Priming the Pump: Surviving volatility in the oil and gas market

Cautious optimism

Some forwarders and carriers, although aware of the problems in today’s energy market, see opportunity regardless of the price of crude. Consequently, they’re positioning themselves for the comeback. Lufthansa Cargo AG, for example, recently opened a new route for the industry, despite low oil prices. The carrier launched a Houston (IAH)-Stavanger, Norway (SVG)-Frankfurt (FRA) route with a 777F. Lufthansa flies the route once a week on Wednesday, solely aimed at the oil-and-gas industry. Generally, Lufthansa is flying oil and gas equipment to Norway.

“We could have had a better time to enter this market,” admitted Achim Martinka, vice president, the Americas, Lufthansa Cargo. That is not to say Lufthansa and Martinka, who manages the route, are disappointed with IAH-SVG-FRA. On the contrary, Martinka says the route is “still matching expectations. We are pretty happy with the results,” he says.

“Happy” may be a relative term. It turns out that Lufthansa Cargo set “conservative” expectations for the route’s performance. There was no previous main-deck service between Houston and Stavanger and, as Martinka says,“Everyone expects that one day fuel prices will go up.”

Forwarder DB Schenker is also counting on a positive correction in the oil and gas sector. Edward Fish, Schenker’s vice president of global projects for oil and gas, based in Houston, concurred that the market today has taken a hit. Many companies cut back and there were “major, major layoffs.” But Schenker is what he calls a “sleeping giant,” making capital investments now where many companies simply are not. Schenker recently built a 150,000-square-foot facility in Houston – and is still looking for high-quality hires in the area. The facility includes 123,500 square feet of warehouse space, 26,500 square feet of office space and a five-acre, secured storage yard. The facility is also certified to handle dangerous goods. “We’re sending the industry a message that we’re here to stay,” Fish said.

Additionally, Schenker recently launched weekly air cargo service linking Hong Kong to Chicago and Houston to fulfill the needs of the oil & gas (O&G) industry, as well as the automotive and industrial sectors, using a new 747-8F nose-loader. The route, he said, was introduced initially because of the West Coast port crisis earlier this year, but clients liked it so much that Schenker decided to keep it. Much of the raw materials for the O&G industry come from China on this new route.

“Overall, if you look at the oil drop, it was probably the best stimulus for the economy,” Fish added. “This is a cycle you see every seven to 10 years.” Although the current price dip hasn’t hit Houston as hard as the collapse that occurred in the 1980s, he said the drop in the price of oil has impacted the carriers and added to the over-capacity. However, other verticals outside of oil and gas are doing well, and he expects that by the third quarter of 2016 the O&G price will also be in a comfortable place. He doesn’t see oil prices returning to $100 a barrel unless there is stabilization in the Middle East, but he does expect $75 to $80 a barrel.

Fish said countries in the Middle East, specifically members of OPEC, are worried that the U.S. might become a self-sufficient oil producer, given the rising U.S. domestic production, which includes hydraulic fracturing. While so-called “fracking” is practiced in at least 25 U.S. states, most of the activity is in Texas, Colorado, Pennsylvania and North Dakota. “North America is the focus point now.”