Federal Testimony: Limits on Diesel Additive Distribution May Lead to Serious Food, Product Shortages This Fall, ‘Absolute Catastrophe'

Michael W. Chapman | June 2, 2022 | 10:26am EDT
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(Pilot Flying J)
(Pilot Flying J)

(CNS News) -- Because of supply chain problems with U.S. railways, the distribution of diesel, gasoline, and especially a diesel additive that limits emissions from highway trucks, could decline and cause prices for fuel to rise more than they have, and lead to shortages and higher prices for many consumer products delivered by 18-wheelers nationwide, said Pilot Flying J CEO Shameek Konar in testimony before the Surface Transportation Board. 

"The current situation is untenable," said Konar in his Apr. 27 testimony, which was largely ignored by the liberal media. Under the worst-case scenario, he added, it "would be an absolute catastrophe," and "equal to removing 10% of the trucks from the road today."

The Pilot Flying J company, which Konar oversees, serves about 70,000 truckers and one million other customers every day at its 750-plus travel centers, the largest number of travel centers in the U.S. Pilot is the 7th largest privately held company in the U.S. and employs 28,000 people. 

As Konar testified, Pilot currently accounts "for approximately 20% of the country’s highway, or as we call it, over-the-road diesel supply, 20% -- as well as 30% of the diesel exhaust fluid supply, also known as DEF."

Every 18-wheel diesel truck built after 2010 must use DEF to keep its emissions within federal standards. If a truck wants to stay on the road, it must use about seven gallons of DEF every time it fills up on diesel. DEF is vital to the U.S. trucking industry, which delivers so many products to stores across the country.

However, "Pilot is facing a threat of severe reduction in rail service allocations," testified Konar. "For Pilot, the service-reduction allocations are being imposed by the Union Pacific Railroad. On April 13, we were informed by the Union Pacific that we were required to reduce shipments [on rail] by 26%. In subsequent conversations we were asked to reduce them even further by 50% or face embargoes."

(Getty Images)
(Getty Images)

"[A] 26% to 50% reduction in our allocations will have substantial consequences for the markets," he said. 

Pilot has 23 rail-served facilities that make the DEF, he explained. The Union Pacific (UP) trains delivers the raw product, which Pilot then makes into DEF, and then distributes by truck to its retail locations where truckers can obtain it. Union Pacific delivers about 45% of the material used by Pilot to make the special additive.

"Pilot operates the largest or one of the largest DEF supply networks in the country," said Konar. “Of the 300 million gallons of DEF that Pilot supplies to the industry every year, 74% is moved by rail. Union Pacific’s restrictions [from 26% to 50%] will prevent Pilot from keeping many markets adequately supplied with DEF, likely causing shortages that will sideline trucks and reduce trucking capacity."

So far, Pilot has not reduced the number of rail cars it uses every month and Union Pacific has not embargoed Pilot. But that could change, which is partly why Konar was testifying before the Surface Transportation Board.  

(Getty Images)
(Getty Images)

“Let me give you some context," he told the Board.  "A single rail car carries 21,500 gallons of DEF on average. A single truck generally takes in 7 gallons of DEF every time they fill. So that implies a single rail car is basically providing 3,000 trucks’ worth of DEF fills."

"For some more context," he added, "basically every rail car that gets missed, in terms of DEF delivery, will reduce trucking potential by 5 million miles. All right?  That’s a really big number, 5 million miles."

If “the railways are pulling back, we have to move the stuff on trucks, if you can’t supply DEF, there’s more pressure on the sector and we let the sector down," he explained.

Today, U.S. diesel inventories nationwide "are running 10% to 15% below what they had been in the last 5 years at the lowest point," said Konar, and "renewable fuels like biodiesel, renewable diesel move exclusively on rail, on ships, or on trucks. There are no pipeline alternatives."

(Getty Images)
(Getty Images)

“Over 50% of Pilot’s renewable diesel is transported on rail and having our capacity cut by 50% would actually increase fuel prices in these states and potentially run out on occasion," testified Konar.

He also explained that there have been calls to limit the amount of rail-delivered ethanol, which is blended with gasoline to maintain octane levels. If this happens, it will also further boost the price of gasoline.

“We believe UP’s allocation logic is flawed, it’s disproportionate and unprecedented," said Konar. "If implemented, it will have three impacts: They’ll be a significant impact on DEF supply, potentially stranding a large number of trucks; a negative impact on diesel and gas supply and prices in an already challenged market; and it will hurt our supply chains at a time when we cannot afford it."

“The current situation is untenable," testified Konar. “We would be in deep trouble if we reduced the [rail] cars.”

  (Getty Images)
(Getty Images)

If an embargo went through and Pilot was not able to move DEF on Union Pacific rail cars, “we would probably, at this point, lose about 35% to 40% of our DEF supply where we do not have alternatives," said Konar. "And from an annual perspective, that would mean we would miss about 100 million gallons of DEF, and that … would be an absolute catastrophe."

"We don’t just supply ourselves," he stressed. "We supply a lot of the market.... We supply about 30% of the DEF in the United States. The consequences there are, not only would I get fired but there’d be a lot more to it."

He further warned, “The U.S. consumes about one billion gallons of DEF, we supply more than 300 million. … You could not replace 100 million gallons in any reasonable timeframe, you could maybe replace it by next year. It’s an absolute disaster."

"It would be equal to removing 10% of the trucks from the road today," he replied. 

Surface Transportation Board Chairman Martin Oberman, as reported by S&P Global, said that "in recent years -- and magnified more during the pandemic -- railroads have cuts costs and jobs to improve profits. He said the top U.S. railroads have reduced their workforces by 29% -- the loss of 45,000 employees -- in the last six years. Oberman said he fears 'fuel prices going through the roof' when they already are so high."

(Getty Images)
(Getty Images)

In a statement, UP said, "We are removing Union Pacific-controlled cars to ease congestion and working with customers to reduce their own growing inventories, adding locomotives, hiring at an accelerated pace, and focusing on other steps to get our service back to where we and our customers expect it to be."

UP plans to hire about 1,400 people this year, reported S&P Global. However, part of the problem or delay in getting back up to speed "is that it takes months of classroom and on-the-job training to fill these train engineer and conductor jobs, especially in a low-unemployment environment of people seeking other jobs or wanting to work from home."

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