Big shifts in petroleum output--ongoing--and potential shifts in agriculture--ongoing to some degree, but more in the future than current--are two markets the trucking sector needs to focus on for possible changes.
In a WavesTalk at Marketwaves18 near Dallas, both J. Scott Susich, driector of data analytics and advisory services at DTN, and Jaco Booyens, co-chair of the innovative Eden Green Technology, focused on big shifts in their respective industries to alert the trucking sector that it needed to track such changes in planning for their future.
While Susich talked about fracking and its impact on petroleum production, Booyens talked about Eden Green's more radical technology that grows fresh vegetables in a vertical indoor stack. It doesn't use soil, and it doesn't use LED lighting the way an indoor marijuana facility does, relying instead on natural light.
At present, Booyens said, using a truck to haul fresh vegetables is a race against time. He talked about fresh vegetables being grown in Arizona, and needing to get to the East Coast. "You guys are doing a phenomenal job," he told the trucker-heavy audience. But no matter how well the truck trip across thousands of miles goes, he said, there is always degradation of the product, as well as the risk of things like listeria and e-coli, which grows as time goes on.
Walmart too, Booyens said, does a "phenomenal job" with trying to get fresh produce into its stores, but "its number one headache is trucking...how do we get a product to our consumer faster?"
Booyens said Eden Green "democratizes the access to health produce" by growing produce near the end market. The impact on trucking, of course, is that a truck is not needed to haul that produce the long miles from the current growing areas to the Walmarts and other retail outlets throughout the country.
Vertical agriculture will be "super disruptive to the trucking sector," Booyens said. But it isn't going away; trucks will still be needed to take the produce from the growing sites to distribution centers and then on the stores. Additionally, he noted, the "harvest" will be a dozen or more times per year, as opposed to the two harvests that come out of the more productive agricultural sectors.
"It is inevitable," Booyens said. "Change is coming into fresh produce transportation. It has to come." And when it does, he added, "something is going to have to happen in the battle between freight and arable land."
(Booyens noted that the often-times slow speed of rail means it is not a solution).
"How does that intersect with your industry?" Susich said. The reversal in U.S. output has had a huge impact on the trucking business. "Who thought they would make a living hauling frac sand?" Susich said. "Who thought businesses would be dominated by hauling drill pipe out to western North Dakota?
With oil now in a full-blown bear market, the trucking industry needs to be prepared for a negative hit. He noted it takes 22,000 truck journeys a day "just to keep the west Texas fields operating." If production drops on the back of lower oil prices, there could be a significant hit to that number, Susich said.
Jesse Gastelle, a rail analyst with the U.S Department of Agriculture, weighed in on the current rail industry dichotomy over the focus on operating ratios, cost cuts, organizational structure and precision railroading.
He summed up the friction in the industry over the system, noting that precision railroading advocates say the system does "more with less," while its critics view it as "less with less."
With CSX (NYSE: CSX) the largest of the U.S.-based railroads to have embraced precision railroading the most aggressively--and with a sub-60 OR to show for it--Gastelle showed charts showing strong performance by CSX not just on OR but also in some performance metrics. Gastelle backed away from a hard position on the question, noting that "the truth lies somewhere between the two positions."
Gastelle said the grain railcar auction market bids are a strong benchmark for how well the industry is doing. "Shippers will bid up these rates when they are worried about rail service," he said. They have stayed high until "very recently," Gastelle said, but are now returning more to normal.