Truckstop Probe Casts Pall Over Industry

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.

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.”

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