A potential embargo by Union Pacific of the company that owns Pilot and Flying J truck stops could be catastrophic to an already troubled supply chain, according to that company's chief executive.
Pilot and Flying J CEO Shameek Konar recently testified before the Surface Transportation Board, telling members that the railway's request to significantly cut rail shipments or face embargo would cut tens of millions of truck miles from the highways at a time when driver shortages and truck availability is already tight.
UP told customers in April it needed to ease traffic jams in the supply chain and would begin metering deliveries if customers didn't voluntarily reduce inventory. The railroad company has asked that Pilot cut their rail shipments in half.
"We're not aware of any other company being instructed by the Union Pacific or any other railroad to reduce their shipments to the extent they're asking," Konar testified.
Moreover, Konar predicts that diesel prices, already above $6 per gallon is many places, would go even higher.
Much of Konar's testimony, and questions from the panel, centered on the availability of diesel exhaust fluid, or DEF. That urea-based liquid is required in all diesel engines manufactured after 2010. The fluid reduces nitrous oxide emissions in diesel vehicles. A diesel engine without DEF will automatically shut down if it is not available. All newer diesel vehicles also must have this technology, including pickups and cars.
Pilot and Flying J supplies about 30% of the U.S. DEF supply and the diesel-powered trucks that run the highways need it, he said.
UP trains deliver raw product to Pilot's 23 rail-served facilities, which it converts to a finished product before delivering by truck to retail locations. Pilot receives about 45% of the raw materials used to make DEF by UP rail.
"OF the 300 million gallons of DEF that Pilot supplies to the industry every year, 74% is moved by rail," Konar said. "Union Pacific's restrictions will prevent Pilot from keeping many markets adequately supplied with DEF, likely causing shortages that will sideline trucks and reduce trucking capacity."
Konar further testified that U.S. diesel inventories are running 10-15% below their lowest point in the last five years, further exacerbating supply issues and raising the cost of diesel. Meanwhile, the number of U.S. oil refineries has fallen from 301 in 1982, to 124 in 2021 and more are being shuttered as we speak.
The cutbacks to DEF production would be catastrophic. Not only would prices go up for DEF, which is now the highest it's ever been at nearly $4 per gallon. Konar says a big rig will take on about seven gallons of DEF at every diesel fill-up. Diesel-powered tractors also require DEF.
This is untenable for trucking and the U.S. economy. The decision by the Biden Administration to curtail fuel shipments via pipeline from Canada, and the decision to curtail U.S. oil production is directly responsible for the pain at the pump and a national inflation rate closing in on 10%.
Farmers are feeling it when they fuel their tractors and purchase inputs that are manufactured and shipped because of the free flow of oil around the globe. Consumers see it every time they fill up their car and purchase groceries. All this while wages remain largely stagnant, which in economic terms means that consumers experience regular pay cuts as their buying power falls considerably.