Oil’s recent impact on flatbeds
By: Phil Sneed
Oil is instrumental to the trucking industry. Trucks run on the fuel refined from crude oil, but trucks are also necessary for transporting crude oil. These operations have spiked within the last six years. The end result, according to Bloomberg News, was the highest levels of U.S. oil production in nearly 40 years and helped the country become the world's leading exporter.
However, recent reports indicate the oil boom has slowed down, and the trucking industry has experienced the after-effects.
"Freight transportation is also relied upon to help transport barrels of crude oil."
Shale oil boom
To understand the current effects on the industry, one has to have an overview of the country's energy dependence. Going back to at least World War II, the nonprofit Council on Foreign Affairs said political leaders were worried about the country's reliance on foreign energy imports. Those worries were fully realized in the 1970s, when the country faced an energy crisis. Everyday Americans lined the streets as they attempted to fill their cars and stockpile on fuel. Images of gas stations with signs signaling no more gasoline were seen often in some parts of the country.
The energy crises eventually ended. Around the late 2000s, policy changes allowed for more domestic drilling for oil and the energy industry entered a boom period, brought on by shale oil and natural gas. Technological innovations and drilling methods opened up new sources of energy that were previously passed over.
Shale oil is derived from a type of rock. According to the National Geographic, "oil shale is a type of sedimentary rock rich in kerogen." The shale oil boom came about because of the substance's resemblance to petroleum. The unconventional oil can be refined into gasoline, diesel fuel, liquid petroleum gas, and commercial products such as sulfur. The remains can then be used for cement.
The U.S. was also home to the shale oil boom because the country has the largest deposits in the world, with many located in the western portion of the country and some areas of Texas. The second largest oil production field in the country is the Eagle Ford Formation. The number of barrels produced every day exponentially increased starting in January 2011. As a result of the oil boom, truck drivers were putting in long hours to transport oil out of the region, which stretched 22 Texas counties, according to a 2011 report from Reuters. The trucking industry was caught in a bind, as trucking and logistics management companies were spread thin in the immediate aftermath of the recession.
Industry starts to level off
Like other booms and economic peaks, there are periods of stagnant activity and eventual decline. Oil production at shale fields will decline according to the latest projections from the U.S. Energy Information. Part of the decline, according to Bloomberg News, is the declining number of rigs used for production. Drilling methods and technology have created higher efficiency in rigs, and a glut of oil has been produced. As a result, The Wall Street Journal said oil prices have dropped to a six year low. Oil producers have reduced production and that means they don't need heavy equipment as often anymore.
Effect on trucking industry
The boom and subsequent slump has had direct effects on the trucking industry. When drillers were producing at record levels, they needed the help of truck drivers to transport equipment in and out of productions fields, and haul shale oil out of Eagle Ford.
The decline has subsequently forced some companies to merge to avoid further financial losses. Since production has dipped, some trucks have been hit the hardest. From 2013 to 2014, loads carried on flatbed trucks grew 10 percent, according to The Wall Street Journal. Growth only reached 4.7 percent from the second quarter of 2014 to present.
"The boom and subsequent slump has impacted the trucking industry."
Jonathan Starks, an analyst with FTR Transportation Intelligence, told The Wall Street Journal there are many players within the flatbed transportation area. He expected more mergers to occur in the near future.To help cope with the side effects of declining oil production, some trucking companies are merging by buying up smaller operators. Daseke Incorporated recently announced the acquisition of Hornady Transportation LLC. The merger will increase Daseke's fleet to over 6,000 trailers, which is 50 percent more than the company had one year ago. This move comes after the company purchased Lone Star Transportation in October 2014. Despite the oil industry's effect on trucking, Daseke projects $750 million in revenue. The company reported $50 million in revenue in 2011.
"The flatbed and open-deck trucking industry is extremely fragmented and ripe for consolidation," Daseke's chief financial officer, Scott Wheeler, told The Wall Street Journal.
The surge in Daseke's revenue shows trucking remains a vital part of the U.S. economy. The oil boom proved beneficial for many trucking companies, and the decline has revealed the need to stay ahead of trends and be willing to adapt to changing economic conditions.