Name: Why Japanese Railways Win
Uploaded: 2025-07-24T10:42:39.000Z
Duration: 20 min 51 s
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When conjuring up an image of Japan's ultra-successful passenger rail system, one likely thinks of this—the Shinkansen. It's a fair association—this was, after all, the world's very first high-speed rail line, collapsing what was a six-hour journey between

Japan's two largest cities into just three. Only getting faster since its opening in 1964, and adding more and more service to match demand, this route ran an average of 372 trains a day in 2023, shuttling 158 million passengers on the year. Across six decades, the line's total passenger count sits north of 6.5 billion, all without a single derailment, without any serious accident, without even a single fatality. All of this success opened the door for the Shinkansen network to expand nationwide. As it has grown, this network's become a point of national pride and international envy. And yet, it only begins to explain why Japanese passenger rail works so singularly well. Annually, Japanese rails rank next to the likes of India and China, two far larger countries, in total ridership, and most of the rail companies themselves manage to turn healthy profits while keeping customers content and services frequent. Much of this mileage traveled and profit garnered is done on the backs of trains moving at far more conventional speeds. Take Japan's southernmost major island, Kyushu. Here, too, are important high-speed rail connections. JR West, a private entity whose district of operations lies mostly on Honshu, runs the Sanyo Shinkansen connecting Kyushu's largest city with Osaka in just two hours and 28 minutes, while JR Kyushu, the island's main rail operator, runs two additional Shinkansen lines that connect most of the island's major cities in an hour and 16 minutes or less.

And, while this island's local Shinkansen are lauded for much the same reason as the Tokaido line, this only accounts for a fraction of the trips made, stations serviced, and lines ran.

The JR Kyushu service map looks like this. In addition to its two high-speed rails, it runs eight main and 13 regional lines that serve over 500 stops across the island. For a student living somewhere around here, for instance, a Shinkansen is just not an option if they need to get to another university campus for a conference, but another train is. From this station, they could catch the higher-speed limited express Sonic starting at 625 am and running every 20 minutes, and be in the heart of Fukuoka in just 22 minutes for a $15 ticket. Or, if on a stricter budget, they could opt for a 40-50 minute local train along the Kagoshima line for only about $5.

But regardless of their choice of train, rail simply makes the most sense. Even the local will be faster than navigating traffic and figuring out parking, and unlike the uncertainties of driving, the student should be confident the train will be on time. Across JR Kyushu's entire network, average delays hover around a minute, and should one occur, it'll be posted here, where the few odd-end holdups are communicated. And the student should be confident that it's going to be a decently full train, too. Whether it's daily commuters in similar situations, or the flocks of tourists coming from the north or abroad connecting onto the island's fleet of unique sightseeing travel trains, this network moves a ton of people at a fraction of the speed of a

Shinkansen. In all rail-related revenue for JR Kyushu in 2023, the Shinkansen accounted for only about a third. In total rail passengers, conventional rail operated by the company carried passengers almost four times the distance, and in that same year, conventional rail on the island moved some 300 million passengers to the Shinkansen's 12 million. The fact is, the success of Japanese rail is punctuated by high-speed options, but the bedrock to its success is still run-of-the-mill conventional passenger trains. Passenger works here because the trains are trusted—they're safe and always on time, they're so frequent that the traveler doesn't feel like they're sacrificing flexibility, and they offer so many unique routings that, no matter if it's a daily commute, a weekend trip to the city, or a ski vacation to the north, taking the train just makes the most sense. Being fast helps, but the success has just as much to do with a culture of rail as it does technological achievement. Setting the stage for this culture to take root is the fact that rail on the island does have some geographical advantages.

Because of a rugged, mountainous topography, Japanese population centers are focused and dense. Because of its island geography, these urban areas are distant from one another by

European standards, but not American or Australian ones, allowing for earlier and easier rail connections between them. With rail taking hold in the final years of the 19th century, expanding the network was associated with industrializing and connecting the nation, so as Japan prioritized growth in the beginning of the 20th century, it did so on the back of the rails. Yet, while freight and industry helped lay the tracks, they really didn't need them post-war. As a country with limited raw natural exports and ample port access to begin with, then increasingly favorable conditions for trucking, passenger rail since the mid-century has not really had to compete with freight for line access. But geography and timing aren't solely responsible for success. Japan, for one, is a car country. In car exports,

Japan's the third largest in the world. In car ownership, it's at 670 per 1,000 people, placing it comfortably in the world's top 30 near countries like Canada, France, and Norway.

And cars, it seemed, might spell the end of passenger rail in Japan in the 1980s.

Established in 1949, Japanese National Railways, a state-run enterprise, owned 80% of Japanese rail after World War II, and was eager to expand in the post-war period. It did so to the world's marvel with the launch of the Shinkansen in 1964. And yet, while a massively successful addition to the network, 1964 marked another first—the first year the nationalized rail posted a loss. From there, as car ownership rose, trucking companies grew, and airlines expanded, things only got worse. Millions of yen in losses quickly turned to billions, then eventually, trillions.

With failed reforms ranging from network expansion to rate hikes across the 60s and 70s, rail's share of total passenger traffic dropped from north of 50% to the mid-20s, while freight cratered from a 50% share to 5%. Undeniably overstaffed, inflexible in its strategy, and bloated in bureaucracy, JNR's spiral continued into the 1980s. Burdened by a slowing national economy and a nationalized rail system that's debt had now reached 20 trillion yen—a number comparable to the debt of entire nations at the time—Japanese politicians were now urged to take on bolder reform. Quietly, the idea of privatizing the rails began to bounce around subcommittees, then, by the mid-80s, it seemed the only logical option to halt the downward spiral.

The process of privatizing JNR was, more than anything, a process of division. One organization would become nine, and the idea was that, while in sum they'd fulfill the same function, the division between them would lead to strength not found in their nationalized form.

The core of the network was divided between JR West, JR Central, and JR East. More or less,

JR West would operate rail west of Nagoya, JR Central would operate between Nagoya and Tokyo, while JR East would operate within and east of Tokyo. The logic of where to place the borders was dictated, largely, by traffic patterns. Planners believed that, by defining the borders such that as much travel as possible stayed within a company's borders, each company could specialize its operations to best serve the unique needs and wants of that region.

For example, among other things, JR Central could learn how to best operate the super-high-traffic

Tokyo-to-Osaka long-distance route, whereas JR East could focus on how to operate Tokyo commuter service most effectively. This map fulfilled that goal well—upward of 95% of all passenger trips stayed within each rail company's territory. Beyond that, another goal of the map was for each of the companies to inherit a balance of profitable and unprofitable lines. For example, JR West would inherit the Kobe line, relied upon by daily commuters to travel from this highly populated area to Osaka proper. With tremendous passenger counts, this was also tremendously profitable. But along with that, it would inherit the Gebe line, running through a sparsely populated, mountainous region of the Hiroshima Prefecture. With operating speeds often far slower than that of the bus, its passenger counts were tiny, and therefore it was deeply unprofitable. Japanese railways can technically close down lines, but gaining approval is a difficult and time-consuming process that often isn't worthwhile, so in practice the companies would largely continue to operate low-traffic lines using the profits from high-traffic ones.

But with these geographic divisions, the benefits and burdens were shared roughly equally between the three companies. But then there was the crown jewel, both physically and financially, of the Japan Rail Network—the famed bullet train, the Shinkansen. While each of the three companies would inherit some of the network, their portions certainly were not created equal.

JR Central would get the least, at 344 miles, but this stretch from Tokyo to Osaka was the original Shinkansen, traveling between the largest and second-largest metro areas in the country.

Demand on the stretch was tremendous, and so was profit. JR West inherited more track, 388 miles, but demand and profit in this area was lower, whereas JR East got 519 miles of track, but through the less-populated north of the country where the Shinkansen struggled to achieve strong financial returns. Therefore, at first, the Shinkansen lines were the only not-owned outright by the JR companies, and instead they were placed within a newly-formed entity called the Shinkansen Holding Company, which would then lease the track and associated infrastructure to the operators. The fees for this would be calculated not based on the capital cost of the infrastructure itself, but rather proportionally to the profits of the rail segments as a way of correcting for the geographic imbalance in profit margins. But this is not the entirety of Japan.

This is the entirety of Honshu, the main island of Japan. There are three other major islands that make up the country—Kyushu, Shikoku, and Hokkaido. The profitable Shinkansen network did not yet reach the islands, except for a small portion of the Sanyo Shinkansen reaching Fukuoka, and their lower population densities meant they lacked as many profitable conventional lines as well.

So, whereas JR West, Central, and East were formed with the intention of quickly becoming profitable, these three were treated differently. Most notably, they'd receive a subsidy from the government to offset their inevitable losses. Also sliced off from JNR was their freight business.

Freight rail was never massive in Japan, and it only decreased as the truck industry grew and took market share away. JNR's freight business therefore operated at a loss. It also tended to operate over long distances spanning beyond the borders of the individual JR companies, so they rather formed one, nationwide freight company. That way, no one JR company would be burdened with its losses, while JR freight could reduce costs by not having to maintain track, and rather just pay for track usage. Finally, the last of the nine new companies was called the JNR Settlement Corporation. It acted as an umbrella company, owning all the other companies, while it itself was owned by the

Japanese government. This mattered in part because of debt—there was a huge amount of it, and just simply distributing it amongst the JR companies themselves would leave them in the same struggling position as JNR. Therefore, only a portion of the trillions of yen in debt was transferred to the

JRs, distributed amongst JR West, Central, and East, whereas the island JRs received none. Another substantial portion went to the Shinkansen Holding Company, roughly equivalent to the value of its assets, then the vast majority of liabilities went to the umbrella company, JNR Settlement

Corporation. The hope was that, through time, the value of the JRs would increase, and therefore the eventual sale of the companies could cover the debt. JNR Settlement Corporation was owned and controlled by the government, so ultimately this meant that Japan's railways weren't fully privatized, at least at first. Rather, they were divided into government-owned companies that were intended to act as private companies would, and strive for profits. The state of the Japanese railways was such that the newly formed JRs would hardly be attractive investment opportunities, meaning the government would struggle to take them fully private at what they considered a reasonable valuation. Rather, the thought was that they needed to give time for the reforms to take hold and improve the companies' prospects. But more practically, the manner of full privatization chosen was to list the JR companies on the Tokyo Stock Exchange, and there are certain requirements that need to be met for listing, such as pre-tax profits in the period immediately before listing needing to be more than 40% of paid-in capital. Crucially, though, the Tokyo

Stock Exchange would only list companies at least five years old, and the JR companies were brand new. Of course, in order for this grand plan to work—for the railways to become self-sufficient, for the government to be freed of its debt, for Japan's rails to improve their service—the

JRs had to genuinely, effectively reform. And they certainly did. Bureaucratic bloat was quickly fixed. 90,000 redundant employees were removed, largely through transfer offers to other jobs in the public and private sectors. Prior to privatization, there was one employee for every 311,000 miles or 510,000 kilometers traveled by passengers. After, it was up to 897,000 miles or 1,443,000 kilometers. And despite the cuts in headcount, service actually improved. The frequency of service, on average, increased, serious accidents halved, and improvements were made to stations and rolling stock. Financially, things improved too—the revenue-to-cost ratio went from 0.771 to 1.167, meaning, on average, the train companies were earning an operating profit thanks to a combination of cost reductions and revenue increases. And this wasn't thanks to heavy government subsidies—subsidies were far lower, overall, than prior to privatization—nor was it thanks to fare increases—the rate of increase actually slowed significantly relative to prior to privatization. Perhaps the primary confounding variable was the fact that Japan's economy was in a boom throughout much of the period immediately post-privatization, so there was plenty of demand for rail travel. But all in all, the process worked. So much so that, as soon as JR West, Central, and East hit the required five-year mark, they began the process of listing on the Tokyo Stock Exchange. Through the sale of shares, the JNR Settlement Corporation generated revenue that was used to pay down its debt, while the JRs were also profitable enough to start buying the Shinkansen network from the Shinkansen Holding Company, further generating revenue for the Settlement Corporation. But beyond the reforms on the rails and in company structure, there was another crucial change that allowed the JR companies to flourish.

Prior to privatization, Japan's National Railway really stuck to the rail business, itself, but other private rail operators in Japan were finding profits in a different business—real estate. Long before privatization, smaller private rail operators were pioneering a technique of using rail to grow the value of land and property. Basically, the better an area's rail access, the higher its property value. In Tokyo, privately held Tokyo corporations started developing commuter lines in the 1920s. This is Geogakka, nicknamed Little Europe or Liberty Hill.

To get there, a person hops on a Tokyo Corporation-owned Tokyo Railways train from

Shibuya Station. The entire ride lasts 11 minutes and costs just 181 yen, or $1.25, delivering riders to one of Tokyo's more charming neighborhoods. It's a high-density, mixed-use, pedestrian-friendly development with European-style architecture and private schools.

Parts of the development around the station, like this and this, are all owned and developed by Tokyo Corporation. This approach, to leverage real estate around stations to invest in retail and hospitality, was likely born from some necessity, and not just ingenuity, thanks to the country's Railroad Nationalization Act, which nationalized 17 of the country's 37 private railways from 1906 to 1907, when it was enacted. Part of its limitations restricted private railways from directly competing with government lines, so the private operators pivoted and looked to real estate and diversified assets in order to create revenue when building new rails. But it turns out that that technique worked tremendously well—so much so that the JRs adopted it following privatization in 1987. This happened all over the country—it happened with JR Kyushu, which quickly launched a fast food division, retail operations, and a country club. It happened here, with JR East, which owns the Gala-Yuzawa ski resort, as well as the train line that services it, dropping riders into a station that's part of the resort's main building. And it happened here, where these are just one chain of hotels that JR West owns across its network. All around the country, the JR companies have been able to find plenty of opportunities to capitalize on the real estate long owned by the railroad, but long ignored. In the case of JR West, for example, about 20% of their revenue now comes from the real estate business, allowing for diversified income streams in a traditionally concentrated sector. Japan's railways have a recipe for success—the structural reforms created companies capable of turning a profit, the real estate businesses made that profit diversified, and the network these companies inherited was such that they could run fast, frequent, reliable service at an affordable cost. But it didn't turn out to be a one-size-fits-all solution. JR Kyushu listed on the Tokyo Stock Exchange in 2016, becoming the first of the island JRs to do so, but JR Shikoku and Hokkaido still lag far behind. JR Hokkaido struggles most—subsidies account for almost half of its revenue. The population of the region is declining and ridership is decreasing as people opt for cars. As a result, train frequency is going down, creating a vicious cycle. At one point in 2019, JR Hokkaido enlisted Tokyo Corporation, with obvious interest to develop rail in the region thanks to their ski industry investments, to partner on increasing service and adding a luxury train service to the island, but so far it's only manifested in a sporadic sightseeing operation.

There are plans to extend the Hokkaido Shinkansen to Sapporo, which would likely help boost revenue for the company. Construction is underway, but even this project has been stalled and delayed until 2031 because of construction issues. Of course, rail is not necessarily intended to turn a profit, just like highways are not necessarily intended to turn a profit, and even the JR companies that do do so on the backs of massive, but perhaps less obvious, government subsidies. While the dream was for the sale of the JR companies and Shinkansen infrastructure to pay down the JR debt and liabilities, that never panned out. Ultimately, the Japanese government, and by extension taxpayers, paid off about $200 billion in liabilities following the dissolution of the JR Settlement Corporation. It's at least in part thanks to this that four of the JR companies could become standalone, self-sufficient businesses.

Rail privatization experiments around the world have had a spotty history. Japan's is considered highly successful, but then there are countries like the UK or Argentina where the results are, at best, controversial. So, it's tough to attribute too much of the success to the very fact that the companies are privatized. More so, it's the particular structure of privatization that seemed to work—regionalization and operations, strict government oversight, and a competitive marketplace combined to create a situation in which, at least now,

Japanese railways are largely a self-sufficient, highly effective service. Of course, what makes

Japanese railways great goes far beyond their corporate structure. They're fast, frequent, and reliable, but that's part of a virtuous cycle enabled by the success of the companies.

The fact that they are fast, frequent, and reliable is made possible thanks to the success of the companies, and the success of the companies is made possible thanks to the fact that they're fast, frequent, and reliable. So, if you trace this back to its origin, what truly made Japanese rail great was the fact that the Japanese government, and by extension taxpayers, was willing to invest a tremendous amount of money into kicking off this virtuous cycle—into building a railway network that would go on to grow Japan's economy and society for generations to come.

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