The U.S. truckstop industry is reeling over the federal probe of Pilot Flying J’s manual rebate program.
The public hit to the truckstop titan’s reputation – and potentially its bottom line – sent a chill through the fuel distribution chain. On its website, Pilot Flying J bills itself as the largest retailer of diesel fuel in the country, buying more than 8 billion gallons of diesel fuel annually.
Because of the company’s size, its long history and its leadership position in the industry, experts believe the investigation could bring greater scrutiny to the commercial fuel business, raising the bar for integrity in fleet deals for all marketers.
The pivotal moment came when the federal affidavit was published several days after the Federal Bureau of Investigation’s April 15 raid of Pilot Flying J’s (PFJ) Knoxville, Tenn., headquarters. The damning testimony subsequently “went viral” in the petroleum distribution community. Click here to view the affidavit.
The affidavit quotes Pilot salesmen discussing competitors’ sales practices, which may cast a shadow over other truckstop operators. Forrest Baker, a retired economist and longtime industry consultant, says the natural question is, “How do you survive in the market if you don’t play the same game as your competitors?”
Rival truckstop operator Love’s Travel Stops and Country Stores quickly tried to distance itself from the allegations against PFJ. In an internal memo April 22 it reminded employees of the company’s “customer focus, integrity, strong work ethic, innovation and perseverance.”
Founder Tom Love wrote that the 50-year-old company has strived to do business in a “straightforward and transparent manner.” A company spokesman refused to comment directly on the investigation.
The American Trucking Association also declined comment. “We know that these fuel discount programs exist,” spokesman Sean McNally told Oil Express, “but beyond that we don’t have much information because we just haven’t asked our members so as to avoid discussions of pricing and discounting.”
PFJ is regarded as well-heeled. In addition to the wealthy Haslam family, Wall Street fund CBC Capital owns a substantial equity stake in the company.
But suppliers are on alert for any unexpected developments that could hurt its credit status. A day after the news broke of the FBI raid and lockdown of company headquarters, credit ratings service Moody’s put its debt ratings for Pilot Travel Centers on review for a downgrade. About $4 billion of rated debt securities is under review.
***TARGET OF LAWSUITS***
A Georgia trucking firm also filed suit against the company. The suit by Atlantic Coast Carriers of Hazelhurst, Ga. – a candidate for class action status – alleges that PFJ cheated it and “numerous” other fleets out of rebate money on diesel purchases. It requests the return of all rebate funds to Atlantic Coast and other customers suffering similar economic losses, and asks for unspecified punitive damages and attorneys’ fees. It is likely the first of more suits to come.
Just before presstime, a national litigation firm – Girard Gibbs LLP – reached out to PFJ customers seeking information and/or redress. The firm has already seen a great deal of interest, attorney Dena Sharp told Oil Express.
“It’s a situation that has caused a lot of concern in the industry,” Sharp said. She pointed to transcripts in the affidavit in which PFJ executives characterized small and midsized trucking firms as unsophisticated. “Sophistication shouldn’t be a measure of whether you get your money or not,” Sharp said.
There are expectations in the supply community that PFJ’s reputation and relationship with buyers and sellers may never be the same.
In the affidavit, managers used all types of code words to refer to rebate fraud, such as “screwing” customers, “cutting the rebate,” and “cost-plussing.” Vice president of sales John Freeman suggests having a two-tier pricing system where the company has a set of racks for companies “that don’t close-watch, don’t optimize” and another set of rack data “where you have to get in that optimizing close-watch game.”
In a televised press conference, PFJ’s CEO Jimmy Haslam insisted, “That’s not how we do things around here. We have respect for people, respect for our customers. We don’t talk and act that way.”
Haslam vowed to audit all trucking customer contracts and pay any monies owed. He said the company is doing away with the manual process for figuring rebates and placing some of its staff on administrative leave. Haslam said PFJ is hiring a chief compliance officer and will also appoint an independent investigator to oversee the company’s own internal investigation of the manual rebate program.
But Baker said that “what’s coming out of the investigation, release and publication of the affidavits and the findings is that no one is believing that Pilot is an ethical seller.”