New investments in natural gas and petrochemical production over the past six years have had a noticeable impact on the trucking spot market. Those effects have been more dramatic since August 2016, with the new construction adding to the stronger-than-usual start to the year for flatbed freight. The impact on the Gulf Coast especially stands out when checking rates and demand in DAT RateView.
Natural gas is a by-product of the fracking / oil production process in the Bakken oilfields of North Dakota and the Permian Basin of West Texas, as well as lesser fields, and a primary product in the Marcellus Shale. Until recently, there was a lack of infrastructure when it came to gathering and processing that gas, and for several recent years, the low domestic price for natural gas discouraged new investment. As a result, the gas was often flared off.
The difference between domestic and international gas prices creates export opportunities, which has led to new investments in infrastructure. Now there is a push to capture a higher percentage of the gas, and changing it to a liquid form (LNG) reduces its volume 600 times, making it easier to transport by road, rail, or ship.
Natural gas and oil by-products also feed into plastics production, which has led to a building boom for the petrochemical industry as well. There are 13,500 US facilities for plastics and polymer products. In the period of 2015 to 2019, an estimated 560 new plants will enter the market, with many eyeing the export marketplace. According to www.plasticsnews.com, the plastics industry creates annual sales of $418 billion of which $300 billion is domestic consumption. That’s a lot of freight for railroads and trucks alike.
The U.S. became a net exporter of liquefied natural gas as of November 2016, per a story in the Wall Street Journal. Research identified twenty-one current pipeline projects ongoing in the U.S. While the recently completed Dakota Access Pipeline (DAP) and proposed XL Pipeline northern extension have garnered the headlines, there are construction projects for refineries and supporting infrastructure ongoing throughout the U.S.
The Houston Hub
Three LNG export terminals in are operation along the U.S. Gulf Coast. Construction has started on three more, with two more proposed. Houston is in the middle of all of it.
Construction and the oil industry are major drivers for flatbed freight, and the Houston market already holds the number 1 position for spot flatbed loads. But so far this year, it’s also been a major source of van freight. In fact, Houston is the number 1 market for all load posts on DAT load boards so far this year.
Compared to 2016, van load posts on the Houston to New Orleans lane are up more 292 percent, while flatbed load posts on that lane have doubled. Similarly, flatbed load posts on the Houston to Dallas lane are up 306 percent, while van load posts have risen 128 percent.
In terms of inbound freight, there’s been a surge in flatbed load posts on the lane from Decatur, AL to Houston. Decatur is a steel-producing market, so that’s another indication of how the new construction and infrastructure is creating demand on the spot market.
Changes in Capacity
While the new construction has led to more freight moving in and out of Houston, it could also pull trucks away from other markets. If that leads to tighter capacity in places like Atlanta and Chicago, it would put pressure on freight rates to go up enough to impact the national picture.
The tankers that carry the processed LNG don’t often move on the spot market, and raw plastics move in rail hopper cars. Still, the resulting finished goods consisting of films, pellets, and resins do move by truck.
Many of the new petrochemical operations will take place along the Gulf Coast. Hopper cars will carry the plastics to packaging facilities in the Dallas / Fort Worth area. From there, the output can move on trucks and trains, with Dallas serving as the hub that connects the Gulf Coast to West and East Coast ports as well as Chicago and other Midwest destinations. Those volumes will be welcomed by truckers accustomed to strong intrastate volumes from Dallas but relatively weak interstate lane rates.
According to Trains magazine, the increased production will roughly equal a 75,000 increase in the number of railcar shipments per year. Polyethylene production is expected to increase 45% nationally by 2019. That has the potential to push other types of freight over to the truckload spot market.
As you see in the map above from March 2016, we have come a long way in the last 12 months. In the U.S., seven export LNG terminals are confirmed as operational with another five under construction and six planned. This tells a big part of the story for higher flatbed demand on the spot market and an increasing number of van loads in the South Central region.
And as the construction continues, we should see this cycle repeat in the truckload spot market.
- Spot market freight increases during the construction phase, which involves movement of steel and other construction materials
- Next, there is transport of raw materials via truck and train, both domestically and for export
- Lastly, there will be increased transportation of finished products, as the U.S. becomes the world leader in low cost industrial plastics
This provides one solid example why the future for trucking looks strong for years to come.