Pipeline capacity issues in West Texas have had a carryover impact into the freight marketplace. We have seen a slowing Houston market for flatbed and regional van markets like Dallas and Memphis, which send freight to Houston seem to be impacted by the slowdown in oil drilling as well.
Houston market L-T ratios
A slowdown in drilling has become apparent in the Permian Basin, centered around Midland, TX. The top lane supplying Midland, TX and surrounding counties is from Houston, the energy capitol of the U.S. Houston is the largest flatbed market in the U.S., more than double the size of the Atlanta market in terms of loads posted.
This put a bit more capacity on the spot market during early August as trends looked slightly subpar compared with normal seasonality. It’s the usual case that we see a freight slump during mid-July to mid-August. This year, even though rates stayed mostly high nationwide, Texas freight markets fell more than most.
Looking ahead, even though drilling activity has slowed in the Permian Basin, pipeline projects continue to attempt to restore capacity for all the wells completed. At this time, oil from the region trades at a deficit to the benchmark WTI Oil Price from Cushing, OK. Until pipeline capacity ramps up, this costs producers in West Texas money.
New Projects Underway
A number of pipelines have been completed or expanded already in 2018 and more are coming in 2019. One of the issues these projects face consists of steel tariffs and having to source the steel domestically. Some claim that the steel isn’t readily available or costs much more than imported steel prior to tariffs.
Other areas in the U.S. have shown higher flatbed activity including the Cleveland market, Decatur, AL (a perennial ‘hot’ market) and more recently, Roanoke, VA where flatbed prices spiked last week. While recent spot prices have trended down, longer term contract flatbed rates are up, rising from $2.04/mile in August 2017 (ex-fuel surcharge) to $2.30/mile in August 2018 on a nationwide basis.
It has yet to be seen whether this new domestic activity outweighs the West Texas slowdown. Also, stronger seasonal van and refer trends are tightening many western markets. One thing we can count on is that change will continue to take place in the U.S. economy. These trends will continue to be captured in DAT’s databases.