February 10, 2020
Kansas City, Mo., February 10, 2020. Kansas City Southern (KCS) (NYSE:KSU) confirmed that on Thursday February 6th, 2020, the Panel of the Mexican Federal Competition Commission (COFECE) published an extract of its final report (Final Report) regarding its assessment of effective competition in the market of freight railway transportation services regarding certain chemical and petrochemical products, namely, anhydrous ammonia, chlorine, ethylene oxide, and caustic soda (Relevant Products) shipped in certain specific routes with an origin or destination in the southern region of the State of Veracruz (Market).
In the Final Report, COFECE found that 20 of 31 routes under analysis lacked effective competition. Kansas City Southern de Mexico (KCSM) is only involved in rendering freight transportation services in limited segments of only 5 out of such 20 routes, and only in connection with the shipment of 2 of the Relevant Products (chlorine and ethylene oxide). The Final Report is mainly focused on routes fully operated by a different concession holder. During 2019, KCSM’s revenue associated with these five routes was less than $1.5 million.
The issuance of the Final Report has no impact on KCSM’s current business, operations, or rights under the concession. The findings by the COFECE were largely in line with KCS’s expectations for this proceeding based on the conclusions set forth in the COFECE’s preliminary report in March, 2019. KCSM 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. KCSM is currently analyzing all available legal options to challenge the Final Report.
As previously disclosed in the Company’s press release on March 25, 2019, the COFECE Final Report will now trigger a review by the Railway Regulatory Agency (the Agency) which will exercise its statutory powers that could include, among other things, imposition of trackage rights (on KCSM and/or other railroad operators) or rate regulations that would be limited to the routes and Relevant Products indicated in the Final Report where COFECE found a lack of effective competition.
Before any such action is taken, the Agency must first evaluate the evidence and arguments offered by the affected railroad operators, including KCSM. This will likely include hearings with the Agency.
Should the Agency mandate remedies that we deem to be unacceptable (operationally or otherwise) KCSM will exercise its rights under its concession and/or applicable law to ensure that any such actions are consistent with our rights.
Headquartered in Kansas City, Mo., Kansas City Southern (KCS) (NYSE: KSU) is a transportation holding company that has railroad investments in the U.S., Mexico and Panama. Its primary U.S. holding is The Kansas City Southern Railway Company, serving the central and south central U.S. Its international holdings include Kansas City Southern de Mexico, S.A. de C.V., serving northeastern and central Mexico and the port cities of Lazaro Cárdenas, Tampico and Veracruz, and a 50 percent interest in Panama Canal Railway Company, providing ocean-to-ocean freight and passenger service along the Panama Canal. KCS’ North American rail holdings and strategic alliances with other North American rail partners are primary components of a unique railway system, linking the commercial and industrial centers of the U.S., Mexico and Canada. More information about KCS can be found at www.kcsouthern.com.
Contact: Ashley Thorne, 816-983-1530