Canadian Pacific Kansas City Files Complaint Against Union Pacific

Union Pacific has asked federal regulators to toss out a complaint that Canadian Pacific Kansas City filed this month that would allow it to route grain trains to the ports of Houston and Galveston using trackage rights over UP south of Beaumont, Texas.

CPKC told the Surface Transportation Board that UP is blocking use of Kansas City Southern trackage and haulage rights that date back to UP’s 1988 acquisition of the Missouri-Kansas-Texas Railroad.

But UP, in a filing this week, says the trackage rights in question are much more narrow in scope. When UP acquired the Katy, the Interstate Commerce Commission required UP to grant another railroad rights to operate in the “Omaha/Council Bluffs-Kansas City corridor, with a further ability to move the grain traffic originating in this area to the Gulf.”

Thanks to the Canadian Pacific-Kansas City Southern merger, CPKC is seeking to move grain from the Upper Midwest to the Gulf Coast ports via UP south of Beaumont.

Union Pacific says it complied with the ICC’s merger condition “by granting KCS ‘North End’ rights — that is, rights to operate in the Omaha/Council Bluff-Kansas City corridor — with ancillary ‘South End’ rights ‘between Beaumont and Houston/Galveston’ that KCS needed ‘in order to provide a fully competitive service on north-end grain shipments.’”

The North End rights first arose in 1982 when UP acquired Missouri Pacific.

“As a condition to approval of that transaction, the ICC had required Union Pacific to grant MKT trackage rights for ‘the preservation of an additional rail option for grain moving to Kansas City from Lincoln, Topeka, Atchison, and Omaha/Council Bluffs’— the North End rights,” UP says.

“The purpose for these rights was to give MKT direct access to shippers, especially grain shippers, at those points to prevent a reduction of competitive rail service options resulting from the loss of UP as a friendly connection for MKT at Kansas City,” UP told the STB.

CPKC cannot use its South End trackage rights for grain traffic unless the shipments are bound to Kansas City from Lincoln, Topeka, Atchison, and Omaha/Council Bluffs, UP says.

“Indeed, the ICC encouraged the parties ‘to reach agreement on terms that will alleviate our concerns regarding north-end grain traffic, but that at the same time will not unnecessarily expand operations under those rights beyond the scope of MKT’s operations, consistent with our policy to avoid a ‘windfall to railroads’ in conditioning merger approvals,’” UP said.

“Nothing in the UP/MKT decision suggests the ICC’s condition required Union Pacific to grant KCS South End rights that operate independently of the North End rights,” UP adds. “To the contrary, UP/MKT makes clear the ICC’s condition required only that KCS be able to use the South End rights for North End grain traffic.”

UP also argues that the STB does not have jurisdiction because the matter involves a contract dispute, not an argument involving a merger condition. The dispute, UP says, should be resolved in arbitration or in court.

Finally, UP told the STB that CPKC’s “claimed need for expedited action is belied by its three-month-long delay before bringing this matter to the Board.”

CPKC said it sought an expedited decision by Aug. 31 so that grain shippers can make plans for the fall harvest season.