An underlying, quality-driver shortage in the trucking industry has been largely masked by the U.S. recession in recent years. It’s a “manageable” shortage for now—given a still-struggling economy and sluggish demand—but today’s modest labor shortage could become a major one as exports rise, industry experts say.

According to the American Trucking Association (ATA), freight volumes were essentially flat in 2013 and are only expected to increase slightly this year. By 2020; however, at least 330,000 new truckers will be needed in the U.S. to
keep pace with demand, data from the U.S. Bureau of Labor Statistics (BLS) show.

The shortage is not due to a lack of interest, just basic economics—the demand for professional truck drivers is growing faster than the number of new drivers entering the field, according to the ATA.

While the overall trucking sector remains depressed, there’s an acute shortage of the tankers and qualified drivers needed to haul crude oil; most who are available have been quickly locked into remote shale-oil fields in the Eagle
Ford of South Texas and the Bakken of North Dakota. In these isolated regions, trucks are essential to get oil from the wellhead to nearby pipelines and rail terminals.

Even so, the active exploration by traders of the long-haul shipment of crude by tanker truck—a transportation mode that hasn’t been used extensively in the oil sector in decades—demonstrates the extent to which the massive distortion
in the U.S. oil market has upended trading patterns.

As a glut of crude from Canadian oil sands developed in the Midwest, depressing prices, operators and producers were forced to tap alternatives like rail or river barges to push their oil to premium-priced hubs because of insufficient
southbound pipelines and infrastructure.

Historically, imported crude moved north from the Gulf Coast into the Midwest, but the influx of Canadian oil production changed the game. For would-be arbitrageurs aiming to reverse that flow, trucking is the most extreme option.

“You don’t truck if you can rail, and you don’t rail if you can pipeline,” Enbridge Chief Executive Patrick D. Daniel
said during a fourth-quarter 2013 earnings call.

All about logistics

In remote shale plays, the most successful oil and gas producers utilize flexible logistics, according to Brady McClellan,
co-founder, Gold Spur Trucking in Seguin, Texas.

“The most successful oil and gas producers and marketers exploit the flexible nature of truck, rail and barge to deliver their goods to the most profitable markets. Pipeline may be more cost-effective on a long timetable, but it’s a one-way street to a fixed destination,” McClellan tells Midstream Business. “In a dynamic market such as we have now, those utilizing flexible logistics are winning out, while pipelines are trying to guess what the future looks like. With the rapid discovery of new, hot-growth areas, both the origin and destination of the crude oil is a rapidly changing picture served well by modes of transportation that can adapt quickly.”

Getting closer to the Eagle Ford action was important for Lake Truck Lines. After 62 years in Houston, Lake moved its headquarters to San Antonio in 2011.

“We came to San Antonio with only 12 trucks about 30 months ago because it provided a center point of logistics for the Eagle Ford. Within the first few months, we grew to 35 trucks,” Lake Truck Lines president Douglas Cain tells Midstream Business.

With more than 100 units at eight locations in two states, Lake specializes in drilling fluids and cementing. Lake’s expansion into the Eagle Ford and Permian basin in West Texas brought the company to the forefront of the oilfield-logistics industry, Cain adds.

While some industry analysts see trucking as a short-term solution to delivering crude to market, others suggest that trucking, barge and rail firms could have a role to play even after sufficient midstream infrastructure is established—in part because of the sheer volumes of oil produced.

“I agree, but not because of the sheer volume, but rather the nature of the wells at the forefront of the growth,” Mc- Clellan says. “New wells in new areas don’t lend themselves to quick pipe connection. We have sufficient takeaway capacity both on rail and pipe in all of the major shale plays, and the forecast for build-out continues to project well ahead of production growth. The long-term necessity of barge, rail and truck centers more on market pricing factors and logistics, as well as areas of new growth to replace the natural depletion of production.”

Enormous demand

Whether a short-term or long-haul game, truckers are revving up for the energy industry.

The production of shale or tight oil in the U.S. has soared in recent years

Between 2011 and 2012, crude oil delivered to refineries by trucks shot up 38%, data from the U.S. Energy Information Administration (EIA) shows. In 2012 alone, deliveries by truck reached nearly 200,000 barrels (bbl.) per day—the highest since 1993, according to the EIA. Volumes are up nearly 50% from seven years ago.

“There is a huge demand for trucks right now. If they could convert an ice cream truck to haul crude they would,” George Jordan, president of Central Crude Inc. in Lake Charles, Louisiana, tells Midstream Business. The firm is expanding next month from two to 10 trucks in the Eagle Ford and may double that again within 18 months.

In addition to an extensive trucking division, Central Crude maintains seven pipelines, a 260,000-barrel tank farm, and several rail and barge terminals and pipeline systems throughout South Louisiana.

Demand is, in fact, so high that Central Crude can make between 50% and 100% more per truckload of crude hauled in Texas than in Louisiana, with fees as high as $5 per bbl., according to Jordan.

That works out at nearly $1,000 for every short-haul truck journey from wellhead to storage terminals or pipelines, which Central Crude can do several times a day. A new network of pipelines being built across the Eagle Ford formation has eased tanker demand, he adds.

Gold Spur’s McClellan says his company focuses exclusively on new shale plays—and for good reason.

“In 2009-2010, we made a shift from natural gas-focused fields to fields targeting liquids because of better global demand and a more stable market for liquids,” he says. “We believe strongly in the long term future of natural gas, but in the near- and mid-term, natural gas is a victim of its own success … it is extremely abundant, and we are too good at producing it.”

Fierce competition

Around 3 million truckers are currently on the nation’s roads, but trucking firms will need at least another 300,000 this year alone, the ATA says. That shortage could balloon in coming years as the baby boomer-retirement wave slams into the energy sector’s surge.

According to the trade association’s latest trucking-activity figures, released in December, competition for drivers has become ferocious, causing truckers to flip from one employer to another. The most recent report shows the annual turnover rate among truck drivers is 97%.

Turnover at truckload fleets with less than $30 million in annual revenue dropped eight points to 74%—its lowest level since the first quarter of 2012, ATA data shows. Turnover at less-than-truckload fleets jumped seven percentage
points to 13% in the quarter—the highest level since the first quarter of this year.

Many oil-field services transportation companies require two years of experience, and that can prove problematic in oil-boom areas.

“Between increasing demand for freight services and regulatory pressures, I expect fleets to remain challenged finding enough qualified drivers, and we’ll be contending with driver shortage-related issues for the foreseeable future,” ATA chief economist Bob Costello tells Midstream Business.

But employers say not everyone who wants to be a trucker can pass the background checks. Drug use and spotty driving records eliminate a lot of applicants. And among those who do have clean records, many are reluctant to become truckers because of the long stretches away from home.

The average salary for a commercial truck driver is about $38,000, but many companies with immediate needs offer huge incentives to get people to sign up.

“We’re constantly evaluating driver compensation against regional benchmarks to ensure that we are staying competitive
with our pay and benefits structure,” Central Crude’s Jordan says. “While this is necessary to attract and keep talent
within the company, in our experience we find this secondary to reputation with the drivers in the industry. Drivers talk to each other, and word of mouth can be a company’s greatest recruiting asset or its biggest liability.”

The average age of a commercial driver in the U.S. is 55, according to the BLS, and retirements in recent years have long-haul carriers concerned about filling their spots.

New HOS rules

Earning top dollar also requires driving long hours into the night, which can take a toll on truckers’ health. The U.S. Transportation Department (DOT) estimates that driver fatigue leads to more than 1,000 crashes each year.

To reduce accidents, the agency enacted new hours-of-service (HOS) regulations that took effect last July. The limits on driving time may be better for the driver’s health, but not necessarily for his wallet, some trucking sources say.

According to revised HOS mandates, truck drivers no longer have the ability to drive 82 hours in a seven-day period. Under the new regulations, the industry lost 15% of driving time, as drivers must now adhere to 70 hours in seven days.
Once the 70-hour limit is reached, truckers must take a 34-hour break—including two overnight periods. If a driver happens to time it wrong, the “reset” could add as much as two full days to a cross-country journey.

Perhaps worse than that, the new federal HOS rule has reduced median driver wages by between 3.2% and 5.6%, because it cuts the number of hours in a driver’s workweek, according to a survey published last fall by Kansas City-based consultancy National Transportation Institute.

To offset the wage hit to drivers as a result of HOS compliance, many trucking firms began to pay their workers more. The last time industry-wide driver wages rose appreciably was in 2004 and 2005 when they increased around 20% over the two years, according to Noel Perry, a principal for Pennsylvania-based Transport Fundamentals.

Perry, who for several years has forecast an acute driver shortage by the middle of the decade, said the market is overdue for a sustained upward spike in rates as a result. In addition to a reduced labor pool, freight demand is “moderately positive.”

David Ainsworth Sr. president of Ainsworth Trucking in Corpus Christi, Texas, tells Midstream Business DOT’s CSA (Compliance, Safety, Accountability) initiative has really “thinned out” the number of available drivers since enacted in 2010.

“But with that being said, the drivers filling out applications have a better driving background and are more apt to get hired than what came through before,” adds Ainsworth, whose company primarily handles crude. “In my opinion, we are still probably two years away of getting enough good, safe drivers in the market to give us some relief at a minimum, which unfortunately, has given our industry a strong-arm hold of being a very driver-driven market right now.”

Kristie Sotolongo ccan be reached at ksotolongo@hartenergy.com or 713-260-6452.

Comments