There is incredible demand right now for frac sand in the Permian Basin. Frac sand suppliers are under immense pressure to get sand delivered to West Texas and New Mexico as efficiently as possible. Much of the sand comes from Wisconsin, but providers are also turning to regional sand mines for supply. This is causing coordination challenges as sand suppliers seek to balance inventory storage with rail and truck shipments.
In the recent past, manual, paper-based processes led to inefficiencies, time lags, and errors. Things have rapidly changed as newer technologies have been deployed to meet rising demand and to tackle supply chain weaknesses. For example, errors at one transloading facility have dropped 82% after eliminating manual processes.
GE Transportation (NYSE:GE) has been on the cutting edge of these new tech solutions to optimize deliveries, and Freightwaves had the opportunity to speak with Rob Cooper, Principal digital product manager of GE Transportation Transport Logistics to get a sense of the challenges—and the emerging solutions.
According to Cooper, there’s a huge economic advantage in taking out the long haul and the terminal handling—going from the sand source to the well basin where the sand is needed. “We help visibility in transit, the work-flow of the inventory, and the different types of storage. Many use our rail cars. Some use a silo. Some companies ship by barge, and that’s a different asset class as far as inventory goes. Beyond contract payment to execution. There’s terminal handling fee agreements. Some are thinking about cost-plus. From our side, we’re managing all those workflows,” Cooper says.
“The well site needs the right amount of sand and the right quality. If it’s not right there’s extreme risk of shutting down—at a middle point just facing penalties. That’s the challenge,” he adds.
Demand for sand used to drill for oil and natural gas is hitting record levels, but investments that were made years ago in developing “in basin” sand sources are beginning to emerge as cost-reduction solutions. A study by energy analytics firm IHS Markit projects United States energy companies will consume more than 84 million tons of proppant this year, a 27% increase over last year. It predicts proppant demand will hit 115 million tons by 2023. Proppant is an industry term for sand and other materials used to “prop” open cracks in oil rich shale deposits during the hydrofracking process.
According to IHS Oilfield Services analyst Samir Nangia there are 13 new sand mines operating in the Permian Basin of west Texas, where around half of the nation’s oil drilling activity is taking place.
“In basin sand is more economically preferable, but there are quality differences in the two types of sand,” according to Cooper. “Sometimes you need coarser sand. There has been a cut down on what’s been needed from 90% from Wisconsin-produced sand, (northern white) to about a 60%-40% balance. Recognizing the places where the sand needs to come from, we’re working on automating that and digitizing workflows and running all those steps for the visibility in transit.”
Cooper says it remains to be seen how effective the in-basin sand solutions will turn out to be. Meanwhile, GE Transportation works with producers across verticals all of whom share similar needs in moving product and fulfilling orders on a daily basis and with a highly volatile final mile.
“If you back that up from the well site of the terminal and from the terminal to the long haul freight site, and offload and store and from the terminal to the well-site, that’s 200-300 trucks per day,” says Cooper. “The inventory piece is really trying to understand their position. How much do I have available? What they need? When do they need it? What have I already delivered?”
At an industry level you need about 20% overstock in order to maintain consistency and smooth out the volatility. Some of the IoT and emerging categories are created in order to better understand those inventory positions, and systematize the flow. “We have to enable the workflows and capture the data,” says Cooper.
“Customers on the final mile end of this are dealing with 200 customers out the door every single day. 3,000-5000 customers a week, and extrapolating this over a month, you get an idea.”
Add to that in gate and out gate railroad inspection with as many as 1000 cars per week, and it becomes clear that the traditional pencil and paper approach isn’t tenable. “It’s a puzzle every day on the plant level to manage the operations,” Cooper says.
With the explosive growth in fracking, customers were demanding solutions faster than GE could build them. They made a strategic decision to acquire ShipExpress about 18 months ago, which, according to Cooper, “brought forward a lot of stuff for us to manage in the first and final mile, with contract execution, and a true total landed cost visibility. Behind the acquisition we’ve worked on product investment to continue to bring forward functionality, and we’re going to do that this year, next and probably in 2020.”
Seeing across the different verticals, from the energy market to logistical operations requires a whole new level of technology personnel, and there are still plenty of “pain points.” Not only do you have to get sand inbound to get the oil out, you also have to move the clean water in and the dirty water out. “Just within this vertical there’s lots of transportation management activity. There’s probably a 70-80% across the verticals, and even within the vertical you have to recognize the differences between dry bulk and liquid bulk.”
ELD requirements and the hours-of-service (HOS) restrictions remains a major pain point, compounding the issues. “Some companies are looking at in-house solutions,” says Cooper. “Rather than third-party hires, moving to hiring them as employees, and providing them with better benefits.”
In March of this year, GE Transportation joined BiTA. BiTA is the transportation and logistics industry’s leading trade association for blockchain education and standards development. “GE Transportation is always on the forefront of technology trends and investments that define the future of freight and supply chains,” said Craig Fuller, managing director of BiTA.
At a high level, blockchain is a digital ledger technology capable of recording transactions and storing data in immutable blocks across a distributed network. Blockchain enables a digital supply chain and creates a peer-to-peer system of commerce that lends itself well to those with logistics and supply chain experience. While more than a few years away from becoming a mainstream technology, Gartner, a leading research and advisory company, quantifies the business value-add of blockchain at $176 billion by 2025 and then exceeding $3.1 trillion by 2030.
The current IoT solutions continue to develop at an accelerated pace, and applying blockchain to such complex industrial needs is the next, forward-looking step.