Challenges Facing the Freight Industry: A Perspective from Pentagon Freight

12 May 2022
freight industry

The past 2 years have created complexities and challenges for industry, particularly in relation to supply chain operations. Events like Brexit, the COVID-19 pandemic and the more recent Russia-Ukraine conflict have all contributed to global supply chain disruption, and continue to cause uncertainty for businesses. The global freight industry is at the forefront of the current situation. To gain a first-hand perspective, Fairwayrock had the opportunity to speak with Pentagon Freight Services in Aberdeen about the current business environment and the challenges the Supply Chain are facing.

freight industry

Pentagon Freight Aberdeen Office

Pentagon Freight

Pentagon Freight is a global freight forwarding and logistics service provider, with 70 owned offices in 36 countries around the world.  They employ 1,250 people globally, including 103 people in their Aberdeen facility. Pentagon’s main differentiator is that globally, they primarily deal with clients within the energy industry, with around 80% of their business activity originating from the oil and gas or renewables sectors. We had the pleasure of speaking with Jackie Webster, who is the Commercial Manager at Pentagon Freight. Jackie has an extensive 30 years of experience in the freight and logistics industry, and has worked for Pentagon Freight for the past 15 years.

The types of equipment that Pentagon transports varies widely to accommodate their clients’ needs, from small O-rings to complete BOPs or ROV Subsea Spreads. Jackie told us: “we have teams dealing with general freight and then our specialist project team deal with cargoes that may be deemed Out of Gauge.  Chartering aircraft or Vessels is a regular occurrence due to the time constraints and cost impacts of for example, a rig down situation.” Therefore, it is not uncommon for companies to spend significant sums on chartering to obtain their equipment as quickly as possible.

In general, Pentagon’s freight is transported 50% by air, 30% by sea and 20% by road. However, Jackie noted that rail freight is becoming increasingly popular with clients due to the port congestion issues in Asia.

freight industry

Jackie Webster, Commercial Manager at Pentagon Freight Services

The Freight Industry: The Challenges

When discussing the challenges faced by Pentagon Freight, Jackie emphasised that the current business environment presented many obstacles. Our interview pinpointed the main challenges as being: port congestion, the pandemic’s impact on air freight, increasing fuel sub charges, the impact of Brexit and a shortage of skilled personnel.

Port Congestion

Rail is being increasingly adopted as an alternative for moving equipment out of China due to the current container shortage and port congestion. Jackie notes that “China is a very popular manufacturing hub, but it is now extremely challenging to get goods out of Asia in a timely manner due to the backlog.  As a result, there’s increased demand for rail freight solutions to move goods by directly from China to Germany, and then distribute into Europe.” Increasingly stringent COVID-related lockdowns have crippled China, particularly Shanghai which is the world’s largest container port. Restrictions have led to significant congestion and shipment delays which are having a ripple effect across the world. Pentagon expects global port congestion issues to continue for all of Q2 and possibly into Q3 dependant on the ongoing lockdown in China as well as the conflict in Ukraine. This highlights the level of uncertainty that industry continues to experience in 2022. Jackie also told us that UK ports are averaging a 30 hour wait time to berth, compared to 13 hours in the same period last year. This demonstrates the far-reaching impact of these issues.

Air Freight & Fuel Sub Charges

The COVID-19 pandemic has had a severe impact on air transport. Border closures and strict travel regulations caused a significant decrease in flight movements which has had a knock-on effect on air freight and global trade. Rising fuel costs have also had an impact on air freight, Jackie told us: “we still get asked to fix air freight rates, which previously would have been a normal request, however the unpredictability within the airfreight market mean that prices literally change from day to day.” Rising fuel costs are partly due to the volatile oil market created by the Russia-Ukraine conflict, with Jackie noting that “fuel surcharges have risen to 22-30% as of April 2022, compared to the same month of 2021 where it was just 3.4%.” However,  the situation is forecasted to improve, and Pentagon Freight remain optimistic that they will see some stability in air freight rates towards the end of the year.

Brexit

Jackie also highlighted the challenge that Brexit has posed to the freight industry and how they have had to adapt, stating “It has become a lot more complex, particularly for UK to Europe / Europe to UK business where traders previously had no exposure to customs controls cross border to and from the UK but now it is a formal import and export process so its caught a lot of people out.” Many companies are still facing challenges when it comes to Brexit, “red tape” such as customs compliance and lack of focus on IncoTerms continues to cause confusion leading to delays and increased costs. Fortunately, Pentagon Freight recognised the huge impact that Brexit would have for businesses and have worked proactively with their clients to train and educate them on navigating these changes.

Skills Shortage

A skills shortage has impacted upon various industry sectors, including the freight industry. In particular, Jackie highlights the issue of an ageing workforce and attracting new talent. “The problem that we find is that there are very few really experienced freight forwarders left in the Aberdeen market as they all commenced their careers in the late 80’s and early 90’s and are now either working overseas or nearing retirement.  A new generation of talent is coming to the fore, but this comes with the requirement for significant and comprehensive training.” Jackie explained that freight forwarding skills come from years of hands on industry experience and are not something that can be easily imparted. She also highlighted how such skills shortages can lead to young people “chasing the money”, whereby individuals demand inflated salaries in return for a limited amount of expertise.  This presents a long-term challenge for the freight industry to try and avoid a skills-poor workforce which is unable to provide clients with the same level of service or cost efficiency.

The Impact of COVID-19

The COVID-19 pandemic turned the freight industry on its head. Despite admitting it has been a big learning curve, Jackie reflects on the positives and the resilience of the company. “We have actually come out of this situation stronger, we can be more flexible if necessary regards hybrid working and our operation is much tighter in terms of internal communications. Our salespeople use Microsoft Teams on a regular basis which actually extends our reach and audience participation.” Adopting remote technology has also allowed Pentagon to more effectively communicate with their other global hubs and clients: “we have now increased the number of global customer business review meetings we hold by incorporating our global hubs and overseas clients resulting in a much more cohesive approach to their business needs and subsequent solutions”.

This demonstrates that the pandemic has had some lasting positive effects. Pentagon Freight are now beginning to see a clear upturn in business as they emerge from the pandemic, but will continue to utilise both face-to-face and online means to communicate with clients both near and far.

Sustainability

Sustainability is something that is rising to the top of the agenda for many in industry, as society becomes increasingly eco-conscious. Many organisations, including Pentagon Freight, have put in place sustainable office practices including motion sensor lighting, recycling and paperless operations. On top of this, Pentagon Freight also outsource their local transport to hauliers, who are more likely to adopt environmentally friendly operations for their fleet. Jackie also detailed how the company provides clients with information that they can utilise to evaluate their environmental impact: “our clients are all asking us this same question: what about our CO2 emissions? So, we now produce monthly reports for all our customers to tell them what their CO2 emissions have been based on their freight volume.” These figures can allow companies to monitor their carbon impact and work towards solutions to reduce this. Pentagon are currently exploring ways that they can assist clients with offsetting their emissions. Offsets such as renewable energy and carbon capture projects are an increasingly common way that companies are utilising to counterbalance their emissions.

Technology

Pentagon Freight has its own Freight Management System called Insight, which benefits the clients they work with.  The system is particularly effective for Drilling Contractors and Vessel Operators who require a full 3PL (3rd Party Logistics) service.   “Unlike our competitors’ systems, Insight was designed and built specifically for purpose by Pentagon to accommodate our energy sector clients. The system easily integrates with most ERP (Enterprise Resource Planning) Systems to provide a seamless supply chain from vendor purchase to rig, vessel, or customer receipt.” Insight is a cloud-based system that is accessible via a web portal. This means that it can be accessed anywhere in the world, which is ideal for Pentagon’s global operations. For example, a person on an oil rig at the other side of the world has the ability to access the web portal and view what is available for shipping in any of Pentagon’s global warehouse’s. They can also view tracking information for their orders.

We hope that you have found this blog insightful, and a big thank you to Jackie Webster and Pentagon Freight for giving us some of their valuable time and providing us with an insight into the freight industry.

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