Nearing the halfway point of the year, there’s no doubt that 2017 has brought good news for the trucking industry. Oil markets continue to lag behind projections despite cuts from OPEC member nations and other international producers, and abundant national and global supplies have driven down prices at the pump. Changing markets have simultaneously led to a revitalization of the U.S. oil industry, prompting a boom that has generated a surge in demand for transportation of both equipment and crude oil. Together, these forces paint an optimistic picture for the near future of the trucking industry.
Anatomy of an Oil Boom
The global oil market has always been something of a high-stakes tug of war. That push-and-pull pattern only accelerated with the rapid growth of U.S. oil shale plays, but OPEC – the chief international competitor in the oil industry – had a plan. The cartel’s member nations devised a strategy of flooding the markets with oil, driving down prices and bringing the American oil industry – which came with steep production costs and a significantly higher break-even point – to a screeching halt. The plan nearly worked, as the U.S. boom went belly-up and more than 200 oil and gas companies ended in bankruptcy.
In the end, however, the apparent OPEC victory led to a strange unintended consequence. Though some companies collapsed under the weight of the bursting bubble, those that survived emerged leaner, more efficient and far better equipped to compete on the global stage. Thanks to new technological advances and other cost-cutting measures, oil shale extraction became more profitable and competitive than ever before, and many seemingly failing ventures found new life in the wake of a depressed market. By the end of 2016, American oil production was once again surging. A November meeting of OPEC member nations resulted in an agreement to cut production in an attempt to bolster oil prices and shore up budgets in ailing member countries. However, a lower break-even point and shorter production cycles allowed U.S. producers to expand even more rapidly, opening new wells and seizing a larger role in the international market.
Producing Oil by the Truckload
The startling turnaround of the U.S. oil industry has been just as important for trucking, as ever-increasing production has outstripped pipeline construction and brought about skyrocketing demand for alternative transportation. The number of land-based oil rigs currently in use is up nearly 120 percent over last year, and there’s little reason to believe growth will not continue in the near future. Though only about four percent of oil is currently shipped by truck, crude hauling still represents a growing, highly lucrative opportunity for carriers and drivers alike.
The real story for trucking, however, is the tremendous volume of freight required to keep drilling operations running. Depending on rig design, between 5,850 and 8,905 truckloads of equipment are typically required to support a single drill site, including heavy equipment, drilling fluids, fracking sand, water and other supplies. In fact, industry analysts estimate that each new land drilling rig provides more than one million miles of truckload hauling over the operational life of the rig. These opportunities are only likely to increase as greater efficiency and advancing technologies expand U.S. producers’ capacities to reach previously inaccessible or economically unviable oil plays.
The Ripple Effect
While the impact of the current American oil boom on the trucking industry is immediate and undeniable, this growth in demand for crude hauling and oilfield transportation also has an effect on other segments of the trucking industry. During the previous boom, many agricultural haulers and other commodity transporters made the leap to oil in an attempt to cash in on better rates and more consistent demand. This rush toward the oilfields, in turn, led to greater demand and better rates for truckers in other sectors. When the collapse of the U.S. oil industry came in 2014, many of those haulers rushed back to agriculture and other commodities. This created a surplus of hauling capacity, depressing rates and creating an imbalance within the industry.
Now, with drivers again flocking to the oil industry, rates are improving in other sectors and capacity imbalances have begun to stabilize. Combined with an aging workforce and an existing – and potentially deepening – driver shortage, total freight capacity is likely to continue falling in other sectors of the industry. That means more competitive rates and more opportunities for both carriers and drivers in all sectors. Additionally, if the current expansion of U.S. oil production helps to keep fuel prices and transportation costs low, demand for trucking may grow even faster than expected.
The oil and transportation industries have always been closely linked, and positive developments in domestic oil production often bode well for trucking. This has never been more true than during the current oil boom, driven largely by transportation-hungry oil shale fracking ventures. With U.S. producers appearing to have come out ahead in the OPEC-led international tug of war – at least for now – there are plenty of reasons for optimism when it comes to the near future of the trucking industry.
