Sous-titres (245)
0:00When conjuring up an image of Japan’s
ultra-successful passenger rail system,
0:04one likely thinks of this: the Shinkansen. It’s a
fair association. This was, afterall, the world's
0:10very first high-speed rail line—collapsing what
was a 6-hour journey between Japan’s two largest
0:15cities into just three. Only getting faster
since its opening in 1964, and adding more
0:21and more service to match demand, this route
ran an average of 372 trains a day in 2023,
0:28shuttling 158 million passengers on the year.
Across six decades, the line’s total passenger
0:34count sits north of 6.5 billion—all without a
single derailment, without any serious accident,
0:40without even a single fatality. All of this
success opened the door for the Shinkansen
0:45network to expand nation-wide. As it has grown,
this network’s become a point of national pride
0:50and international envy—and yet, it only begins
to explain why Japanese passenger rail works so
0:57singularly well. Annually, Japanese rails rank
next to the likes of India and China—two far
1:03larger countries—in total ridership, and most
of the rail companies themselves manage to turn
1:07healthy profits while keeping customers content
and services frequent. Much of this mileage
1:12traveled and profit garnered is done on the backs
of trains moving at far more conventional speeds.
1:18Take Japan’s southernmost major island,
Kyushu. Here, too, are important high speed
1:23rail connections: JR West—a private entity whose
district of operation lies mostly on Honshu—runs
1:29the San'yō Shinkansen connecting Kyushu’s largest
city with Osaka in just 2 hours and 28 minutes,
1:34while JR Kyushu—the island’s main rail
operator—runs two additional Shinkansen
1:39lines that connect most of the island’s major
cities in an hour and 16 minutes or less.
1:44And while this island’s local Shinkansen are
lauded for much the same reason as the Tokaido
1:48line, this only accounts for a fraction of the
trips made, stations serviced, and lines ran.
1:53The JR Kyushu service map looks like this—in
addition to its two high speed rails,
1:59it runs 8 main and 13 regional lines that serve
over 500 stops across the island. For a student
2:04living somewhere around here, for instance, a
Shinkensen is just not an option if they need to
2:09get to another university campus for a conference…
but another train is. From this station, they
2:15could catch the higher speed Limited Express Sonic
starting at 6:25 AM and running every 20 minutes
2:19and be in the heart of Fukuoka in just 22 minutes
for a $15 ticket. Or, if on a stricter budget,
2:25they could opt for a 40-to-50-minute Local
Train along the Kagoshima line for only about
2:30$5. But regardless of their choice of train, rail
simply makes the most sense—even the local will
2:36be faster than navigating traffic and figuring out
parking, and unlike the uncertainties of driving,
2:40the student should be confident the train will
be on time. Across JR Kyushu’s entire network,
2:45average delays hover around a minute—and
should one occur, it’ll be posted here,
2:49where the few odd-end hold ups are communicated.
And the student should be confident that it’s
2:54going to be a decently full train, too. Whether
it’s daily commuters in similar situations,
2:58or the flocks of tourists coming from
the north or abroad connecting onto the
3:02island’s fleet of unique sightseeing travel
trains, this network moves a ton of people
3:06at a fraction of the speed of a Shinkansen.
In all rail-related revenue for JR Kyushu in
3:122023, the Shinkansen accounted for only about a
third. In total rail passengers, conventional rail
3:18operated by the company carried passengers almost
four times the distance. And in that same year,
3:23conventional rail on the island moved some
300 million passengers to the Shinkasen’s
3:2812 million. The fact is, the success of Japanese
rail is punctuated by high speed options, but the
3:34bedrock to its success is still run-of-the-mill
conventional passenger trains. Passenger works
3:40here because the trains are trusted—they’re
safe and always on time; they’re so frequent
3:44that the traveller doesn’t feel like they’re
sacrificing flexibility; and they offer so
3:48many unique routings that no matter if it’s
a daily commute, a weekend trip to the city,
3:52or a ski vacation to the north, taking the train
just makes the most sense. Being fast helps, but
3:58this success has just as much to do with a culture
of rail as it does technological advancement.
4:04Setting the stage for this culture to take root
is the fact that rail on the island nation does
4:08have some geographical advantages. Because
of a rugged, mountainous topography, Japanese
4:13population centers are focused and dense. Because
of its island geography, these urban areas are
4:18distant from one another by European standards,
but not American or Australian ones—allowing for
4:23earlier and easier rail connection between them.
With rail taking hold in the final years of the
4:2819th century, expanding the network was associated
with industrializing and connecting the nation—so
4:33as Japan prioritized growth in the beginning of
the 20th century, it did so on the back of the
4:38rails. Yet, while freight and industry helped lay
the tracks, they really didn’t need them post-war.
4:44As a country with limited raw natural exports and
ample port access to begin with, then increasingly
4:49favorable conditions for trucking, passenger
rail since the mid-century has not really had
4:54to compete with freight for line access.
But geography and timing aren’t solely
4:58responsible for success. Japan, for
one, is a car country. In car exports,
5:03Japan’s the third largest in the world. In car
ownership, it’s at 670 per one thousand people,
5:09placing it comfortably in the world’s top thirty
near countries like Canada, France, and Norway.
5:14And cars, it seemed, might spell the end of
passenger rail in Japan in the 1980s. Established
5:20in 1949, Japanese National Railways, a state-run
enterprise, owned 80% of Japanese rail after World
5:26War II, and was eager to expand in the post-war
period. It did so to the world’s marvel with the
5:32launch of the Shinkansen in 1964. And yet, while
a massively successful addition to the network,
5:381964 marked another first—the first year the
nationalized rail posted a loss. From there,
5:45as car ownership rose, trucking companies
grew, and airlines expanded, things only got
5:50worse. Millions of yen in losses quickly turned to
billions, then eventually, trillions. With failed
5:57reforms ranging from network expansion to rate
hikes across the ‘60s and ‘70s, rail’s share of
6:02total passenger traffic dropped from north of 50%
to the mid-20s, while freight cratered from a 50%
6:08share to 5%. Undeniably overstaffed, inflexible
in its strategy, and bloated in bureaucracy,
6:15JNR’s spiral continued into the 1980s. Burdened by
a slowing national economy and a nationalized rail
6:21system that’s debt had now reached 20 trillion
yen—a number comparable to the debt of entire
6:25nations at the time—Japanese politicians were
now urged to take on bolder reform. Quietly,
6:31the idea of privatizing the rails began
to bounce around subcommittees, then,
6:36by the mid-‘80s, it seemed the only logical
option to halt the downward spiral.
6:42The process of privatizing JNR was, more
than anything, a process of division. One
6:48organization would become nine, and the idea
was that, while in sum they’d fulfill the same
6:53function, the division between them would lead to
strength not found in their nationalized form.
6:58The core of the network was divided between JR
West, JR Central, and JR East. More or less,
7:03JR West would operate rail West of Nagoya, JR
Central would operate between Nagoya and Tokyo,
7:08while JR East would operate within and
east of Tokyo. The logic of where to
7:13place the borders was dictated, largely, by
traffic patterns. Planners believed that,
7:17by defining the borders such that as much travel
as possible stayed within a company’s borders,
7:22each company could specialize its operations
to best serve the unique needs and wants of
7:26that region. For example, among other
things, JR Central could learn how to
7:30best operate the super high-traffic Tokyo
to Osaka long-distance route, whereas JR
7:34East could focus on how to operate Tokyo commuter
service most effectively. This map fulfilled that
7:39goal well—upward of 95% of all passenger trips
stayed within each rail company’s territory.
7:45Beyond that, another goal of the map was for
each of the companies to inherit a balance
7:49of profitable and unprofitable lines. For
example, JR West would inherit the Kobe line,
7:54relied upon by daily commuters to travel from
this highly-populated area to Osaka proper.
7:59With tremendous passenger counts, this was also
tremendously profitable. But along with that,
8:04it would inherit the Geibi line, running
through a sparsely-populated, mountainous
8:07region of the Hiroshima prefecture. With operating
speeds often far slower than that of the bus,
8:12its passenger counts were tiny, and therefore
it was deeply unprofitable. Japanese railways
8:18can technically close down lines, but gaining
approval is a difficult and time-consuming
8:22process that often isn’t worthwhile, so in
practice the companies would largely continue
8:26to operate low-traffic lines using the profits
from high-traffic ones. But with these geographic
8:31divisions, the benefits and burdens were shared
roughly equally between the three companies.
8:36But then there was the crown jewel—both physically
and financially—of the Japan Rail network:
8:42the famed bullet train, the Shinkansen. While
each of the three companies would inherit some
8:47of the network, their portions certainly were not
created equal. JR Central would get the least—at
8:53344 miles—but this stretch from Tokyo to Osaka
was the original Shinkansen, traveling between
8:58the largest and second largest metro areas in the
country. Demand on the stretch was tremendous,
9:04and so was profit. JR West inherited more
track—388 miles, but demand and profit in this
9:10area was lower, whereas JR East got 519 miles of
track, but through the less-populated north of the
9:16country where the Shinkansens struggled to achieve
strong financial returns. Therefore, at first, the
9:21Shinkansen lines were the only not owned outright
by the JR companies and instead, they were placed
9:26within a newly-formed entity called the Shinkansen
Holding company which would then lease the track
9:31and associated infrastructure to the operators.
The fees for this would be calculated not based
9:35on the capital cost of the infrastructure itself,
but rather proportionally to the profits of
9:39the rail segments as a way of correcting for
the geographic imbalance in profit margins.
9:44But this is not the entirety of Japan. This is
the entirety of Honshu, the main island of Japan.
9:51There are three other major islands that make
up the country—Kyushu, Shikoku, and Hokkaido.
9:56The profitable Shinkansen network did not yet
reach the islands—except for a small portion
10:00of the Sanyo Shinkansen reaching Fukuoka—and
their lower population densities meant they
10:05lacked as many profitable conventional lines
as well. So whereas JR West, Central, and East
10:10were formed with the intention of quickly becoming
profitable, these three were treated differently.
10:15Most notably, they’d receive a subsidy from the
government to offset their inevitable losses.
10:20Also sliced off from JNR was their freight
business. Freight rail was never massive in Japan,
10:26and it’d only decreased as the truck industry
grew and took market-share away. JNR’s freight
10:31business therefore operated at a loss. It
also tended to operate over long-distance
10:35spanning beyond the borders of the individual JR
companies, so they rather formed one, nationwide
10:40freight company. That way, no one JR company would
be burdened with its losses, while JR freight
10:45could reduce cost by not having to maintain
track, and rather just pay for track usage.
10:50Finally, the last of the nine new companies
was called the JNR Settlement Corporation—it
10:55acted as an umbrella company, owning all the
other companies, while it itself was owned by
11:00the Japanese Government. This mattered, in part,
because of debt. There was a huge amount of it,
11:06and just simply distributing it amongst the JR
companies themselves would leave them in the same,
11:10struggling position as JNR. Therefore,
only a portion of the trillions of yen
11:16in debt was transferred to the JRs, distributed
amongst JR West, Central, and East, whereas the
11:21island JRs received none. Another substantial
portion went to the Shinkansen Holding Company,
11:25roughly equivalent to the value of its assets,
then the vast majority of liabilities went to
11:30the umbrella company—JNR Settlement Corporation.
The hope was that, through time, the value of the
11:36JRs would increase, and therefore the eventual
sale of the companies could cover the debt.
11:41JNR Settlement Corporation was owned and
controlled by the government, so ultimately
11:44this meant that Japan’s railways weren't fully
privatized, at least at first. Rather, they were
11:49divided into government-owned companies that
were intended to act as private companies would
11:53and strive for profits. The state of the Japanese
railways was such that the newly-formed JRs would
11:59hardly be attractive investment opportunities,
meaning the government would struggle to take
12:02the fully-private at what they considered a
reasonable valuation. Rather, the thought was
12:07that they needed to give time for the reforms to
take hold and improve the company’s prospects. But
12:12more practically, the manner of full privatization
chosen was to list the JR companies on the Tokyo
12:18Stock Exchange, and there are certain requirements
that need to be met for listing such as pre-tax
12:22profits in the period immediately before listing
needing to be more than 40% of paid-in capital.
12:27Crucially, though, the Tokyo Stock Exchange would
only list companies at least five years old,
12:32and the JR companies were brand new.
Of course, in order for this grand plan to
12:37work—for the railways to become self-sufficient,
for the government to be freed of its debt,
12:41for Japan’s rails to improve their service—the
JRs had to genuinely, effectively reform. And
12:48they certainly did. Bureaucratic bloat was quickly
fixed. 90,000 redundant employees were removed,
12:54largely through transfer offers to other jobs
in the public and private sectors. Prior to
12:58privatization, there was one employee for every
311,000 miles or 510,000 kilometers travelled by
13:05passengers. After, it was up to 897,000 miles
or 1,443,000 kilometers. And despite the cuts
13:13in headcount, service actually improved—the
frequency of service, on average, increased;
13:18serious accidents halved; and improvements were
made to stations and rolling stock. Financially,
13:24things improved too—the revenue to cost
ratio went from 0.771 to 1.167 meaning,
13:30on average, the train companies were earning
an operating profit, thanks to a combination
13:33of cost reductions and revenue increases.
And this wasn’t thanks to heavy government
13:37subsidies—subsidies were far lower, overall, than
prior to privatization—nor was it thanks to fare
13:42increases—the rate of increase actually slowed
significantly relative to prior to privatization.
13:48Perhaps the primary confounding variable was the
fact that Japan’s economy was in a boom throughout
13:52much of the period immediately post-privatization,
so there was plenty of demand for rail travel.
13:57But all-in-all, the process worked—so much so
that, as soon as JR West, Central, and East
14:03hit the required five-year mark, they began the
process of listing on the Tokyo Stock Exchange.
14:07Through the sale of shares, the JNR Settlement
Corporation generated revenue that was used to pay
14:12down its debt, while the JRs were also profitable
enough to start buying the Shinkansen network from
14:16the Shinkansen Holding Company, further generating
revenue for the Settlement Corporation.
14:20But beyond the reforms on the rails and in company
structures, there was another crucial change that
14:25allowed the JR companies to flourish. Prior to
privatization, Japan’s national railway really
14:30stuck to the rail business, itself. But other,
private rail operators in Japan were finding
14:35profits in a different business: real estate.
Long before privatization, smaller private rail
14:41operators were pioneering a technique of using
rail to grow the value of land and property.
14:47Basically, the better an area’s rail access, the
higher its property value. In Tokyo, privately
14:52held Tokyu Corporation started developing commuter
lines in the 1920s. This is Jiyūgaoka, nicknamed
14:58“little Europe” or “Liberty Hill.” To get there,
a person hops on a Tokyu Corporation-owned Tokyo
15:03Railways train from Shibuya Station. The entire
ride lasts 11 minutes and costs just 181 Yen,
15:08or $1.25, delivering riders to one of Tokyo’s
more charming neighborhoods—it’s a high-density,
15:14mixed-use, pedestrian-friendly development
with European style architecture and private
15:18schools. Parts of the development around
the station, like this and this, are all
15:22owned and developed by Tokyu Corporation.
This approach—to leverage real estate around
15:27stations and invest in retail and hospitality,
was likely born from some necessity and not
15:32just ingenuity thanks to the country’s Railroad
Nationalization Act, which nationalized 17 of
15:37the country’s 37 private railways from 1906
to 1907, when it was enacted. Part of its
15:42limitations restricted private railways from
directly competing with government lines, so
15:46the private operators pivoted and looked to real
estate and diversified assets in order to create
15:50revenue when building new rails. But it turns out
that that technique worked tremendously well.
15:56So much so that the JRs adopted it following
privatization in 1987. This happened all over the
16:02country. It happened with JR Kyushu, which quickly
launched a fast food division, retail operations,
16:06and a country club. It happened here, with JR
East, which owns the Gala Yuzawa Ski Resort as
16:12well as the trainline that services it—dropping
riders into a station that’s part of the resort’s
16:16main building. And it happened here, where these
are just one chain of hotels that JR West owns
16:21across its network. All around the country, the
JR companies have been able to find plenty of
16:26opportunities to capitalize on the real-estate
long-owned by the railroad, but long-ignored.
16:31In the case of JR West, for example, about 20%
of their revenue now comes from the real-estate
16:36business, allowing for diversified income-streams
in a traditionally concentrated sector.
16:41Japan’s railways have a recipe for success:
the structural reforms created companies
16:46capable of turning a profit; the real-estate
businesses made that profit diversified;
16:50and the network these companies inherited
was such that they could run fast, frequent,
16:54reliable service at an affordable cost.
But it didn’t turn out to be a one-size-fits-all
16:59solution. JR Kyushu listed on the Tokyo Stock
Exchange in 2016, becoming the first of the
17:04island JRs to do so, but JR Shikoku and Hokkaido
still lag far behind. JR Hokkaido struggles
17:10most—subsidies account for almost half of its
revenue. The population of the region is declining
17:16and ridership is decreasing as people opt for
cars. As a result, train frequency is going down,
17:21creating a vicious cycle. At one point in 2019, JR
Hokkaido enlisted Tokyu Corporation—with obvious
17:27interests to develop rail in the region thanks
to their ski industry investments—to partner on
17:31increasing service and adding a luxury train
service to the island but so far it’s only
17:36manifested in a sporadic sightseeing operation.
There are plans to extend the Hokkaido Shinkansen
17:40to Sapporo, which would likely help boost revenue
for the company. Construction is underway but even
17:45this project has been stalled and delayed
until 2031 because of construction issues.
17:50Of course, rail is not necessarily intended
to turn a profit, just like highways are not
17:55necessarily intended to turn a profit, and even
the JR companies that do do so on the backs up
18:00massive, but perhaps less obvious government
subsidies. While the dream was for the sale of
18:05the JR companies and Shinkansen infrastructure
to pay down the JNR debt and liabilities,
18:09that never panned out. Ultimately, the Japanese
government, and by extension taxpayers,
18:14paid off about $200 billion in liabilities
following the dissolution of the JNR settlement
18:19corporation. It’s, at least in part, thanks
to this that four of the JR companies could
18:24become stand-alone, self-sufficient businesses.
Rail privatization experiments around the world
18:28have had a spotty history: Japan’s is considered
highly successful, but then there are countries
18:33like the UK or Argentina where the results are,
at best, controversial. So it’s tough to attribute
18:39too much of the success to the very fact that
the companies are privatized. More so, it’s
18:44the particular structure of privatization that
seemed to work. Regionalization in operations,
18:49strict government oversight, and a competitive
marketplace combined to create a situation in
18:53which, at least now, Japanese railways are largely
a self-sufficient, highly-effective service.
18:59Of course, what makes Japanese railways great
goes far beyond their corporate structure.
19:04They’re fast, frequent, and reliable, but that’s
part of a virtuous cycle enabled by the success
19:10of the companies. The fact that they are fast,
frequent, and reliable is made possible thanks
19:14to the success of the companies, and the success
of the companies is made possible thanks to the
19:18fact that they’re fast, frequent and reliable. So
if you trace this back to its origin, what truly
19:23made Japanese rail great was the fact that the
Japanese government, and by extension taxpayers,
19:28was willing to invest a tremendous amount of money
into kicking off this virtuous cycle—into building
19:33a railway network that would go on to grow Japan’s
economy and society for generations to come.
19:40If you know anything about me, it’s that I
travel a lot—often over a hundred days a year.
19:46Much of that is outside the US, and these
days, you kinda need phone data to survive,
19:50but my normal US carrier charges $10 a day for
data outside the US which really adds up fast,
19:56and even then it’s capped in terms of usage
per day and I easily hit that limit. That’s
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20:06countries and 8 regions, meaning if you have an
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20:11you can get more data for less. For example, in
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20:16can get 5 gigabytes of data for just $11, or 20
gigabytes for $25. Buying and installing is super
20:22simple: you just download the app; pick your plan
and then, crucially, enter code Wendover to get
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20:32two or three minutes and, this way, you don’t have
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20:36time and risk getting scammed at the sim card
shops at the airport, you simply just install and
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app and then use code “Wendover” at check-out.
