Probe of insufficient Mexico rail competition dropped

Probe of insufficient Mexico rail competition dropped

A freight train in Mexico.

A freight train in Mexico. Photo credit: Shutterstock.

The Mexican Federal Competition Commission said Thursday that it will not pursue the claims it made in a preliminary investigative report a year ago alleging that the country’s railroad system lacks competition, saying the report lacked proof that the system is uncompetitive.

The agency, known in Mexico as COFECE or Comision Federal de Competencia Economica, said in its preliminary report, released in March 2017, that “there are no conditions for effective competition in interconnection services in the way of trackage rights between rail networks used for freight transportation.”

The report alleged that the lack of competition among the country’s top three rail operators — Grupo Mexico, the parent company of Ferromex, Kansas City Southern de Mexico, and Ferrovalle — had led to unreasonable carload and intermodal prices and unnecessarily long transit times.

The commission was expected to release a final report in June or July, after the railroad companies and other parties had filed comments in response. The Railroad Transport Regulatory Agency (Mexican Agencia Reguladora del Transporte Ferroviario) would then take any action necessary.  

However, COFECE said Thursday that the investigation did not “offer the elements or sufficient information that would enable the agency to determine an absence of competitive conditions” in the railroad system.

The agency, in a statement on its website, said the closure of the case should not be taken as a conclusion as to “whether there are competitive conditions or not in the rail market.” Nor will the decision prejudice any possible future proceedings by COFECE into the rail market, the statement said.

Kansas City Southern, which operates its Mexican railroads through a subsidiary, Kansas City Southern de Mexico, made no comment on the decision, except to note the agency’s decision to drop the case. It added that “the final resolution represents the end of the investigation and no further amendments or modifications may be made to the preliminary report.”

Preliminary report's finding

The railroad, in April, rejected the preliminary report, saying the analysis was “faulty” and the investigation leading to the report was “contrary to the rule of law.” The railroad argued that the preliminary report failed to take into account three reports released by the OECD on the Mexican freight rail system and its development.

The COFECE preliminary report said that the three railroad companies, controlling 72.3 percent of the railways in the country, “can fix prices, restrict the supply and foreclose access to their respective networks through the interconnection services to other concessionaires.”

The report said that “the investigation revealed that these companies can fix the interconnection rates, as they alone can determine the fees to charge for the use of the tracks under their control without other competitors being able to negotiate such payment, and without the use of any cost methodology. Therefore, the costs are fully transferred to the user.”

The three railroad companies “can also restrict the access to their rail networks and the provision of transportation services on their routes,” the report said. “This situation gives rise to the dominant incentive to restrict the use of the tracks to other concessionaires, to obtain greater profits as they are the only ones that use the tracks to offer public rail freight services.”

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com and follow him on Twitter: @HughRMorley_JOC.