Coming to Terms

Coming to Terms

Copyright 2003, Traffic World, Inc.

Using guidelines crafted in the Canadian National Railway-Wisconsin Central merger as a model, the National Industrial Transportation League has agreed to support Kansas City Southern''s common control application of the Texas Mexican Railway. In return, KCS has agreed to provide certain protections for League members and other rail shippers.

The agreement addresses concerns that the League had discussed with KCS since KCS filed its application with the Surface Transportation Board for its proposed acquisition of TexMex in May. KCS also is seeking control of TFM, the Mexican railroad to which the TexMex connects, a transaction that still must be approved by the Foreign Investment Commission in Mexico and the companies'' shareholders, but which recently received approval from the Mexican Competition Commission (see box, p. 28.).

Another agreement with NITL that dealt with cross-border interchange - CN''s control application of Wisconsin Central in 2001 - was used as a starting point for the KCS/NITL agreement. It is a six-point plan that deals mainly with service and interchange protection.

NITL''s seven-point agreement with KCS focuses on three main areas: rate protection, service protection, and confidentiality of shipper information. KCS and Tex Mex have agreed to establish and maintain reasonable contract or common carrier rates over any existing interchange, the agreement stated. "Such rates and charges shall be either through rates and charges or...rates and charges for service within the U.S. to or from the international border between Mexico and the U.S. or within Mexico to or from the international border between Mexico and the U.S."

Rates that already exist between KCS and Tex Mex or between other U.S. carriers will be honored to their normal expiration date. "When they expire, if requested by the involved railroad, KCS or NAFTA Rail (the combined railroad, if approved by the STB, of Kansas City Southern Railway, TFM, and Tex Mex) will negotiate in good faith to establish commercial reasonable rates going forward," the agreement stated.

The agreement also sets up an arbitration process to resolve rate disputes, with the time for completing such arbitrations not to exceed 90 days after the selection of an arbitrator. Rate disputes arising under the agreement within Mexico will be resolved in accordance with standards set up by the Mexican government.

Service measurements also must be maintained as part of the agreement, with NITL holding KCS and NAFTA Rail to maintain and improve service levels between Beaumont and Laredo, Texas. "With the understanding that about 70 percent of that route involves the use of trackage rights over the Union Pacific Railroad," according to the agreement, "KCS and NAFTA Rail will report, based upon agreed specific service measurement, to the (STB) on the service level provided for each quarter for the past two years and for each quarter for a period of three years from the effective date of the transaction. If service falls below the levels in existence at that time of this agreement, KCS and NAFTA Rail will provide the STB with a corrective action plan which may include a request for assistance if it were determined that the UP was responsible for the service problems."

With regard to shipper information confidentiality, the agreement states that the combined rail system will ensure that any confidential commercial information about a shipper''s move, including transportation services and rates, will not be disclosed to other U.S. railroads not within the NAFTA rail system.

The agreement also stipulates that if the STB grants the control application, any individual shipper that uses the rail carriers affected by any of the provisions of the agreement will be covered by it.

NITL said it was able to expedite the process through which it hammered out the agreement by allowing KCS to present its NAFTA rail proposal at its July rail committee meeting in Arlington, Va. UP and Burlington Northern Santa Fe Railway, both of which say they are not opposed to the transaction as long as their concerns are met through STB-imposed conditions also were asked to air their concerns.

"Obviously we knew about the KCS merger, and had done work beforehand in coming up with what our concerns were," said Phil Marlino, who heads up NITL''s rail committee. "Many people were happy with the CN-WC agreement and it was recognized by lot of people as one that we should start with."

Marlino said that both BNSF and UP had input into negotiating the document. "They presented their concerns, and I think the committee did a good job of considering them. It''s a compromise agreement between NITL - of which BNSF and UP are both members - and KCS, so nobody''s going to get exactly what they want. But I think people are going to be generally happy with it."

The STB did not make the agreement between NITL and CN-WC that was struck two years ago a condition to that merger, as NITL had requested; however, the agreement was still binding between the two parties. The same holds for the current agreement with KCS. "In this proceeding, there may well be issues raised about the competitive effects of the broader transaction," NITL stated. "The terms of the NITL-KCS agreement may address some of these issues, and would thus be appropriate for imposition as a condition. However, if the agreement is not imposed as a condition, it is binding on the parties to the agreement and its beneficiaries and can be enforced accordingly."