Coverage Scarce for Crude Oil Haulers

 
 

crude oil hauling

While the recent spike in oil and natural gas production has been a boon for consumers who have enjoyed lower energy costs, some segments of the industry have responded to the surplus in different ways. For one, oil storage facilities have had to operate at or near peak capacity, with stockpiles in March at 25% above their five-year average. Oil trucking companies have also seen a similar jump in demand as companies scramble to find ways to transport the additional product.

The increased business is usually a good thing, but many of these companies, particularly in the trucking industry, are experiencing growing pains. New (and sometimes inexperienced) trucking companies have sprung up to take advantage of the market, while many existing companies have had to expand so quickly that they have been unable to find qualified drivers.

“There is a huge need for risk management in trucking right now,” said Anthony Dorn, a broker with Sloan Mason Insurance Services, at the IRMI Energy Risk and Insurance Conference in March. “A lot of these are fly-by-night companies. They are running with drivers that have no experience, they are getting violations from the DOT left and right for not having licenses or adequate brakes on their trucks, and they are running on dirt roads that aren’t made for 100,000-pound units.”

As a result, insurance coverage is increasingly difficult to come by.  “It’s a very risky place for underwriters,” he said. “If we don’t do something as agents and as risk managers, there will be fewer carriers.” In the current market, he added, only nine carriers will write crude hauling.

Agencies such as the Department of Transportation have vehicle reports available online, which insurers frequently access when considering whether to underwrite a trucking company. Dorn suggested that organizations looking for coverage also check these reports and empower their risk managers and safety directors to proactively identify and correct any problems, such as employing drivers who lack adequate experience.

“There is a huge opportunity for risk managers to approach these companies and tell them, ‘If you don’t have a risk manager to help with your losses, you are not going to be able to find insurance,’” he said. “Right off the bat, I’d say 50% [of trucking companies] are declined as soon as they walk in the door.” As a result, some have been forced to form new limited liability companies or even shut down completely.

In addition, as oil prices drop, companies that originally formed to haul salt water for hydraulic fracturing have been looking for other ways to make up the revenue as fracking operations are put on hold, noted Loren Henry, also a broker with Sloan Mason. “They start hauling agricultural products and paper products—whatever there is that is not oil and gas-related,” he said. But these products are typically not covered under their auto policies. He advised fleet owners to communicate any changes to their broker to find out specifically what is covered.

Companies that do hire risk managers and listen to their advice are often glad they did, especially after they see their new premiums. “When they go from $5,000 a unit to $12,000 a unit, their ears perk up pretty quick,” Dorn said. “They are willing to do almost anything to get that pricing down. Companies are actually being put out of business because their premiums are too high.”

As oil prices and production stabilize, however, the demand for trucking services will likely decrease, and Dorn expects many changes over the next year. “A lot of companies will fall by the wayside,” he said. “A lot of smaller companies will be gone—they will sell their trucks or be bought out by bigger fleets. We are going to be left with companies that are well-run with proper safety procedures in their fleet.” Once that happens, Dorn believes more insurance carriers will enter the market. “But right now, the whole market is in disarray,” he said.

 
Caroline McDonald

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About the Author

Caroline McDonald is the senior editor of Risk Management.

 
 

1 Comment

  • R. Owen

    I realize this is an old article but I couldn’t help notice a couple of statements that are not clear and quite honestly are “blurred”as to what area of trucking you are speaking about. I drove truck in the oilfields of western ND and was hauling fresh water for fracking. Fresh water alone was used in fracking. Salt water, also known as brine or more commonly called in ND “production water” was always hauled to disposal sites. Also regarding your statements about increased demand for trucking I question that statement: “Oil trucking companies have also seen a similar jump in demand as companies scramble to find ways to transport the additional product”. I assume you are speaking about refined crude oil products? I do not agree with that if you are specifically talking about the oilfield. When crude oil prices bottomed out, drilling stopped followed by fracking operations. Trucking companies , the smaller ones and bigger ones lost a lot of work. Many went home and true they branched out into different areas of trucking. I believe the demand for “REFINED” CRUDE PRODUCTS brought on by the lower gas and diesel prices created a greater consumer demand and subsequent need for delivery and more trucks , but not oilfield trucking not by a long shot ! The statement made by Anthony Dorn is not clear as to what he is talking about. Is he pointing to refined crude products of which they would not be running primarily dirt roads, does that make sense. It sounds like he is referring to oilfield trucking operations hauling “brine” or crude oil on lease roads, county roads such as in ND and TX which are in fact mostly dirt roads and depending on which state they are operating in hauling 100,000 gross lbs. (legal in ND but I seriously doubt in TX).
    (There is a huge need for risk management in trucking right now,” said Anthony Dorn, a broker with Sloan Mason Insurance Services, at the IRMI Energy Risk and Insurance Conference in March. “A lot of these are fly-by-night companies. They are running with drivers that have no experience, they are getting violations from the DOT left and right for not having licenses or adequate brakes on their trucks, and they are running on dirt roads that aren’t made for 100,000-pound units.”)
    It’s easy to throw facts together but not clarify as to what specific part of the trucking industry you are speaking of, which it is not clear in your article. Over the road, (as in driving paved roads) trucking companies hauling refined crude products from the refinery for the most part are safe and legit. In the oilfield it was crazy when crude was high. That was another story and there was little oversight by the DOT in ND, they couldn’t keep up with all the the trucking outfits coming into the state to make the “big bucks”. That is fact and accidents were an everyday occurrence. Bottom-line trucking in the oilfield is not anything close to what it was. Crude oil from the wells is still being hauled to pipelines and LACT stations and to the rails, but nothing as it was before crude prices plummeted.

     
 

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