Yahoo Finance’s Myles Udland, Brian Sozzi, and Julie Hyman speak with Carrier CEO David Gitlin about cold chain vaccine distribution.
JULIE HYMAN: Well, with the big vaccine news and developments that we've gotten over the past couple of weeks with Pfizer and now with Moderna, there is new focus on how these vaccines are stored and transported. Frequently, there are various temperature constraints and needs for these vaccines. And one company that is trying to fill those needs is Carrier, which provides heating and air conditioning solutions that David Gitlin, the CEO of Carrier is joining us right now.
David, thanks for being here. So talk to us about what you all have developed. And I know this wasn't necessarily specifically in response to these vaccine needs, I don't believe, but how did it come about? And what kind of applications are there for these products?
DAVID GITLIN: Yeah, this is a humanitarian crisis globally and it requires an immediate and really urgent solution. What we have a Carrier is the ability to support all five of the pharmaceuticals that will be coming forward. You can really think of them in three categories. You have refrigerated temperatures. Three of the five vaccines are at refrigerated levels. That's 2 to 8 degrees C. Then you have more of a freezer type level, which is the Moderna vaccine, is that minus 20 degrees C. About the temperature that you would keep your freezer. And then you have the Pfizer solution, which is really at a deep freeze level, which is at minus 70 degrees.
We can support all temperatures. We have 1.2 million transport refrigeration units that are out there. And we can support every aspect of the cold chain. What's going to be really, really critical is going to be data. When you look at the global challenge in front of us, it's going to require really tight data controls and really tight data management to help that logistics. And we just announced a partnership with AWS to really manage that cold chain data, to really facilitate the distribution.
MYLES UDLAND: I guess, David, related to that upcoming challenge, how much-- when did you guys start thinking about how this might get rolled out? And I guess, do you have any expectations for what sort of changes may be needed as this vaccine does roll out, and, you know, each vaccine has its specific needs? And you guys learn about what's working and what's not?
DAVID GITLIN: You know, Brian, we've been thinking about this since its inception, of course. You know, today, pharma distribution is already a challenge. There's $35 billion in waste that is caused from loss due to pharma distribution. So we knew that as the phenomenal scientists at these pharma companies were going to come up with the vaccines that we're seeing now, that we would really need to step up our game in the cold chain distribution to really eliminate waste. Because once that vaccine gets out, it needs to be administered quickly. And we cannot afford any waste in the supply chain.
So we started looking at additional capacity at all levels of the refrigeration requirements. And we also realized early on that one of the keys to eliminating waste is going to be effective data management. So once we can get all of this siloed pieces of information, whether it's going from a plane to a trailer to a truck to a warehouse and so on, all of that temperature data is controlled individually in silos. And what we're going to do is aggregate it from point of inception to point of administration into a data lake that we're working with AWS on.
Once you have that data co-located, now you can use artificial intelligence machine learning to look at things like has the-- has the door of the trailer been left open too long? How much do I pre-cool the trailer before I load the cargo into that? And so on. So we've been really getting out in front of this on capacity and on data.
JULIE HYMAN: It's really fascinating the innovation that's come out of all of this and how so many companies and organizations have risen to this challenge. David, on these products, and this partnership with AWS, whether it's that or the actual physical cold pods that you guys developed, how do you signed on with any of the potential vaccine makers yet? Do you have any contracts for these products?
DAVID GITLIN: Well, we're working directly with Operation Warp Speed and all of the various players in the chain. So it's really not as much signing on as much as it is supporting all the development. Whether it's ramping up the number of pods that you just mentioned that you can see over my left shoulder here-- that's a pod that can go to minus 20, minus 30 degrees C. And what that can do is say the pharmas-- the Pfizer solution, is it can extend the life by 2x. If you put a dry ice self-contained box into the larger container, you can now extend the life of that Pfizer vaccine by 2x.
So that's a key example that we're now trying to get out, not only in the United States, but globally. And we've ramped up our production of those. It's also really starting to work with the various players to come together into this one database that we're working with AWS. And more and more companies are really looking at how we can work together into a single platform.
BRIAN SOZZI: David, you're-- you're a member of the influential business roundtable. When you talk to your fellow CEOs, how concerned are they about a double dip recession next year? Even if we do get a vaccine, it's still going to be very challenging not just in the US. Really, it's a global issue.
DAVID GITLIN: Yeah, I think everyone is just now learning how to deal with the uncertainty. You know, you look at what we're dealing with globally here-- 11 million cases in the United States, 54 million cases globally. So the one word that we're all learning to deal with is uncertainty. What we have to do is control the controllables. And I think a lot of the fellow CEOs are all trying to manage in that world of uncertainty, and really kind of lean into being part of the solution. So at Carrier, we're in the middle of these two really big megatrends around healthy, safe, and sustainable buildings and cold chain solutions. Those are critical to help us get through this pandemic. But then it's also going to be critical as we think about the new normal.
We're sort of in three phases, Brian. First right now is society coming together to take every precaution we can to minimize the spread. The next phase is going to be about safe distribution of the vaccines and make that as quick and safe and responsible as possible. And then the third phase is going to be the new normal. COVID hasn't been the first airborne-transmitted disease, it won't be the last. We have to learn about what is the future of indoor air environments? What is the future of a more seamless cold chain distribution? Because vaccines are critical. We know that-- that there's a demand for doing it better. And we want to play our role.
BRIAN SOZZI: David, The last time we talked a lot-- a good bit about how much cost you've taken out of the Carrier business. How much more do you have to take out of business? Because I would argue it's been a key linchpin of really, this majestic run, the stock, since the spin off.
DAVID GITLIN: Yeah, that's been a key component. You know, we had come out and said that we were going to take 600 million of cost out of the business over three years. Just last month, we increased that to 700 million. We think there is so much opportunity for cost reduction within the business. So by being very, very disciplined on supply chain management productivity in our factories, really taking out GNA so we can get unnecessary costs out of the system. And then we can really stay laser-focused on our customers and innovation.
You know, at Carrier, we introduce 100 new products a year, and we seize the opportunities to be part of solutions. You know, you take indoor air quality, we came out with a product, an Opticlean unit, that we just developed in less than a month. And we've already sold 15,000 and we're on the cusp of selling thousands more. So take costs out so we can focus on investing in growth and investing in being in there for our customers, and being part of the solution.
JULIE HYMAN: David, of course, the other side of the equation from cost is demand for your product and sales and your products. So I'm curious, aside from these sort of innovative vaccine-facing products, where are we going to expect the growth from Carrier over the next year? Obviously, the real estate and building trends have changed quite a bit during this pandemic in terms of demand for your products, I would imagine. So what is the next year look like?
DAVID GITLIN: Demand has been very positive given the trends around indoor air quality. You know, overall, we've seen much more demand for some of our products, whether it's filtration, better ventilation. And just being part of more database solutions to better indoor air environments. But you also look at the economies globally. China has been very strong for two quarters in a row. You look at our third quarter, China was up 10%. In the United States, this stay from home phenomenon, it drove-- it drove our residential HVAC business to have its best quarter, ever. We were up 46% year over year in the third quarter.
So clearly, I think we've taken some share. But we've also seen a nice kind of snapback in the US economy in the third quarter. So there's a lot of uncertainty. We all know that there's going to be continued ups and downs as we go through the coming quarters. But there have been some nice trends in China and the US.
Europe is sort of a return to flat situation. The most challenged area for us globally has been Southeast Asia. That's been the slowest to recover. It still is significantly down year over year. So hopefully, these vaccines are critical to get to places like India, where there's 1.4 billion people with a very much less mature cold chain. So we need to get places like India, Malaysia, Vietnam coming back. That'll be key to the business.
JULIE HYMAN: Yeah, great point. David Gitlin, the CEO of Carrier. Thank you so much. Appreciate you spending some time with us.