Select Committee on Transport Written Evidence

Supplementary memorandum by Professor Roderick A Smith (FOR 43A)




  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.


  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.


  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.


  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.


  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.


  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.


  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.


  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.


  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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