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