Proposed Merger of CP and KCS Raises HazMat Tariff Implications

As many ATLP members are aware, Canadian Pacific Railway (“CP”) and Kansas City Southern Railway (“KCS”) filed a merger Application with the Surface Transportation Board (“STB”) on October 29, 2021, in Finance Docket 36500.  The transaction would involve CP acquiring KCS and its rail operations in the United States.  This blog post details the possible implications of the proposed merger on HazMat shipments.

CP’s tariff provisions governing HazMat shipments impose onerous requirements on shippers and receivers of Toxic Inhalation Hazard (TIH) / Poison Inhalation Hazard (PIH) shipments.  Items 53 and 54 of CP’s Hazardous Materials Tariff (Tariff 8 – Hazardous Commodities, Revision 2021.2, effective April 7, 2022) contain insurance requirements and liability and indemnification provisions applicable to HazMat customers.  Specifically, Item 53 obligates TIH / PIH customers to purchase insurance in the policy amount of $100 million for the benefit of CP, and Item 54 purports to impose liability on TIH/ PIH customers for all damages associated with transportation of hazardous materials other than those damages resulting from the “negligence or willful misconduct of CP.”  Indeed, CP has long made its position clear that, if left to its own decision and without regard to its common carrier obligation, CP would not carry TIH / PIH traffic (see, e.g. January 25, 2012 Comments of Canadian Pacific Railroad Company at 3-4, filed in FD 35504, Union Pacific Railroad Company – Petition for Declaratory Order.)

The controlling language in KCS’s Rules Publications (Rules Publications KCS Railway – KCS 9011 - revision 19, effective June 7, 2017 and KCS 9012 - revision 14, effective August 12, 2016) is not as onerous as the language in CP’s Hazmat Tariff.  It requires shippers to obtain $3 million of comprehensive general liability insurance (naming KCS as additional insured) and contains a more bilateral approach to allocation of liability and indemnification.

The question remains which HazMat insurance and liability provisions will govern the consolidated CP / KCS system in the event that the Board approves the proposed merger.  This could have substantial implications for HazMat shippers that are now served by KCS and not CP. If the STB were to permit CP to apply the CP Hazardous Materials Tariff language to all HazMat shippers on the consolidated CP / KCS system post-merger, those shippers that are currently served by KCS will likely face new costs relating to insurance and risk management, which may be passed on to consumers.  Shippers and other receivers may also change their product lines and operations, which could lead to changes in supply of various HazMat that is transported by rail.  For example, our client Bayer CropScience LP filed comments in FD 36500 stating that certain of its chlorine suppliers have indicated that, if the CP HazMat Tariff is applied to Bayer’s now-KCS-served facilities post-merger, they will cease supplying those facilities.  Other shippers and receivers located on the KCS system could also face other anti-competitive results.

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