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KCS de Mexico files response to report on competition in Mexican freight rail system

(Source: Kansas City Southern press release, April 20, 2017)

KANSAS CITY, Mo. — Today, Kansas City Southern (KCS) wholly-owned subsidiary, Kansas City Southern de Mexico, S.A. de C.V. (KCSM) filed its arguments and evidence with The Mexican Federal Competition Commission challenging the March 15, 2017 Preliminary Report of the Commission’s investigating authority on effective competition in the Mexican railway system of interconnection services. In that Preliminary Report, the Commission found a lack of effective competition with respect to interconnection services for trackage rights for KCSM, Ferromex, Ferrosur, and Ferrovalle.

The Preliminary Report does not have any legal or regulatory implications with respect to the rights of KCSM under its concession title or applicable law, nor the current operations of the railway system. Notwithstanding, KCSM’s response argues that the investigation which supports the conclusions in the Preliminary Report was conducted contrary to the rule of law, the rules of procedure, and relied upon faulty economic analysis.

The Organization for Economic Cooperation and Development (OECD), a forum in which governments work together to share experiences and of which Mexico is a member state, has issued three reports regarding the Mexican rail system. These include “Peer Review of Railway Freight Development in Mexico” in 2014 http://www.itf-oecd.org/sites/default/files/docs/14mexicorail.pdf , “Establishing Mexico’s Regulatory Agency for Rail Transport” in 2016 http://www.itf-oecd.org/sites/default/files/docs/16cspa_mexico-rail_regulation.pdf , and “Review of the Regulation of Freight Transport in Mexico” in 2017 http://www.oecd-ilibrary.org/governance/review-of-the-regulation-of-freight-transport-in-mexico_9789264268364-en. While these reports are not binding upon Mexican authorities or regulators, KCSM believes they represent important conclusions and findings that should have been considered by the investigative authority of the Competition Commission.

The conclusions in all three OECD reports are substantially similar. In its 2016 report, the OECD found, “In general, Mexican railway concessions face more competition from trucking than US or Canadian railways” (page 6) and “…In short, the concessioning system has worked well. Since transfer to private operators in 1998, rail tonne-kilometres have grown by over 50 percent, … Traffic density has grown in line with traffic and labor productivity is over six times higher. By a rough estimate, average Mexican rail freight costs have fallen by about 20 percent since concessioning … Without question, the Mexican concessions have become world class performers.” (page 17)

In its 2017 Report, the OECD said, “The concession system adopted was adapted to Mexican geography and freight markets…The approach relied on competitive forces, not only on stiff competition with other modes of transport (principally road transport), but on competition between railways operating on separate lines….Overall, the system design relied for effective competition on intermodal direct competition in key locations, parallel and source competition, supplemented by trackage rights in specific situations.” (page 81).

The Panel of the Competition Commission has 110 business days from today’s filing to analyze the evidence and arguments submitted by parties in response to the Preliminary Report and issue a Final Report. KCS believes that KCSM’s response to the Competition Commission’s Preliminary Report filed today is compelling and should lead to an amended Final Report.

Friday, April 21, 2017

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