Rail Merger: ACC Calls on STB to Address Issues with Competition and Service

In its review of the proposed Kansas City Southern merger with another Class I railroad, the American Chemistry Council (ACC) and its member companies are calling on the Surface Transportation...

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In its review of the proposed Kansas City Southern merger with another Class I railroad, the American Chemistry Council (ACC) and its member companies are calling on the Surface Transportation Board (STB) to address a series of potential harmful issues before approving any agreement.

Dramatic operational changes and consolidation of the freight rail industry over the past several decades have led to less competition between railroads, which has subsequently diminished service and increased costs for U.S. producers. Rail customers are justifiably worried that further consolidation could make these ongoing freight rail problems and the related detrimental impacts worse.

“The cost of shipping by rail continues to rise dramatically while our member companies have no effective remedies for rate or service issues,” said Chris Jahn, President and Chief Executive Officer of the American Chemistry Council. “We are concerned that unless the STB takes the necessary steps to put appropriate safeguards in place and to shore up competition between railroads any merger could have a negative impact on manufacturing in the U.S. – and the broader economy.”

In comments filed to the merger dockets, ACC outlined a set of merger principles that call on the Board to address the following issues:

• Maintain Access to Existing Gateways – Following a merger, the combined railroad could close gateways for traffic that are currently open to a competing Class I carrier’s routes. Such closures can occur either physically, by refusing to interchange traffic at the gateway, or commercially, by pricing gateway movements non-competitively. To prevent any potential gateway closures, a merger approval must include plans to preserve access to all existing interchange options.
• Rate protection for service to/from gateways:  As part of maintaining commercially viable access to gateways, shippers must be able to obtain separate rates from individual railroads for service to and from gateways (“bottleneck rates”). The Board must ensure that bottleneck rates be subjected to STB review to preserve pre-merger competition.
• Enhanced competition:  The STB’s approval must include a requirement that the merger will enhance competition. Reciprocal (or competitive) switching provides the most direct means to meet a requirement to enhance access to competitive rail service. As a condition of a merger approval, a railroad should agree to provide customers with reasonable access to reciprocal switching at existing interchanges with other Class I railroads.
• Prevent Service Disruptions:  Any merger proposal should include Service Assurance Plans, including plans to cooperate with other carriers to overcome serious service disruptions during the transitional period and provide compensation to shippers injured by such disruptions. To strengthen these protections, the Board should require railroads to provide defined service metrics and require a streamlined process for customers to recover damages for service failures.
• Reasonable railroad practices:  The STB has a broad obligation to consider whether a rail merger is in the public interest. While not explicitly addressed in its merger rules, the Board should consider whether a merger would lead to the expansion of railroad practices that may be adverse to the public interest. Shippers should have the ability to address such concerns within the context of a merger review process.   

While ACC has not taken a position regarding the individual proposals by Canadian National (CN) or Canadian Pacific (CP), we will continue to engage with the STB and will provide public comments to the Board at the appropriate time.

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