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In reviewing Kansas City Southern’s proposed merger with another Class I railroad, the American Chemistry Council (ACC) and its member companies are calling on the Surface Transportation Board (STB) to resolve a number of potentially harmful issues before approving an agreement .

Dramatic operational changes and the consolidation of the rail freight industry over the past few decades have resulted in less competition between railroads, which has subsequently reduced service and increased costs for US manufacturers. Rail customers are rightly concerned that further consolidation could exacerbate these persistent rail freight problems and the associated adverse effects.

“The cost of rail shipping continues to rise dramatically while our member companies have no effective remedial action for tariff or service issues,” said Chris Jahn, president and chief executive officer of the American Chemistry Council. “We fear that a merger could have a negative impact on US manufacturing and the wider economy if STB does not take the necessary steps to put in place adequate safety precautions and increase competition between the railways.”

In the comments submitted to the merger filing, ACC outlined a number of merger principles that require the Board of Directors to address the following issues:

  • Maintaining Access to Existing Gateways – Following a merger, the combined railroad could close Gateways to traffic currently open to the routes of a competing Class I carrier. Such closures can either be physical, by not exchanging traffic at the gateway, or commercial, by non-competitive assessing gateway movements. To prevent possible gateway closures, a merger permit must contain plans to gain access to all existing exchange options.
  • Tariff protection for service to / from gateways: In order to maintain economically viable access to gateways, senders must be able to receive separate tariffs from individual railways for service to and from gateways (“bottleneck rates”). The board of directors must ensure that congestion rates are subject to an STB review in order to maintain competition prior to the merger.
  • Improved competition: The STB’s approval must include the requirement that the merger will improve competition. Mutual (or competitive) switching provides the most direct means of meeting a requirement to improve access to competitive rail transport. As a condition of a merger permit, a railroad should agree to provide customers with reasonable access to mutual switching at existing interchanges with other Class I railroads.
  • Disruption Prevention: Any merger proposal should include Service Assurance plans, including plans to work with other airlines to overcome major disruptions during the transition period and to provide compensation to shippers injured by such disruptions. To strengthen this protection, the board of directors should require the railways to provide defined service metrics and an optimized process for customers to repair damage caused by service outages.
  • Appropriate Railway Practices: The STB has a broad obligation to assess whether a railway merger is in the public interest. Although this is not specifically stated in its merger rules, the Board of Directors should consider whether a merger would lead to an expansion of railway practices that could harm the public interest. Shippers should be able to address such concerns through a merger review process.

Although ACC has not taken a position on any of the Canadian National (CN) or Canadian Pacific (CP) proposals, we will continue to liaise with the STB and provide public comments to the Board in due course.

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