Based on 'rumblings,' Pilot Flying J merger may face litigation

The major complaints were from independent truck stops and their member organizations that were exceptionally critical of Pilot Flying J and the “arrogant” use of its “monopolistic market power” to dramatically raise rates on the TCH Fuel Card, now owned 50 percent by Pilot Flying J. (The Trucker: KEVIN JONES)

By JACK HUMPHREVILLE
The Trucker News Services

11/10/2010

AN NEWS ANALYSIS

The Trucker has received considerable feedback from its readers about its recent article concerning the anticompetitive impact of the merger of Pilot and Flying J. While a few truckers were pleased that the Pilot locations are now accepting the TCH Fuel Card, most confirmed that the Flying J locations were being “pilotized” as the service was slower and that quality of the food had slipped.

Owner-operators are definitely not happy with the higher street prices at the Flying J as Pilot has implemented a more consistent pricing strategy that spans all their locations.  Of course, this is one of the major reasons why Pilot has been so successful in managing its margins and business.

But the major complaints were from independent truck stops and their member organizations that were exceptionally critical of Pilot Flying J and the “arrogant” use of its “monopolistic market power” to dramatically raise rates on the TCH Fuel Card, now owned 50 percent by Pilot Flying J.  The other 50 percent is owned by Flying J, which as a result of the merger owns around 11 percent of Pilot Flying J.

Put another way, a penny is 6.7 percent of a 15-cent margin, while a nickel consumes one-third of the same margin.  Ouch.

In addition, TCH has adopted a tiered pricing scheme where large chains (Love’s, TA/Petro, and of course, Pilot Flying J) are charged $1 while smaller operators are charged 1.65 percent to 1.95 percent, putting them at a significant disadvantage to the chains and Pilot Flying J.

The burden of higher costs for the TCH Fuel Card is further compounded by Pilot Flying J’s purchasing power, its massive distribution system, and financial strength, resulting in an environment where the independent operators are concerned that they will be forced to sell or close their doors.

However, in response to industry complaints, adverse publicity, and the possibility that the Federal Trade Commission might not finalize the Consent Agreement authorizing the merger, TCH has cut the fee to 1 percent, or 3 cents in our example, triple the pre merger rate, consuming 20 percent of the 15 cent margin. 

Several truck stop operators and industry participants are still wondering how the FTC, which determined that there were significant antitrust issues, approved this merger transaction that combined the top two industry giants, but only required that PFJ divest 4.5 percent of their combined locations.  Even after the modest divestitures, Pilot Flying J sold significantly more diesel fuel that TA/Petro and Love’s Travel Stops combined. 

Trucking companies are also concerned that Pilot Flying J is bundling its services, such as the TCH Fuel Card, with its volume discounts based on the dollar volume of business and / or the percentage of their fuel purchases they buy from Pilot Flying J.   While truck stop organizations that have filed complaints with the FTC are requesting a non discriminatory level playing field for fuel card fees, confidentiality provisions similar to those that were given to Love’s, and a limitation on acquisitions of other truck stops, these minor revisions will not inhibit PFJ’s use of market power to gain market share and increase fuel margins at the expense of the trucking companies and owner-operators.

The FTC needs to reopen this case and conduct a rigorous and open review of the merger of Pilot and Flying J and its anticompetitive impact, especially given the aggressive actions of Pilot Flying J. 

And based on the rumblings, there appears to be a high likelihood that the merger and its consequences will be the subject of litigation where only the only true winners are the lawyers.