Shameek Konar, the CEO of Pilot Flying J truck stops and gas stations, explained during a hearing that on April 13, Pilot Flying J was informed by Union Pacific Railways (UP) that the company was “required to reduce shipments by 26 percent.” Then, in subsequent conversations, UP asked them to reduce rail shipments even further by 50 percent or face embargoes. Konar said that the reductions will significantly impact the availability of fuel and fuel prices. Pilot Flying J supplies roughly 30% of diesel exhaust fuel (DEF) in the country. The trucking sector of our economy depends on DEF as all trucks manufactured after 2010 cannot operate without it, and the cut in deliveries will heavily impact the trucking industry.
According to Konar, no other companies are being instructed by UP or any other railroad to reduce their shipments to the extent that UP demands Pilot Flying J. Union Pacific’s largest shareholders are Vanguard and BlackRock. UP also recently reduced shipments of fertilizer to farmers. Internet critic Jim Stone suggested that Pilot Flying J knowingly caused the problem by changing their paperwork to jam up the system, resulting in a steep loss in service. He wrote that both Pilot Flying J and UP are elite owned and proposed that both companies are acting as a tag team, putting on a show to intentionally cause serious problems.
The ongoing “crisis on the rails” has paralyzed farmers, leaving them literally “hours away from depopulating herds.” The rail crisis, which is “harming the nation’s economy,” impacts the supply chain of U.S. agriculture, energy, and shipping across the board. To address the severe situation, the Surface Transportation Board (STB) held a hearing in late April, giving those affected the opportunity to speak. Pilot Flying J CEO Shameek Konar spent his time during the extensive testimony revealing the unprecedented difficulties his company faces following unheard-of restrictions imposed by Union Pacific Railways.
Operating the largest network of travel centers in the United States, Pilot Flying J was founded by James A. Haslam II in 1958. Headquartered in Knoxville, TN, the company accounts for nearly 20 percent of the nation’s over-the-road diesel supply and 30 percent of the diesel exhaust fluid (DEF) supply.
Threatened by a severe reduction in rail service allocations, the company heavily relies on the railroads to deliver its product.
Rail Restrictions Imposed on Pilot Flying J by Union Pacific
At the Apr. 26 & 27 hearing, Konar explained that on Apr. 13, Pilot Flying J was informed by Union Pacific Railways (UP)—whose largest shareholders are Vanguard and Blackrock—that the company was “required to reduce shipments by 26 percent.” Then, in subsequent conversations, UP asked them to reduce rail shipments even further by 50 percent or face embargoes. According to Konar, no other companies are being instructed by UP or any other railroad to reduce their shipments to the extent that UP demands Pilot Flying J.
Executives from major U.S. railroads also attended the hearing. Union Pacific Railway Company (UP), BNSF Railway Company (BNSF), CSX Transportation (CSX), and Norfolk Southern Company (NS) made clear that higher volumes and labor constraints presented obstacles to providing better rail service. With long-standing complaints from shippers of extensive delays, unfilled orders, and other significant and rising disruptions, the railway carriers stated individual strategies to build up the industry workforce and restore service.
Concerned over the workforce shortage, on Apr. 7, when announcing its upcoming hearing (download Notice of Public Hearing here), STB underscored that over the last six years, Class I railroads have collectively reduced their workforce by 29 percent—cutting nearly 45,000 employees from the payrolls. Board Chairman Martin J. Oberman commented on the impact of the significant cuts. He remarked:
“In my view, all of this has directly contributed to where we are today—rail users experiencing serious deteriorations in rail service because, on too many parts of their networks, the railroads simply do not have a sufficient number of employees.”
Union Pacific, which plans to remove anywhere from 2% to 4% of its cars from the network, reported at the hearing that it is asking shippers with the highest impact on its network, including Pilot Flying J, to reduce inventory as the railroad is dealing with over 20,000 excess cars on its grid. With a forecast of “the better half of the year to de-congest the network,” Eric Gehringer, executive vice president of operations at UP, noted:
“We are taking an aggressive approach to reducing operating inventory—more aggressive than in the past.”
Still, Konar remarked that, based on conversations with UP, the heavy restrictions imposed on Pilot Flying J do not “fairly and proportionately” allocate the supply issues because Pilot has not increased the total number of cars it received every month since January. Instead, Konar said UP’s numbers are “based on a simplistic approach of looking at those shippers who have increased their numbers of shipments between January 2022 and March 2022.” He said this does not consider the overall number of shipments received at Pilot’s facilities, which have “remained static over this period.” Noting the total number of cars has stayed the same, Konar stated:
“What has actually happened is Pilot has become a shipper for some cars that we were not shippers before. So our facilities are still receiving the same number of cars. It’s just the name of who’s shipping has changed because we’ve taken control over some of the cars because of the issues we’ve had with the railroads, so that we have the optionality to deliver these cars and markets that they can pay.
We understand and appreciate that the current market conditions are imposing significant constraints on the railroads, and we’re committed to help ease this congestion. However, 26 to 50% reduction in our allocations will have substantial consequences for the markets.”