Billionaire investor Warren Buffett’s purchase of a large stake in truck stop operator Pilot Flying J and his plans to eventually take control of the business look like a contrarian bet.
Hurdles such as low diesel fuel prices and a shift in shipping patterns that favors regional trucking and local delivery over long-haul freight have turned the truck stop business into a difficult financial play.
A private company, Pilot Flying J doesn’t disclose much financial detail, but it has said that its annual revenue is about $20 billion, down by about a third from a decade ago.
Other truck stock companies also face financial challenges.
TravelCenters of America, the only big publicly held player in the space, saw its losses widen to $32.4 million for the first six months of this year from a deficit of $6.4 million in the same period a year earlier. Both diesel fuel and gasoline sales fell from their prior year levels. Shares of the Westlake, Ohio, company, closed Friday at $4.70, down from $6.85 a year ago and as high as $17.58 a share in March of 2015.
Fuel, or the lack of it, is a looming issue for truck stops. Truck manufacturers are working to reduce the importance of diesel — the basic commodity of truck stops — by increasing the fuel economy of commercial vehicles.
As a result, sales of over-the-road diesel fuel at truck stops have fallen by more than 4 percent over the past decade to 38.8 billion gallons in 2016, according to NATSO, the trade group formerly known as the National Association of Truck Stop Operators.
“Trucks are getting a whole lot more efficient and, with time, there’s less diesel consumption per mile,” said Lisa Mullings, chief executive of NATSO.
Even more troubling for truck stops, the price of diesel has fallen steadily in recent years, slicing into their revenue. The national average price for a gallon of diesel was $3.84 a gallon in August 2014, according to the Energy Information Administration. That had fallen to $2.60 by August before the recent hurricanes temporarily reduced refining capacity, pushing the price to $2.79 in September.
Additionally, long-haul traffic — the kind that most utilizes truck stops — is declining, a result of the e-commerce-sparked boom in local and regional freight delivery. The number of miles driven in the U.S. by semi-trailer trucks peaked at 184 billion in 2008 and had fallen to 170 billion by 2015, the latest period tracked by the Department of Transportation.
“With the Amazon effect, we’re seeing more drivers doing shorter hauls and not staying out overnight,” Mullings said. “They’re making deliveries during the day, so they’re making smaller fuel stops without needing all the parking and amenities of traditional truck stops.”
The shift has hurt truck stops, which cater to overnight drivers.
Overseas sourcing and cheap water transport through ports bring goods to the U.S. close to the region of consumption. This shortens over-the-road length of haul and regionalizes freight, said Eileen Hart, spokeswoman for DAT Solutions, an industry data provider.
“This is precisely why the recent hurricanes were so disruptive,” Hart said. “When the Houston port was out of operation due to Hurricane Harvey, freight had to be diverted to a different port and then re-positioned over the road.”
In addition, retailers are trying to shorten the distance to customers and react faster.
“Amazon has helped set a general expectation that when you order something, a one- to two-day wait should be your tolerance,” Hart said.
Truck stops are developing new business models to respond to these trends.
Many are attempting to lure more passenger vehicle traffic along interstates and in urban and suburban areas, using convenient fueling and attractive food offerings as a draw, Mullings said.
Operators also are replacing old facilities with new, more efficient ones, said Gary Hall, a truck stop consultant based in Medford, Ore.
“We still feel like there’s an opportunity to grow,” said Ken Parent, president of Pilot Flying J.
The Knoxville, Tenn., company plans to open up 15 new locations this year, bringing its total to 765 outlets and has 30 additional locations planned for 2018, Parent said. Industry-wide, the number of truck stops has remained at about 2,500 for several years.
Some stretches of U.S. highway “are still underpenetrated with truck stops, even on interstates,” Parent said, especially in Pacific Coast states. It is investing in spots such as Jurupa Valley, Calif., about 50 miles east of Los Angeles, which is bounded by I-15 and I-10
Also, Pilot Flying J is putting new facilities in non-traditional spots away from interstates, such as in suburban distribution parks, near ports and intermodal facilities, and on U.S. rural highways, Parent said.
It’s also adjusting the size and shape of its stops.
NATSO’s definition of a truck stop requires that the facility be open 24 hours, have at least two showers and offer at least 10 parking spaces. But many of Pilot Flying J’s new centers have smaller footprints than its traditional large centers, which are truck stops by any definition.
The new outlets have only 5,000 square feet – or 9,500 square feet under roof instead of 15,000 – and therefore are less expensive to build and operate. These outlets have only a few showers instead of seven to 15 in the older stops. The shelves are stocked with only 70 percent of the merchandise selection of truck-safety supplies that are carried by a full-fledged facility.
The company also now is attempting to attract a bigger share of trucker traffic by rolling out new food menus that offer more customized and healthier fare such as made-to-order sandwiches, salads, soups and pizza, at test stores such as in Lathrop, Calif.
“A year ago, you couldn’t have ordered those things at that facility,” Parent said. “We’re trying to take a leading edge for the industry.”
Pilot Flying J also is deploying new digital technology to relay parking availability to truckers. Using batteries of “microsensors” spread around the truck stop lot, drivers can access an accurate count of available spots at approaching facilities via a proprietary app. Other sensors provide the app updates on refueling wait times at each pump.
“This all helps save them time and makes them more productive,” Parent said. “We’re trying to create some loyalty with the fleet.”
Earlier this month Berkshire Hathaway, Buffett’s investment company, said it will acquire a 38.6-percent equity stake in Pilot Flying J for an undisclosed price. The Haslam family, the majority owners, will continue to hold 50.1 percent ownership. Another investor, FJ Management Inc., will retain an 11.3 percent ownership until 2023.
Berkshire will become majority shareholder by acquiring an additional 41.4-percent equity stake in 2023. But the Haslam family will retain 20 percent ownership in the company.
Berkshire did not make Buffett available to comment for this story. However at the time of the transaction he told the Wall Street Journal that more goods will move to more people in the U.S., something he’s willing to “bet a lot of money on.”
Indeed, longer-term industry predictions point to rising freight volumes.
In a July industry report, the American Trucking Associations forecast freight volume will grow 2.8 percent this year and will then accelerate to 3.4 percent annually through 2023. Trucking will remain the dominant freight mode – moving 10.73 billion tons of freight in 2017, or about two-thirds of all goods.
Industry consultant Hall also is upbeat.
“There will be more corridors built, more highway improvements, and more traffic on our highways,” Hall said. “You can’t get anything without trucks.”
Editor’s note: Trucks.com editor Jerry Hirsch contributed to this report.