Surface Transportation Board Agrees to Hear Shipper's Service Complaint

The Surface Transportation Board has granted Sanimax's request to partially revoke commodity exemptions and allow a service case against Union Pacific to proceed.

The decision, announced Tuesday, also denies UP's (NYSE:UNP) request to dismiss the complaint and it sets a procedural schedule.

The decision is significant because the board doesn't normally revoke or partially revoke exemptions so that a shipper might seek regulatory relief. That the decision is about service issues could also be a harbinger of the board's broadening concerns about rail service.

The exemptions that have been partially revoked pertain to those for animal refuse, tankage, lard, grease or inedible tallow, and animal grease. Sanimax processes animal waste and purifies byproducts for animal feed, pet food, yellow grease, soap, and industrial chemicals in a process known as rendering, according to STB's decision.

Sanimax, an agri-food shipper, filed a complaint last November saying that UP's reduction in service days from five to three "constitutes a failure to provide adequate rail service," thus resulting in UP not meeting its common carrier obligation. The common carrier obligation refers to the statutory duty of railroads to provide "transportation or service on reasonable request," per federal statute.

UP had sought to dismiss Sanimax's complaint, but the board on Tuesday allowed the case to proceed.

"In this decision, the Board explains that it has broad authority to exempt persons, transactions, and services from certain regulation when it finds the regulation unnecessary to carry out the rail transportation policy, the transaction or service is of limited scope, or the application of the provision is not needed to protect shippers from the abuse of market power," STB said in a release.

"In this case, however, the Board noted that, given the issues raised in Sanimax's allegations, including its alleged dependence on UP's service, it is important that the Board partially revoke the commodity exemption so that the Board can examine Sanimax's claims and UP's responses in order to determine if regulatory relief is appropriate and warranted."

According to STB's decision, Sanimax, which operates a facility in South St. Paul, Minnesota, said if its inbound materials remain in trucks' trailers for more than six hours, the materials will decay in a manner that compromise product quality and create noxious fumes that expose Sanimax to potential community complaints, litigation and regulatory action. Furthermore, the company says it has limited storage space for processed materials, and it must stop operations until it can secure outbound service. UP's prior schedule provided Sanimax with the frequency of service it needed to ensure adequate storage capacity.

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