ADM suing CP over 2013-14 rail service disruptions

Chicago | Reuters –– Archer Daniels Midland has filed a lawsuit against Canadian Pacific Railway over service disruptions in 2013 and 2014 at crop-processing plants in North Dakota and Minnesota, alleging they stemmed partly from cost-cutting and the Canadian railroad’s pursuit of merger partners.

Chicago-based ADM, one of the world’s largest grain traders and processors, filed suit against CP in the U.S. District Court for the Central District of Illinois last Friday, seeking damages “resulting from one of the worst and most persistent railroad service failures experienced by ADM in many years.”

But that same day, Calgary-based CP filed a claim against ADM in the U.S. District Court for the District of Minnesota seeking payment of overdue charges.

Railroads have long served as the lone, dependable way to move grain across the northern U.S. Plains, where there are no commercially-navigable rivers.

In early 2014, after months of worsening delays crippled the U.S. farm transportation system, farmers in the Upper Midwest held the largest grain stocks in years.

A CP spokesman said ADM’s claim stems from that harsh winter, adding it would “defend itself vigorously against ADM’s frivolous allegations.”

ADM refers in its lawsuit to damages of “several million dollars,” but it is potentially embarrassing as it highlights key benefits CP has touted in its bid for Norfolk Southern.

CP in mid-November disclosed its US$28 billion offer for Norfolk Southern.

The Norfolk, Virginia-based railroad has rebuffed CP’s advances. CP claims a deal would result in cost savings of more than US$1.8 billion annually.

While some rail customers back the bid, many, such as package delivery companies UPS and FedEx, oppose it. Opponents say cost-cutting initiatives would cause service disruptions.

Since septuagenarian railroad legend Hunter Harrison became CP CEO in 2012, Wall Street has cheered its efforts to trim costs.

But ADM’s lawsuit claims service disruptions at its facilities in Enderlin and Velva, N.D. and Red Wing, Minn. stem partly from CP “engaging in imprudent cost-cutting initiatives.”

ADM blamed the problems on “diversionary management activities” at CP “pertaining to potential rail merger/acquisition partners.”

In late 2014, CP also offered to buy No. 3 U.S. railroad CSX Corp., but was rebuffed.

The lawsuit also alleges CP did not allow ADM to use alternative rail providers “to mitigate its service deficiencies.”

CP has promoted the idea of “open access,” allowing rail customers to use alternatives in similar situations.

Nick Carey and Tom Polansek report for Reuters from Chicago.

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