Kansas City Southern mulls response to Mexican agency’s claims

A photograph of a freight locomotive.

Kansas City Southern (NYSE: KSU) is considering what legal options it has available to challenge a report by a federal agency in Mexico claiming a lack of rail market competition to haul chemical and petrochemical products in the state of Veracruz.

Kansas City Southern (KCS) has seen an excerpt of the final report by the Mexican Federal Competition Commission (COFECE), which says there isn’t enough freight railway market competition to haul products including anhydrous ammonia, chlorine, ethylene oxide and caustic soda along certain routes that have an origin or destination point in Veracruz.

KCS saw the excerpt last Thursday, the railroad said Monday. The railroad said the report has no impact on KCS’s operations in Mexico, and the report’s findings were in line with KCS’s expectations based on a preliminary report that COFECE published last March.

KCS in Mexico “respectfully disagrees with the reasoning and conclusions of COFECE since they are contrary to the rule of law, the rules of procedure, and relied upon faulty economic analysis,” the railroad said.

According to KCS, the report concluded that 20 of the 31 routes didn’t have effective market competition. KCS’s Mexican operations are involved in offering services on five of the 20 routes and on those routes, they ship only two of the relevant products, chlorine and ethylene oxide. Revenue associated with the five routes in 2019 totaled less than $1.5 million. The railroad also said the report is focused mainly on routes fully operated by a different concession holder.

Now that COFECE has released its final report, the Railway Regulatory Agency in Mexico could seek to exercise its statutory powers, including imposing trackage rights on the railroad operators, including KCS, regulating rates on the 20 routes and the relevant products. But the agency will evaluate the evidence and arguments offered by the railroad operators before issuing any changes.

“Should the agency mandate remedies that we deem to be unacceptable (operationally or otherwise),” KCS’s Mexican operations “will exercise its rights under its concession and/or applicable law to ensure that any such actions are consistent with our rights,” the railroad said.