high value, small batches, and multiple batches, high-value consumables also generally adopt a zero-inventory management model, with a management model of clinical trial first, then approval for warehousing and delivery. Utilizing the high-value consumable varieties of product suppliers, establishing specialized consumable warehouses for clinical departments, providing necessary materials through necessary channels at necessary times, reducing inventory and ensuring timely supply, and reducing the risk of product expiration or obsolescence due to technological advancements.
Compared with other categories, the reverse logistics of high-value consumables includes returns and exchanges, but also involves reverse logistics itself. For example, for orthopedic consumables, doctors cannot determine the specific size of consumables to be used before surgery, so manufacturers generally provide consumables of multiple sizes, and only one is actually used, with the rest returned to the manufacturer.
2.4 IVD (In Vitro Diagnostics): Cold Chain Transportation
In vitro diagnostic reagents are managed according to pharmaceutical regulations for blood-related and radioactive types, while others are managed according to medical device regulations. Most in vitro diagnostic reagents contain biological substances that are easily inactivated at high temperatures. Storage and transportation require strict temperature control to ensure cold chain integrity. General cold chain transportation can be divided into three methods: refrigerated truck transportation, special refrigerated container transportation, and foam box transportation.
3. Variables in the Medical Device Logistics Market
Compared to the pharmaceutical market, the barriers to entry in the medical device logistics market remain high. The timeliness requirements for logistics and transportation are low, while safety requirements are high, and logistics costs are not sensitive. Currently, the logistics market in this field is still immature, and no leading logistics companies have emerged in the industry. With the advancement of national policies, the penetration of the medical device market into grassroots communities will be an inevitable trend, and the requirements for logistics coverage will also be higher.
3.1 Medical Device Logistics Companies Must Possess "Two Licenses" to Be Compliant
With the implementation of the "two-invoice system" for medical consumables, third-party logistics companies for medical devices have emerged. China's laws and regulations clearly stipulate that the storage and distribution of medical devices are considered medical device business activities and should possess two licenses: a "Medical Device Business License" and medical device GSP certification. Medical device manufacturing and operating companies can entrust third-party logistics companies that specialize in providing storage and distribution services. This approach adapts to the current situation of the medical device industry and aligns with the "two-invoice system" policy, making it a new industry ecosystem and gradually growing.
With the implementation of unique identification for medical devices, GSP certification mainly supervises the traceability (inventory) of medical devices, monitoring every link in the circulation of each identified product. Third-party logistics operators with GSP certification can assume the risk of cargo damage for the operating companies. Currently, there are many unqualified companies transporting medical devices in the market, and the market is not regulated.
3.2 Low Transportation Timeliness Requirements, Price Insensitive Logistics
In the medical device sector, the medical equipment market accounts for a larger share, followed by high-value medical consumables. Both of these product categories have relatively high values. Medical equipment is large in size and has a long lifespan; it is only replaced when the product is upgraded. However, high-value medical consumables have a smaller volume and multiple batches.
For customers, the timeliness requirements for transportation are not high, but the safety requirements are relatively high. Of course, high-value goods require high-level services, and they are not sensitive to logistics costs. There is a greater demand for professional logistics companies that can help customers avoid damage to goods. The average gross profit margin of the medical device industry is around 40%, making it a relatively profitable industry, and logistics costs account for a small proportion, so there is a large margin for price increases.
3.3 Allocation of Medical Resources to Grassroots Levels, Higher Requirements for Logistics Network Coverage
There are 2,851 counties and districts in China, with a population of approximately 900 million. According to a government document, the county-level consultation rate should reach 90% by the end of 2020. Driven by national policies, the allocation of medical resources to grassroots communities has enhanced the competitive edge of domestic medical device companies. The market for rural medical facility construction is enormous, representing even greater opportunities for the medical device industry.
In addition, logistics and transportation requirements are even higher below the county level. The logistics network needs to cover third- and fourth-tier cities and below, requiring the participation of nationwide logistics companies that can provide logistics and transportation services in areas below the county level and better address door-to-door service needs.
Logistics, medical devices, enterprises, market, transportation, consumables, medical, market size, hundreds of millions of yuan
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