Temporary foreign workers, pipeline development, and Quebec’s Charbonneau Commission are all topics that have led national newscasts and have formed the basis for countless headlines in newspapers and magazines. But they are also topics of key importance to fleet managers operating in the oil and gas and construction industries in Canada.
Of course, they aren’t the only issues of concern. While they may operate in harsher or more difficult environments than long-haul or pick-up and delivery fleets, those who are responsible for oil and gas or construction trucks also need to pay attention to the same issues as the rest of the trucking industry.
Oil and gas outlook
The general perception is that the oil and gas industry is booming. While that’s generally true, the picture isn’t completely rosy. Yet-to-be-finalized decisions surrounding pipeline construction make it difficult to plan for the future, and moving to more of an oil-by-rail transportation network means adapting the entire supply chain to accommodate the new flow of petroleum products. With the US producing more of its own natural gas, that means there is less demand for Canadian exports.
“Until there is a clear vision of the transportation model, I think there is some uncertainty in the oil industry about how much investment should be made in exploration,” said Ed Malysa, president and CEO of Calgary-based Trimac Transportation. “That has created a little bit of a slowing down of the investment in the oil patch.”
Malysa mentioned residents of Kitimat, B.C. rejecting the Northern Gateway project in a non-binding plebiscite and opposition from First Nations groups against pipeline construction, along with the capacity crunch in the existing pipelines, as other factors that are contributing to industry uncertainty, but added, “despite the impediments and obstacles out there, it is still viewed by most trucking companies as a very strong industry and it will continue to have a 2-3% growth on average for each year.”
Growth projections aside, Trimac will still be taking a cautious approach to managing this area of its business.
“We will probably not invest significant dollars unless it’s a specific strategy we have for longer-term contracts or unless we have some sort of guarantee there is volume associated with it. That’s how we’re basing our capital decisions. We’re not going on spec, hoping business will come to us if we buy the equipment,” said Malysa. “Over the last couple of years there have been a lot of trailers and capacity that were brought into the market on spec, and I think at this stage, it is probably slightly over-sold. So we’re cautious—cautiously optimistic.”
One company that is hoping that at least some fleets will be buying trailers and equipment is Volvo Trucks. The manufacturer feels good enough about the oil and gas industry that has it re-entered the market over the last couple of years after abandoning it about 15 years ago.
“The reason we are doing that is because we understand the size and the opportunity in the oil and gas business, particularly relative to Saskatchewan, Alberta and British Columbia,” said Brent Weary, Volvo’s vice-president of sales and marketing for Canada. “We are very optimistic. Our industry has changed a lot over the last five years, and it has had a huge impact on the North American oil and gas industry. Caterpillar was heavily relied on by that industry on the truck side, and Caterpillar’s exit from the truck industry has left a huge opportunity for us.”
Another company that is feeling positive enough about the future of the industry to expand its reach into it is RTL- Westcan Group. Based in Edmonton, and owned by Kenan Advantage Group in North Canton, Ohio, Westcan has been on a minor buying spree in the oil and gas sector purchasing Wrangler Tank Services in November 2013 and Silverman Oilfield Services in April 2014.
“We really weren’t a big player in ground-level oil and gas, at the pump-jack level coming from a well site until the last couple of years,” said Westcan CEO Grant Mitchell. “Our view of it is we see that industry continuing to grow. All our customers in that space are telling us the same thing. They’ve got aggressive growth plans over the next three-to-five years.”
Mitchell also addressed the issue of pipelines, capacity and oil by rail and spoke about their effects.
“Any given time throughout a 12-month cycle, we see times when there is a little bit extra capacity, but more often than not we are seeing there is not enough capacity in the market,” he said.
Future pipeline construction plans are getting a lot of attention at Westcan.
“That’s something we are trying to understand better. They will change some of the local hauls in terms of delivery points, but we don’t see it having a major impact on our business, because of the growth we are seeing in the market.”
One problem area that is starting to affect trucking operations is terminal access and wait-times.
“It depends on the terminal, but we are definitely seeing longer line-ups to off-load product. Others seem to manage it very well. In general we have definitely seen unload times increase on average.”
Beyond increased waiting times, Malysa said some terminals, in particular those operated by Gibson Energy Inc. and Plains Midstream Canada have restricted access. In addition to running terminals, both Gibson and Plains have their own trucking operations.
“These sites are essentially becoming closed sites to common carriers in the market. Because of that, delivery points available to you as a common carrier without that additional value-added terminal endpoint, are becoming fewer and farther between,” he said.
Construction outlook Although it is relatively easy to speak about the state of the oil and gas industry in general, because (outside of Newfoundland) its main activities occur in the Western provinces, the construction industry is highly localized and more dependent on what his happening within smaller, regional economies.
With Westcan, for example, Mitchell had to address the industry by regional operation.
“Alberta’s budget has been down for the last year-and-a-half or two years, but it’s a cycle. It will come back. Roads have to be built, roads have to be maintained. It’s a typical cycle at this point.
“We own a construction company based in Yellowknife that focuses on water and sewer infrastructure and road repairs and road building. It’s a steady business. It’s very focused.”
With operations that reach a little further across the country, Malysa sees just how much the industry varies.
“From the construction side of things, I do feel there are changes happening in the marketplace in Ontario and Quebec. There has been a pent-up demand for the last two or three years, when the economy just hasn’t been percolating as much. I expect to see some increased activity in those provinces in 2014 and 2015. It will still be a strong construction year in Western Canada. Housing construction starts have continued to be very strong, so we don’t expect that to be a problem as far as volumes go—we’ll likely see a 3-5% growth rate.”
Not only did Quebec fleet operators feel the effects of an economy-driven construction slow-down, they were also subjected to a political situation that began with the Charbonneau Commission inquiry into corruption and continued with actions by the provincial government that put a stop on a lot of construction activities. But, according to Malysa, that turned out to beneficial to companies like Trimac.
“From our perspective, we thought that was good in the sense there was a lot of ‘old-boys’ associations happening with graft under the table that made it very difficult to try to operate above the table in that business. We felt that it would provide incentives for us to take some market share from those guys who clearly aren’t doing above-the-table deals. With the Liberal government being elected, we are optimistic that some of the work will come back, the excitement for construction will come back. With the uncertainty of the PQ government and a referendum behind us, it’s going to create a little more positive optimism in the economy that should help most businesses that operate in Quebec. Will it happen this summer? Maybe that’s too soon, but we see encouraging signs already as we move forward to the beginning of 2015.”
Ric Bedard, president of Cetaris, a Toronto-based company that offers fleet management solutions, said construction fleets are under a lot of pressure due to a combination of factors, including the economic downturn, which caused many fleets to park their equipment, leading to assets aging and not being replaced as quickly as they would normally have been. But an older fleet is only part of the problem.
“The biggest challenge from my perspective and that of the customers I am working with, is it’s a very competitive world. They’re not the only game in town. There is lots of consolidation going on, and with that consolidation you are getting these big global players coming in and putting the pressure on. They’re coming in with advanced tools and advanced technologies and advanced capabilities, so are the local and regional companies going to be able to compete? If you happen to be in places like Alberta, where it’s booming, it’s probably not as challenging, but if you’re in Ontario, you’re on the wrong side of the economic outlook,” he said.
In addition to fleet age, he said construction companies that are trying to make-do with the equipment on hand may be putting themselves at a disadvantage.
“It used to be you’d buy a spec, and then you’d make it work. The customers we are working with today are spending a lot more time looking at which spec is optimized for their particular jobs. They’re asking themselves, ‘how do we make sure when we replace or spec or repair that we buy the right specification to do the job better, faster and cheaper?’ What I say is that if you’re going to be competitive, if you are going to be the best today, you have to have the right asset doing the job. It doesn’t necessarily mean the asset that is sitting and available tomorrow is the perfect asset for you.”
Harsh recent winters have left their toll on the trucks used in oil and gas and construction fleets. Both Trimac and Westcan reported a high number of problems.
“We haven’t had a lot of luck with the new 2010 technology that is out there. It really is directly related to the cold winter conditions we’ve had. We’ve had a lot of problems with DEF fluid and pumps and ECM monitors on the regens shutting our tractors down,” said Malysa. “We’ve had campaigns from our tractor manufacturers that don’t appear to have completely solved the problems, but we’re hopeful this is behind us, and that the last of the changes that are contemplated here this summer are effective for the winter.”
While there have been a lot of changes for the power units, the specialized, industry-specific equipment found on the oil and gas and construction trucks has only undergone incremental improvements, said Mitchell.
“The equipment has gotten much more sophisticated, especially from a measuring and safety perspective, but I haven’t seen anything I would call a dramatic change. We’d love to find that change. We like developing new business styles of equipment or new combinations of equipment to increase efficiencies and say, ‘here’s the next great thing.’ We’ve done that in the past with combination trailers, but we haven’t seen any dramatic changes in many years.”