Shale energy is the exploration of rock formations to harvest oil and natural gas resources. In some corners, industry advocates say that shale exploration has resulted in nearly half-a-million jobs and hundreds of billions in economic growth. In the states where much of the exploration and extraction takes place, there are side benefits that impact other industries, such as trucking.
Companies must be ready to capitalize on the opportunities the shale boom market provides. But first, they need to develop a comprehensive understanding of the shale industry and how to harness it for their benefit.
There are essentially three different ways the continued North American shale expansion can play to the benefit of motor carriers and truck drivers:
- Higher demand for trucking services.
- Easing of worker and supply shortages.
- Handling regulatory changes.
It is important to note that the increases in shale exploration have already led to higher trucking industry growth. Take Ohio trucking companies as one example. When they were asked about increased trucking activity, they reported that a significant chunk of that activity came from transportation work within the shale sector.
Nationally, some estimates have put higher shale exploration and extraction as being responsible for up to 16% of the increased growth trajectory. Within regional markets, such as Pennsylvania, Ohio, and Colorado, numbers are even higher.
Specific trucking sectors benefiting the most from shale growth are motor carriers operating within the tank and dry van sectors, with the tank sector experiencing the most growth. For infrastructure growth, flatbed, van, and specialized trucks are in high demand.
Will shortages of equipment become a concern? According to the American Trucking Associations, new equipment purchases are merely replacing aging trucks, rather than adding to fleet capacity. With shortages on the horizon, motor carriers across the country are considering acquisition as a way to stem the equipment shortage bleeding. Yet, the potential equipment shortage isn’t the only shortage the industry is worrying about.
Although some say conventional wisdom dictates the shale boom will only make the truck driver shortage more acute, others say that the resulting demand is raising pay and compensation packages so high potential truck drivers will come flocking. Are the numbers bearing that out?
How Shale Impacts Trucking Wages
There is little doubt the Permian Basin shale-oil boom has had a big impact on truck driver compensation. With sales revenues at these companies hitting record highs, they are betting the farm on bigger dollar signs to bring in more talent.
If there is one thing to remember, it is that even though the economy is on fire, fire is a dangerous thing. Oil rig counts have climbed by nearly a third in the past year and companies involved with the sector are feeling the increased demand. The last thing anyone wants is for the sector to overheat and undergo a contraction. Yet, the Permian Basin covers more than 75,000 square miles in west Texas and southeastern New Mexico. That’s a big region. All you have to do is step inside colleges in the area to see that schools are packed with people taking the test to get their CDL license.
Why? Just ask anyone. One student at New Mexico Junior College put it simply when he said that a CDL license was a golden ticket just about anywhere within a 500-mile radius of the Permian Basin. With the same true for shale booms in the Midwest, wages are rising. The same student stated that he expects to make six figures working for a transportation and energy services company once he graduates and obtains his CDL.
With so much money flowing into motor carrier coffers, better benefits are being dangled as a potential solution. Profits are on the rise, so potential truck drivers are under the assumption they can hold out for the best possible offer, and in many cases, they are getting it.
The Permian Basin Dominates
In what may be a surprise to many, nearly half of all rigs that currently operate within the United States do so within the Permian Basin. Oil and gas production are not the only drivers of growth within the basin either. Truck drivers are needed to transport the oil as well as the sand and water used in the fracking process.
Ask anyone within the oil and gas sector and they will tell you Permian Basin pipelines are filled to the brim, which in turn is forcing producers to truck oil hundreds of miles to market. What is the result? A truck driver bidding war underway in west Texas and New Mexico.
The U.S. unemployment rate is at an 18-year low, at 3.8%, and trucking companies are not only competing with each other, but they are also competing with the very construction, oil, and gas company that they haul freight for. The area around the Permian Basin is no exception.
All throughout the region, trucking companies are hanging out their help wanted signs, raising base wages, increasing sign-on bonuses, and coming up with evermore creative ways to entice new truck drivers to hop in their cabs.
It is now typical for Permian Basin truck drivers to command over $100,000 in base wages, which is double the $53,000 per year average long-haul truckers are bringing in. Meanwhile, average truck driver pay for private fleet work on a nationwide level has hit $86,000. Could it be that the big jump in shale pay is acting like the rising tide that lifts all pay wage boats?
Paid Training and Benefits
Many motor carriers operating within the Permian Basin are even hiring on truck drivers based on the interview or other non-mitigating factors alone. If they like the individual, they will hire them on the spot, then send them for CDL training and include it as part of the truck driver’s benefits package.
Fleets are also doubling down on the more unconventional benefits they have been investing in since the economy began to improve. From gyms back at headquarters to one hundred percent paid health benefits – sometimes even for independent contractors – fleets are stepping up to the plate to ensure the nation’s vital energy needs are met. Fortunately, that’s good for both businesses and their employees.
Yet, some wonder if there is too much uncertainty within the oil and gas sector to support a sustained employment drive. Consider that when crude prices took a huge drop in 2014, many companies were left with excess equipment and shrinking employment rolls. What will they do if this happens again?
Maybe not. The boom has also given motor carriers and haulers more leverage with shale drillers. Owner-operators working within the region are seeing deals locked in for six months at a time, providing wage stability, but also security knowing the suppliers believe in the strength of the market.
An Industry on Fire
It is important to consider our mention of the problem with fire. There could be signs of overheating, never mind the concerns surrounding the price of oil. Crude trailers that used to sell for between $20,000 and $25,000 are now going for $30,000 and $35,000 on up.
Also, some motor carriers are worried that costs are rising faster than prices can keep up with. In some management meetings, trucking companies are wondering if they should prioritize one field over another. Some fields within the Permian Basin have become so high-cost that operators must reallocate their resources and divert trucks to less competitive fields.
Some ask: Where are all the pipelines? While it was true there was plenty of capacity when prices were lower, output has risen far faster than companies have been able to set up new pipelines. Still, companies have been hard at work building them.
If the situation does not dramatically change, trucks would need to haul nearly half-a-million barrels of crude out of the Permian Basin to keep up with demand by mid-2019. By then, new pipeline capacity can lighten the load. Until then, there is a real fear that oil operators could themselves pullback slightly as a result of higher costs.
Whatever happens, right now is a good time to be a truck driver or fleet operating within the Permian Basin. While the price of oil is stable, and the economy continues to improve, there is energy to be hauled and money to be made. Smart operators will be poised to capitalize on the boom to be prepared for the bust.
Capitalizing on the promise of a partnership between shale and trucking will require companies to be nimble, flexible, and ready to shift as market demand requires. Furthermore, fleets must be knowledgeable and compliant with Federal transportation laws and oil and gas laws at the state level. In an ever-evolving market, the Permian Basin plays an important role. Truckers can monopolize on this energy boom.