Supplementary memorandum by Professor
Roderick A Smith (FOR 43A)
THE FUTURE OF THE RAILWAYS
THIRD SECTOR RAILWAYS: THE JAPANESE MODEL
1. BACKGROUND
Over the last 20 years the pattern of rural
railways in Japan has undergone a dramatic transformation, with
many former Japan National Railway (JNR) lines being closed or
passing into new ownership. The catalyst for change was JNR's
dire financial position which came to a head in 1979-80. Until
that time, JNR's efforts to close unprofitable lines had generally
been unsuccessful due to political pressures; indeed, as late
as the 1960s, a JNR branch line expansion programme was embarked
upon, though many of the lines were abandoned unfinished due to
the combined effects of the financial crisis and increasing car
ownership. In 1980, however, a law was passed to allow lines with
less than 4,000 passenger-km per route-km per day to be closed
and in 1982 JNR announced that 83 lines totalling 3,000 km or
13% of the network would be axed to cut losses. (It is worth noting
that the passenger density in the UK, averaged over the whole
network is only some 4,750 pass-km per route-km per day!!) As
part of the closure procedures, JNR was required to enter into
negotiations with local government to determine alternative means
of transport to replace the affected lines.
2. THIRD SECTOR
OWNERSHIP
Whilst many of the earmarked lines have been
closed and replaced by buses, pressure from local communities
has resulted in some 1,600 route-km surviving in what are called
"third sector" companies. These companies differ from
traditional privately owned companies or central/local government
bodies in that they are part owned by local authorities and part
by private enterprise in varying proportions according to local
circumstances. Third sector ownership is quite common in Japan
and has also been used in the development of new urban transport
projects such as monorails and new transit systems.
In the case of rural railways, prefectural (Japan
is divided into about 45 prefectures which are larger units of
local government) and local government authorities are generally
the majority shareholders with the remaining shares held by local
industries, banks or even local bus companies. Some of the private
investors are probably motivated by the wider social and economic
benefits that a railway brings to their local area whilst others
have a more direct interest in the railway itself.
3. THE NEW
COMPANIES
The transfer of JNR lines to third sector ownership
commenced in 1984 with the opening of the Sanriku, Kamioka and
Tarumi Railways, after 10 years there were 35 companies in operation
and a further three companies with new lines under construction
(37 companies in operation in 2002). The companies range from
the 6.6 km Miki Railway to the 140 km Hokkaido Chihoku Highland
Railway but all are characterised by serving predominantly rural
areas away from the main centres of population, apart perhaps
from the Aichi Loop Railway which serves the fringe of the Nagoya
metropolitan area. In the majority of cases the new companies
have taken over a single branch line but the Noto, Kita Kinki
Tango and Heisei Chikuho companies each operate two connecting
branch lines and the Sanriku Railway operates two separate lines,
55 km apart, though connected by a JR line.
Of particular interest is the fact that some
third sector companies have taken over and completed abandoned
JNR construction projects, including extensions to existing lines
and completely new lines. The Akita Inland Through Railway, for
example, took over two existing branch lines and completed the
construction of a 29 km link between them to provide a new 94
km through route in Akita prefecture. The Yagan Railway was specifically
established to complete another through route between the former
JNR Aizu line, taken over by the Aizu Railway, and the Tobu Railway,
thus providing a three company route between Tokyo and the Aizu
region. In addition, the Chizu, Ibara, Hokuetsu and Tosa-Kuroshio
companies are currently constructing a total of 175 km of new
lines which will also go some way towards offsetting the retrenchment
of JNR/JR.
4. OPERATING
COSTS
The third sector companies had the advantage
of starting up free from the accumulated debt and problems of
overmanning, restrictive practices and political interference
associated with JNR. Infrastructure was transferred to the new
companies without charge although some of the companies which
took over unfinished construction works have had to invest substantial
sums to complete civil engineering works, track laying and signalling.
Operating costs have been reduced through such measures as centralised
dispatching, the introduction of new rolling stock with lower
maintenance costs and through the universal adoption of one person
operation. Measures have also been taken to increase revenue by
providing higher frequency services, increasing fares, promoting
tourist services and in some instances by opening new stations
to attract new passengers. Whilst it is unlikely that many of
these concerns will become fully profitable, some are now close
to covering their direct operating costs, a big improvement on
the 10-20% levels of cost recovery of some of the lines under
JNR.
5. PATTERN OF
SERVICES
By the nature of their origins as JNR branch
lines, all the third sector lines connect with JR services, except
for the Yagan Railway which connects only with the Aizu and Tobu
Railways. Some third sector railways run from dedicated platforms
in JR junction stations but in other cases trains continue over
JR tracks to reach local towns. For example, all trains on the
Nishikigawa Railway in Yamaguchi prefecture run to and from Iwakuni
via 6.2 km of JR West tracks. In other cases the main service
terminates at the junction station but occasional peak services
continue to nearby towns via JR track eg some Abukuma Express
trains run to Sendai or Koriyama and some Yamagata Railway services
run to Yonezawa via 23 km of JR track.
There are also examples of JR services running
through to third sector lines.
6. ROLLING STOCK
Rolling stock manufacturers Nippon Sharyo, Fuji
Heavy Industries and Niigata Engineering supported third sector
take-overs by developing new lower cost vehicles for use on such
lines. In some cases ex-JNR stock has been retained by third sector
companies. The majority of companies have invested in new stock,
however, to achieve cost savings and create a modern image. The
choice of many operators has been the LE-car (light and economy)
railbus built by Fuji Heavy Engineering using bus body components
and truck engines built by Isuzu or Nissan Diesel.
7. CURRENT SITUATION
From report. "Third sector railways
transportation management results for fiscal 2002" by Ministry
of Land, Infrastructure and Transport
This report summarises the transport and management
results for the 37 third sector railway companies for fiscal 2002.
7.1 Transportation results etc
Passenger numbers
Falling birth rates and an ageing population
have led to a steady decline in season ticket sales in recent
years—this downward trend continues.
2002 results for all operators combined show
a very slight decrease (0.1%) from 50.9 million passengers last
year to 50.86 million this year but a lot of this could be due
to opening demand for the new Asa railway on the Tosa Kuroshio
line, which attracted some 820,000 passengers.
Management Results
All operators continue their efforts to cut
costs. Compared to last year, there are now five companies in
the black (four last year) and 32 companies in the red (33 last
year). However, this increase by one of profitable companies does
not go far in arresting falling fare-box revenues and losses for
the 37 companies combined have ballooned to 2.28 billion Yen compared
to 1.97 billion last year.
(a) Summary of profitable companies
Two of these companies, Hokuetsu Express and
Chizu Express, have benefited significantly from through-train
operations with JR, although both companies' profits are down
this year due to the escalating costs involved in running those
services.
The Heisei Chikuho railway has come back into
profitability for the first time in four years due to decreasing
repair costs, among others.
The Kagoshima Rinkai Railway and Ise Railway
are still cutting costs in the face of difficult times for the
management. Profits from the five profitable companies combined
are 1.44 billion Yen, compared to 1.58 billion for the four companies
last year, a fall of 9.2%.
(b) Unprofitable companies
Losses from the 32 companies combined were 3.72
billion Yen compared to 3.35 billion last year, an increase of
4.8%. This is due to decreased passenger revenue, caused in turn
by the decrease in season ticket holders due to falling birth
rate, ageing population, depopulation of on-line communities and
improvements in the road network, among others.
7.2 Funding support
Local councils and communities are proud of
their railways and have set up various types of funds in order
to support and stabilise the management of third sector railways.
In 2002, 20.006 billion Yen was left in these collective funds.
If losses continue at this rate, then sooner
or later some operators will get into serious difficulty, despite
use of the funds.
The most important thing for the continuance
and development of third sector railways is the operators' continuing
efforts in the face of costs. However, there is also a need to
remember that third sector railways were set up by and for the
communities they serve, and those communities and their councils
must make more support available.
8. COULD THIS
MODEL BE
ADOPTED AND
ADAPTED FOR
THE UK?
Whilst the third sector arrangement is no magic
wand which guarantees success, it has the major advantage that
it put the management of and financial responsibility for the
rural railway into local hands.
Joined with a loosening of the severe operating
conditions of a "heavy" railway, so that rural railways
could be run under "light" rail regulations, this model
has added appeal.
The use of third sector involvement in new projects
is also much used in Japan.
RAILWAY RESEARCH
IN THE
UK
1. Since privatisation what little railway
research that has been performed in the UK has been conducted
on an ad hoc basis. As part of the privatisation, British Rail
Research was sold to AEA Technology and has become a consulting
organisation providing advice to the UK railway industry on a
fee paying basis. Most of the work in performed is of a short
term nature, aimed at the solution of immediate problems.
2. In the 1960 and 70s, BR Research was
a world class research organisation which made great progress
in the understanding of, inter alia, of vehicle dynamics. Much
specialised equipment was collected in the laboratories in Derby,
much of which has now been dispersed or lies unused.
3. British Rail organised and prioritised
its research through the Boards Research and Technical Committee
which was comprised of internal and several external members
of which I was one. No such national guidance exists now.
4. Railtrack, as the largest component of
the new industry, felt no need to maintain a research presence.
The result of this misguided policy was an almost complete lack
of technical leadership in the aftermath of the Hatfield derailment
which meant that expensive advice had to be sought from outside;
a major component coming from America. It is no exaggeration to
say that this situation was one of the key reasons for the demise
of Railtrack and the technical problems now facing the industry.
There is now long term strategic decision making based on the
technical fundamentals of the railway.
5. A measure of the decline in UK railway
research can be found in the papers published in the Journal of
Rail and Rapid Transit (part of the Proceedings of the Institution
of Mechanical Engineers, and the only English language technical
railway forum in the world, of which I am the Editor). Up until
the 1980s, about 60% of the papers published in this journal came
from the UK, with the bulk of these coming from BR Research. Currently,
80 of the papers come from abroad, with maybe five or six papers
a year (out of about 40 total) coming from the UK.
6. This situation is a mirror of what has
happened in other privatised sectors. Laboratories from the CEGB,
British Gas, National Engineering Laboratories, RAE Farnborough
etc have closed down. No research careers exist for highly qualified
engineering staff, as a result most PhD students in UK engineering
departments came from abroad. This is already having a significantly
detrimental effect on recruitment to University posts, and a major
impact on UK technical policy making and technical capability.
On of the major reasons for maintaining a research capability
is to produce trained staff who can contribute to strategic policy.
We are now sadly deficient and the situation is getting rapidly
worse.
7. Japan is now a clear world leader in
railway research, with the Railway Technical Research Institute
in Tokyo being the key organisation. RTRI has a long history with
roots in the early years of the 20th century. Until the privatisation
of the Japanese Railways, it was state funded. On privatisation
it was retained, financed 50% on a levy on ticket sales, 50% by
self earned contract research. It is noteworthy that the privatised
ex national railway companies in Japan have, in addition to supporting
RTRI, also created their own research laboratories.
France continues to maintain a strategic railway
research effort, Germany is in the process of dismantling its
facilities. There is a European research laboratory based in Holland,
some work continues in the USA, but is mainly concerned with the
problems of heavy freight.
8. Some effort has been made by EPSRC to
coordinate University railway research. Whilst this is welcome,
the funding is limited, and the groups are scattered over several
Universities. Thus there is the lack the focus of an industry
based group working in one location.
Professor Roderick A Smith
Imperial College
6 January 2004
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