|Japan Railway & Transport Review No. 52 (pp.16–23)
Feature: Public Transportation in Provincial Areas
Significance of Freight Transport in Regional Railways
The number of passengers on Japanese railways in rural
areas (regional railways) is decreasing as private transport
becomes more popular, trackside populations decline and
birth rates become lower.
|Table 1: Number of Passengers on Passenger/Freight Railways
Table 2: Tonnes of Freight on Passenger/Freight Railways
Table 3: Operating Profit and Loss of Passenger/Freight Railways
Recent State of Passenger/ Freight Railways
|In FY2000, there were 11 operators of passenger/freight
railways in Japan. However, Oigawa Railway has carried
less than 1600 tonnes of freight since FY2000, and revenue
from freight transport has decreased to less than ¥2.4 million
(US$1 = ¥98)—both extremely low figures—so it is not
covered here. The other 10 operators are analyzed.
In recent years, passenger/freight railways have been gradually eliminating freight transport one by one. Kashima Railway stopped freight transport on 1 April 2002, followed by Heisei Chikuho Railway on 31 March 2004, Kamioka Railway on 31 March 2005, and Tarumi Railway on 18 March 2006. Heisei Chikuho Railway stopped freight transport on 1 October 2004, but had not carried freight since 31 March 2004. Similarly, Tarumi Railway stopped freight transport on 30 April 2006, but it had carried no freight since 18 March 2006. Information on the circumstances up to the end of freight transport by individual operators and the actual closure dates are taken from the Gifu Third Sector Railway Liaison Conference (2007), materials from the Railway Bureau of the Ministry of Land, Infrastructure, Transport and Tourism (MLITT), Tarumi Railway, and Heisei Chikuho Railway. Of these, Heisei Chikuho Railway stopped freight transport because a factory owned by its sole freight shipper closed. The other three stopped freight transport because their shippers switched to truck transport. Furthermore, Kamioka Railway closed its railway business on 1 December 2006 followed by Kashima Railway on 1 April 2007.
Table 1 shows the number of passengers carried by passenger/freight railways. Chichibu Railway carries most passengers at more than 8 million people, although the number is decreasing. The second largest is Sangi Railway, which carried more than 3 million people until FY2002 and more than 5 million since FY2003. The large increase from FY2003 occurred because Sangi Railway took over Kinki Nippon Railway’s (Kintetsu) Hokusei Line on 1 April 2003. The other eight operators have passenger volumes of less than 3 million, and four carried less than 1 million. Excluding Gakunan Railway, which has seen a recovery in volume since FY2004, all tend to show falling passenger numbers.
Table 2 shows the tonnes of freight carried by passenger/ freight railways. Chichibu Railway and Sangi Railway carry more than 1 million tonnes every FY. Five railways carry between 100,000 and 500,000 tonnes; three carry less than 100,000 tonnes.
Every operator that stopped freight transport saw falling transport volumes just before they stopped. Transport volumes on the Sangi Railway declined markedly after FY2003, because it had been carrying earth and sand for the now-completed Central Japan International Airport from July 2000 to December 2002 (Yokkaichi University and Sangi Railway 2008). Other operators have remained at about the same volume or have seen a slight decrease. Table 3 shows the operating profit and loss of passenger/ freight railways. Seven operators posted operating losses for all years in this table. Kashima Railway posted annual losses of more than ¥50 million, with losses of more than ¥100 million up to FY2002. Kurobe Gorge Railway and Tarumi Railway have had annual losses of more than ¥50 million since FY2001, as has Kamioka Railway since FY2003. Heisei Chikuho Railway has had annual losses of more than ¥50 million since FY2004.
The other three operators have also posted operating losses for most years, confirming that business conditions are severe. Sangi Railway has had major losses since FY2003, mainly because it took over operation of Hokusei Line from Kintetsu.
|Table 4: Passenger Operating Profit and Loss of Passenger Freight Railways
Table 5: Freight Operating Profit and Loss of Passenger/Freight Railways
Business Analysis by Passenger and Freight Separately
|Here, we describe the operating profits and losses by
passenger and freight operations separately. If an operating
profit is posted for freight transport it suggests that freight
transport is an element in stabilizing business of passenger/
freight railways. However, the Yearbook of Railway Statistics
does not describe miscellaneous revenues from transport
and operating costs separately by passenger and freight.
Consequently, they must be allocated some other way. An
appropriate criterion for this allocation is the ratio of operation km
for passenger and freight rolling stock because many
costs are thought to be proportional to the kilometers of
rolling stock operation. Therefore, the operation-km for rolling
stock were distributed separately by passenger and freight,
and miscellaneous revenues from transport and operating
costs were allocated based on the derived ratio, taking three
points into account:
• Tarumi Railway uses diesel locomotives for both passenger and freight transport while Kurobe Gorge Railway uses electric locomotives. Consequently, operation-km are distributed based on the ratio of operation-km of passenger carriages and freight wagons pulled by these locomotives.
• Chichibu Railway primarily uses electric locomotives for freight transport so operation-km of electric locomotives were used.
• Rolling-stock maintenance costs within operating costs are distributed based on the ratio of passenger and freight operation-km. However, operation-km for rolling stock owned by the shipper and other operators were excluded from the figures.
Tables 4 and 5 show the separate results for passenger and freight transport. Excluding Chichibu Railway and Sangi Railway, passenger transport on all the other railways made losses in all years shown in the table. Chichibu Railway has large passenger volumes so it had operating profits for all years. Sangi Railway has had operating losses since FY2003 due to the takeover of Hokusei Line.
Five operators made freight profits in all years in the table. Of the five making freight losses, Kamioka Railway and Tarumi Railway showed losses only in the FY they stopped freight transport. Mizushima Rinkai Railway also had small losses in some FYs. Sangi Railway has made freight profits since FY2004. Chichibu Railway was the only operator with large freight losses every FY.
What about operating profits and losses before and after four operators stopped freight transport? Table 6 shows operating profits and losses for each operator before and after stopping freight transport as a whole and for passenger and freight transport separately. Kashima Railway saw a drop of about ¥64 million in freight operating revenue due to stopping freight transport, while operating revenue for passenger transport also fell by about ¥24 million. However, operating costs for passenger transport decreased greatly by about ¥85 million. Along with the drop of about ¥26 million in freight operating costs due to stopping freight transport, overall railway operating costs were cut by about ¥111 million, which increased profitability. However, Kashima Railway then got out of the railway business altogether.
After stopping freight transport, the other three operators saw worsening profitability due to the larger decreases in freight operating revenue than in overall railway operating costs. At these operators, freight transport seems to have at least secured enough revenue to cover avoidable costs. Ponsonby (1963) reviewed in Okano (1980), call services that do not cover avoidable costs as unremunerative services. A large percentage of Kamioka Railway’s operations was freight transport (Tables 4 and 5) so it could not easily sustain railway operations when freight transport stopped and consequently withdrew from railway operations altogether.
Significance of Freight Transport and Future Issues
|As experienced by most other regional railways, the volume
of passenger transport by passenger/freight railways is
tending to decline. However, the volume of freight transport
by operators still carrying freight is either mostly stable or
declining slightly less than passenger transport. As shown
by the estimated separate operating profits and losses for
passenger and freight transport, and by the worsening
profitability of most railway operations after stopping freight
transport, freight transport plays some role in supporting
railway business and stabilizing business conditions.
However, there are other issues in continuing operation of
First, even if freight posts operating profits, this does not necessarily mean that railway operations as a whole post operating profits. Although passenger transport needs every possible business improvement, no matter how small, large increases in passenger volumes cannot be expected. Meanwhile, operators are all making major cost reductions, so further reductions become increasingly difficult (Asai 2006). As a result there is little chance of improved profitability for passenger transport. Even if freight transport continues, some public funding will still be necessary to sustain railway operations.
The reason for retaining railway operations using public funds is to secure transport for trackside residents, especially for those with restricted mobility. Consequently, public funding should compensate for all passenger transport losses; compensation for operations that include freight profits is inappropriate because it is cross-subsidized by freight operation, which is not the purpose of public help. Cross subsidies here mean the public sector is bearing only one part of funding required to accomplish the policy objective of securing transport for trackside residents while another part of that funding is borne by the freight shipper (who is not concerned with the policy objective). Chujo (1988) discusses the inefficiency of cross subsidies in detail. Second, passenger/freight railways often rely heavily on specific freight shipper, so the operator’s freight business and overall railway business are greatly affected by trends in the shipper’s business and demands. Even if the passenger/ freight railway secures a steady volume of freight, sometimes it may be forced to cut rates at the shipper’s demand and due to competition with truck transport, resulting in a drop in operating revenues.
Figure 1 shows the tonnes of freight carried by Heisei Chikuho Railway and its freight revenue from FY1990 to FY2003 when it stopped carrying freight. In FY1993, it carried about 470,000 tonnes, increasing to about 580,000 tonnes in FY1997. However, freight revenue declined from ¥150 million to ¥110 million between those FYs. The type of freight did not change, so falling freight rates caused the decline.
It is unlikely that there would be other shippers with large freight volumes on the same line, making it difficult to remove the ‘captive’ railway’s situation. If the shipper switched to trucks, it is quite possible that the railway business becomes unstable and its continuation becomes difficult.
Even when a shipper expresses an inclination to switch to trucks, the public sector should act to have the shipper continue using railways in consideration of logistics policy. Many passenger/freight railways carry either bulk products such as limestone or cement, or hazardous products such as chemicals and petroleum. Switching to trucks increases environmental burdens and decreases safety. As an example, Tarumi Railway and Kamioka Railway are both third sector railways ; one reason for Tarumi Railway taking over the former JNR Tarumi Line was because the switch to truck transport would cause traffic pollution. Similarly, Kamioka Railway took over the former JNR Kamioka Line because the main freight transport was sulphuric acid, which is a hazardous road cargo (Gifu Third Sector Railway Liaison Conference (2007)). However, both railways have since stopped freight transport. One reason why freight shippers switch to truck transport is the age of their freight wagons, sidings and other infrastructure. If a shipper cannot upgrade these assets using its own funds, social-benefit arguments offer some rationale for the public sector financing upgrade funds for shippers.
|Table 6: Operating Profit and Loss of Railway Operations Before and After Stopping Freight Transport
Figure 1: Tonnes of Freight Transported and Freight Revenue of Heisei Chikuho Railway
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Dr Seiji Fukuda is an associate professor in the Faculty of Commercial Science at Seinan Gakuin University. Prior to his current position, he was a lecturer at Ritsumeikan University, Osaka University of Economics, Kansai University, and Meijo University. His major publications are Public Transport in Rural Areas: Investigation into Sustainable Maintain Policies, Hakuto Shobo, 2005, The Coastal Railways: their Situations and Perspectives, Journal of Prize Winners for Encouragement of Rail Freight, 2006, and Cable Cars: the Significance in Tourism, Journal of Public Utility Economics, 2008.