Shinkansen investment before
and after JNR Reform

27

Discussion Paper 2013 • 27
Fumio Kurosaki

Institute of Transportation
Economics, Tokyo, Japan

Shinkansen Investment Before
and After JNR Reform

Discussion Paper No. 2013-27

Prepared for the Roundtable on
The Economics of Investment in High-Speed Rail
(18-19 December 2013, New Delhi, India)

Fumio KUROSAKI
Institute of Transportation Economics,
Tokyo, Japan

December 2013

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

1. INTRODUCTION“Shinkansen” refers to Japan’s dedicated high-speed intercity rail system, and it was
initially introduced between Tokyo and Shin-Osaka in 1964 prior to other countries. This
event accelerated the development of high-speed railways in other countries. In Japan its
total length and the number of lines have increased since then contributing to theeconomic development of the country. As with other conventional railways, Shinkansen
was constructed and operated by the Japanese National Railways (JNR).
There is another issue which Japan’s railway experienced prior to other countries, namely
railway reform which was implemented in April 1987. This separated JNR into six
independent passenger railway companies. Since then, the financial resources for
Shinkansen construction were modified so as not to worsen the financial situation of the
new companies, and public finances have been utilised in order to extend the lines. Even
after separation into independent companies, operation of Shinkansen trains, including
through-service trains crossing borders between companies, has been smooth. This
article outlines how construction and operation of Shinkansen lines has been modified
through JNR reform.
As Shinkansen lines have been built in various markets in Japan over a half century,
traffic volume varies greatly depending on the line. Based on published data, this paper
examines the changes to high-speed rail transport and appraises its outcomes including
the financial aspects of the operating companies.

2. OUTLINE OF JNR REFORM

This section outlines the history of JNR and background to JNR reform. In 1949, thegovernment reorganised the railways and established the Japanese National Railways(JNR) as a public enterprise. Due to the lack of other means of transport, the railways
dominated post-war passenger and freight markets in Japan. In 1950, Japanese railways
had 92 percent of the passenger market (passenger-km) and 52 percent of the freightmarket (tonne-km), and they continued making profits through the 1950s and early
1960s (Aoki et al., 2000 p.181). However, from the 1960s, motorisation and air transport
progressed dramatically in tandem with the high economic growth, and the modal shareof railways decreased.
Owing to the competitiveness of other modes of transport, JNR continued to lose its
freight businesses along with local passenger transport. In addition, JNR shouldered theburden of construction costs of new railway lines. Thus, JNR ran a deficit in 1964 and theannual deficit continued for many subsequent years. JNR accumulated long-term debt

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

each year, and at the time of JNR reform in 1987 it amounted to 25 trillion yen, which
was roughly equivalent to the combined national debts of several developing countries(ibid, p.183).
In addition to financial difficulties, JNR also faced severe criticism of its ineffective
management. Thus, JNR reform was finally undertaken in April 1987. Through thereform, JNR was split into six regional passenger companies and a single nation-wide
freight company (JR Freight). (Figure 1)
Figure 1. JNR Reform in 1987

3. SHINKANSEN PROJECTS IN JNR AND ITS MANAGEMENT

3.1

Shinkansen Projects before JNR Reform

An original aim of constructing Shinkansen lines in Japan was to accommodate
increasingly heavy traffic demand along the trunk lines. Although the gauge of Japaneseconventional lines is 1 067 mm, it was decided that Shinkansen lines would beconstructed with a standard gauge of 1 435 mm after serious discussions among
concerned persons. Along with technology that permitted higher speed, construction of a
dedicated track for high-speed passenger trains made it possible to operate a larger
number of trains. At present, high-speed trains are operated with a 3-minute train
headway during the peak hours in the Tokaido Shinkansen Line, and this kind ofconcentrated train operation could not have been realised if the track had to be sharedwith slower conventional and freight trains.
The first Shinkansen project connecting Tokyo and Shin-Osaka started construction workin 1959 and was opened in October 1964. Traffic volume increased steadily, and thenumber of trains was also increased. Following the first line, the Tokaido Shinkansen
Line, JNR constructed the second high-speed line, namely, the Sanyo Shinkansen Line.

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Fumio KUROSAKI— Discussion Paper 2013-27 — © OECD/ITF 2013

SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKIThe section between Shin-Osaka and Okayama opened in 1972, extended to Hakata in
1975.
Although the original aim was to overcome the capacity constraints of the trunk lines, asmentioned above, the success of the Tokaido and Sanyo Shinkansen Lines aroused the
local interest to extend Shinkansen lines to other cities, focusing on its high speed rather
than transport capacity. As a result, the government promulgated the Nationwide
Shinkansen Development Law in 1970, and planned a nationwide Shinkansen network(ibid. p.144). This plan proposed to construct a Shinkansen network with a total of morethan 68 000 km.
Prior to JNR reform, both conventional and Shinkansen lines had been constructed withinterest-bearing loans. This means that it was a precondition that the construction costs
be paid back from sales revenue after the opening of operations. Owing to the financial
constraints, JNR could not allow a large investment to construct new Shinkansen lines.
Nevertheless, construction work steadily continued, and the Tohoku and Joetsu
Shinkansen Lines were opened before JNR reform, bringing the network of Shinkansen
lines to 2031.9 km in 1987 (Table 1).
Table 1. Shinkansen Lines Completed before JNR Reform
Shinkansen Line
1)

Tokaido Shinkansen2a) Sanyo Shinkansen2b) Sanyo Shinkansen
3a) Tohoku Shinkansen3b) Tohoku Shinkansen
4)

Joetsu Shinkansen

Section(Operating Company
after JNR Reform)
Tokyo – Shin-Osaka(JR Central)Shin-Osaka – Okayama(JR West)
Okayama – Hakata(JR West)
Omiya – Morioka(JR East)
Ueno – Omiya(JR East)
Omiya – Niigata(JR East)

Total Length of Shinkansen Lines in 1987

Operating Line
LengthDate Open552.6km1 Oct. 1964

180.3km

15 Mar. 1972

463.7km

10 Mar. 1975

505.0km

23 Jun. 1982

26.7km

14 Mar. 1985

303.6km

15 Nov. 1982

2 031.9km

Source: MLIT (2013)

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Figure 2. Shinkansen Network: 1987

Niigata
Morioka
Joetsu Shinkansen
Tohoku Shinkansen
Okayama
Omiya
Ueno
Tokyo
Shin-Osaka
Tokaido Shinkansen
Hakata3.2

Sanyo Shinkansen

Shinkansen Performance during JNR Era

This section examines the performance of Shinkansen lines opened during the JNR era.
Table 2 shows the transport performance of Shinkansen Lines from 1982 to 1984.
Table 2. Transport Results of Shinkansen Lines (1982–1984)
Item
Number of Passengers

Transport Volume(passenger km)

Traffic Density(passengers/day)Unit

Line namethousands

millions

thousands

1982

1983

1984

Tokaido & Sanyo

124 830

127 613

128 363

Tohoku14 00023 40924 127

Joetsu4 077

10 327

11 300Tokaido & Sanyo

41 48942 18642 197

Tohoku

3 743

5 989

6 142

Joetsu

873

2 265

2 487

Tokaido & Sanyo

95.0

96.6

96.6

Tohoku

26.3

32.5

33.3

Joetsu

21.0

20.4

22.4

Source: JNR (1985)

It is very difficult to allocate correctly the overhead expenses by line. But, in the latter
period of JNR, in order to analyse management of JNR in preparation for reform, an audit
report analysed the profitability of the lines.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Based on the report, the transport and financial results of operating Shinkansen lines areshown in Table 3.
Table 3. Financial Results for Shinkansen Lines (1982 – 1984)
Unit: billion yen
Name of Lines
Tokaido & Sanyo

Tohoku & Joetsu[

Accounts

1982

1983

1984

1) Operating Revenue

816.1

829.9

893.1

2) Operating Expenses

343.8

342.9

348.2

3) Operating Profit

472.3

487.0

544.9

1) Operating Revenue

104.5

187.7

206.7

2) Operating Expenses

43.6[160.3]69.1[283.2]76.5[298.8]3) Operating Profit

60.9[-55.8]118.6[-95.5]130.2[-92.1]]: Indicates total expenses/profit including depreciation and other capital costs.

Source: JNR (1985)

The above table shows that the Tokaido and Sanyo Shinkansen Lines were very
profitable, though there is no data which includes expenses of capital costs. JNR (1986)
also noted that the Tokaido and Sanyo Shinkansen Lines were the second most profitablelines within JNR network following the Yamanote Line, which operates in the center of theTokyo metropolitan area.
Regarding the Tohoku and Joetsu Lines, the above table shows that, although they were
profitable if capital costs related to infrastructure were not included, the inclusion of
those costs resulted in net loss.
3.3

JNR Reform and Transfers of Shinkansen Assets

In JNR reform, Shinkansen operation was divided among the three Honshu JR passenger
companies: JR East, JR Central, and JR West. Nevertheless, it was assumed that profit
adjustment among the three companies would be indispensable. Accordingly, Shinkansen
Holding Corporation (SHC) was established, which owned the assets of the Shinkansen
infrastructure and also shouldered the same amount of debt as their market-based
revaluation. Then, each line was leased for operation to each of the three JR companies,
and the above-mentioned profit adjustment was realised through the amount of leasecharges paid (Sumita, 2005).
Nevertheless, although the three companies had aimed to become listed companies, thisorganisational structure faced a disadvantage in that the assets of the companies would
be indefinite even if they finished paying the lease fees in the future. In addition, as the
JR companies did not retain ownership of their infrastructure assets, it was impossible forthem to reserve for depreciation, and even the investment for infrastructure assets had
to be treated as an expenditure of a single year rather than depreciated over several
years.
In order to resolve these issues, the assets of the Shinkansen infrastructure were sold tothe three JR companies in October 1991, and SHC was dissolved. Since then, the three
JR companies have retained ownership of Shinkansen infrastructure assets which had

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

been constructed during the JNR era. Thus, unlike new Shinkansen lines which have been
constructed/opened since JNR reform, these initial Shinkansen lines constructed before
1987 have been operated by an integrated structure since the sale of the assets in 1991.

4. SHINKANSEN PROJECTS SINCE JNR REFORM

4.1

Finance and Management of New Shinkansen Lines

Even since JNR reform, construction works have been implemented to extend Shinkansen
lines. A construction and operation scheme for these works was modified reflecting themanagement failures of JNR. Since JNR reform, the new lines and extensions of
Shinkansen lines have been constructed and operated based on the new scheme, andJapan Railway Construction, Transport and Technology Agency (JRTT), a wholly
government-financed entity, carries out Shinkansen construction works as publicprojects.
JRTT not only implements construction work but also retains ownership of theinfrastructure assets after completion of the projects. It leases the assets to the JR
passenger companies, which provide high speed railway services. Thus, different fromthe initial Shinkansen lines which had been constructed during the JNR era, the newly
constructed sections form a vertically separated structure. The JR companies pay usage
fees based on the calculation explained in the following section. Regarding financial
resources, except for the usage fees which would be allocated for construction works, thecurrent financial scheme, which was revised in 1996, stipulates that the state and local
governments bear the financial burden of the projects by a ratio of 2:1.
4.2

Usage Fees and Maintenance Costs

The amount of usage fees paid by an operator of new Shinkansen lines is an essential
factor in the relationship between the JR passenger company and the public sector.
Payment of usage fees is regulated by the Japan Railway Construction, Transport andTechnology Agency Law. The Law stipulates that JRTT basically calculates the amountbased on the benefits received as an operator of the new Shinkansen lines after opening.
The above-mentioned benefits are calculated by comparing the following two amounts:
1.

the estimated revenues and expenses generated by the new Shinkansen lines
and related line segments after opening; with2.

the estimated revenues and expenses that would likely be generated by parallel
conventional lines and related line segments if the new Shinkansen lines were
not opened.

In brief, the amount equals to the operator’s net increase of benefits through thecommencement of operation. Then, the above-mentioned amounts are calculated basedon expected revenue and expenses over a 30-year period after opening.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKIAs a rule, in commencing the construction works, the local communities are to agree toseparate the management of the conventional lines parallel to newly constructed
Shinkansen lines from the JR companies. Since these conventional lines are unprofitable,
this separation alleviates the financial burden of JR companies, and in general theregional governments are to manage the railways including their finances if they wish tocontinue the operation.
As for expenses of JR companies, the taxes and maintenance fees are included in theabove-mentioned calculations. As such, the scheme is designed so that the operation of
newly constructed Shinkansen lines should not worsen the financial situation of the JR
passenger companies and the burden of the operator would be kept within the limits ofthe benefits received as an operator of new lines (JR East, 2004).
Regarding payment of maintenance costs of infrastructure, each JR passenger company
pays within its own budget. Although both new Shinkansen lines and European railways
form vertically separated structures, the payment of the maintenance costs shows astark contrast. For railways in Europe, an infrastructure manager pays the maintenancecosts, although the amount of usage fees can cover the maintenance costs in somecases. However, in the case of Japan, the infrastructure owner (JRTT) does not pay any
cost for operation and maintenance works of the infrastructure, and received usage fees
are utilised for a part of construction costs of other projects.
The above-mentioned new scheme for constructing Shinkansen line is accepted byconcerned parties, since, in theory, a JR company neither gains nor loses because of the
projects promoted as public works.
4.3

Sections of New Shinkansen Lines

Based on the schemes explained in the above sections, construction work continued evenafter JNR reform. Table 4 shows new segments of Shinkansen lines which have opened
since JNR reform.
Table 4. New Shinkansen Lines Opened Since JNR Reform

Shinkansen Line

Section(Operating Company)

Operating Line
LengthDate of Opening

1a) Tohoku Shinkansen

Tokyo – Ueno
(JR East)

3.6km

20 Jun. 1991

1b) Tohoku Shinkansen

Morioka – Hachinohe(JR East)

96.6km1 Dec. 2002

1c) Tohoku Shinkansen

Hachinohe – Shin-Aomori(JR East)

81.8km4 Dec. 2010

Takasaki – Nagano(JR East)

117.4km1 Oct.1997

3a) Kyushu Shinkansen

Hakata – Shin-Yatsushiro(JR Kyushu)

151.3km

12 Mar. 20113b) Kyushu Shinkansen

Shin-Yatsushiro – Kagoshima-Chuo(JR Kyushu)

137.6km

13 Mar. 2004

2)

Hokuriku Shinkansen

Total length of Shinkansen lines opened after 1987

588.3km

Source: MLIT (2013)

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKIIn addition, the government has already permitted the promotion of other construction
projects, and the following lines are now under construction:
1) Hokkaido Shinkansen: Shin-Aomori – Sapporo (360km)
2) Hokuriku Shinkansen: Nagano – Tsuruga (353km)
3) Kyushu Shinkansen: Takeo-Onsen – Nagasaki (66km)
As for other Shinkansen lines/segments, although the government had planned toconstruct a nation-wide Shinkansen network as mentioned in Section 3.1, it has not yet
permitted promotion of those construction projects.
4.4

New Sections/Lines Financed by JR companies

Besides the above-mentioned scheme, there are other projects which particular JR
companies have been promoting. One of these is the Central Shinkansen Line, promoted
by JR Central, and another is Mini-Shinkansen Lines promoted by JR East.
Central Shinkansen LineThe financial schemes for the Central Shinkansen Line between Tokyo and Osaka arecompletely different from the above Shinkansen lines, and JR Central made a decision to
construct the section between Tokyo and Nagoya utilising its own financial resources. The
technology of the Central Shinkansen is different from other Shinkansen lines; it will
adopt Maglev technology. JR Central has been preparing for the project since thegovernment’s approval of the plan in May 2011 according to the government’s new
Shinkansen line plan.
Mini-Shinkansen Lines
Mini-Shinkansen lines are not covered by the government’s new Shinkansen line plan.
And, as the definition of Shinkansen in Japan stipulates that it does not have a levelcrossing with roads, mini-Shinkansen lines are not categorised as Shinkansen lines.
In order to provide faster service to cities not on the Shinkansen, JR East promoted two
projects with its own finances:
1)

Yamagata Shinkansen (section between Fukushima and Shinjo)

2)

Akita Shinkansen (section between Morioka and Akita)

In these sections, the track gauge was changed from conventional-line 1067mm gauge
to standard gauge, so that trains with standard gauge bogies could run on those lines. JR
East then started through-train services between dedicated high speed lines (which arestandard gauge) and these modified sections by utilising rolling stock of the same carbody size as conventional trains.
As mini-Shinkansen lines are categorised as conventional lines, the Shinkansen statistics
in this paper do not include their data.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Figure 3. Sections Extended Since JNR Reform

In summary, although construction projects of Shinkansen lines were implemented by
JNR utilising interest-bearing loans, railway reform brought about a chance to revise that
scheme, which was then modified so that the government would implement the projects
and pay the construction costs of the infrastructure. Regarding construction of new
Shinkansen lines, the public entity (JRTT) retains the ownership of the infrastructure andforms a vertically separated structure, so that the project does not affect the financial
condition of JR companies.
Based on the above-mentioned schemes, the total Shinkansen operating line length hasreached 2,620 km, and transport volume exceeded 80 billion passenger-km in 2011.
(Figure 4)

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Figure 4. Growth in Line Length and Transport Volume of Shinkansen Lines

Source: Institute of Transportation Statistics (1995), MLIT (2013)

5. CHARACTERISTICS OF TRAIN OPERATION IN JAPAN

5.1

Train Operation before JNR Reform

During the JNR era, JNR in general owned the infrastructure and operated the trains.
Since Shinkansen trains did not run through onto other railways, JNR took all
responsibility of railway operation for all Shinkansen lines: Tokaido, Sanyo, Tohoku andJoetsu.
5.2 Train Operation after JNR Reform
The above-mentioned status changed at the time of JNR reform, and Shinkansen
operation has also been taken over by the respective companies: JR East, JR Central and
JR West. There has been no through-train service between the Tohoku/Joetsu (JR East)
and Tokaido (JR Central) Shinkansen Lines because: 1) many passengers start/terminate
their travel at Tokyo Station; and 2) their electric power supply systems are different. On
the other hand, many trains run through between the Tokaido (JR Central) and Sanyo(JR West) Shinkansen Lines. Since the open of the Kyushu Shinkansen Line in March
2011, through-trains also operate between the Sanyo (JR West) and Kyushu (JR Kyushu)
Shinkansen Lines.
Through-train services yield benefits for passengers, such as the reduction in travel timeby omitting the need to change trains, as well as benefits for the railway companies by

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

reducing terminal congestion for both passengers and trains. As the concerned railways
can achieve these merits without heavy investment in the infrastructure, through-train
services are common in Japan not only on Shinkansen lines but also on conventionallines.
These through-train services are operated in the same way for both Shinkansen trains
and conventional trains in Japan, but in a completely different way from the recent
European international / intercity trains. Thus, the operation of through-train services
reveals one of the most distinct characteristics of train operation in Japan. Accordingly,
this section explains how services are provided between two railway companies.
Briefly, through-train services in Japan are provided by two vertically integrated railways
as outlined in Figure 5. This example shows through-train services between the Tokaido
and Sanyo Shinkansen Lines.
Figure 5. Through-train Services Between Two Railway Companies in Japan

Source: Revised from Kurosaki (2008)

Since JNR reform, the Tokaido Shinkansen Line has been operated by JR Central, and the
Sanyo Shinkansen Line by JR West. Although a number of trains start and terminate at
the border station, Shin-Osaka, the two railway companies, JR Central and JR West,
operate dozens of through-service Shinkansen trains per day.
For through-train services between the two railway companies, for example, a train
owned by JR West leaves its own line and continues on the tracks of JR Central. The fares
paid for travel using JR West’s tracks belong to JR West even if JR West uses JR Central’srolling stock. When JR West uses JR Central’s rolling stock, JR West pays rent-fees forthe rolling stock to JR Central.
This kind of through-train operation is common not only on Shinkansen lines but also on
conventional lines. As the railways arrange for access for other railways’ rolling stock,
before this service begins, the concerned railways negotiate about terms regarding theconditions of access. For example, they have to agree regarding rolling stock design andperformance such as type of car body and bogie, electrical systems, signaling apparatus,

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

train-control systems, weight of rolling stock, passenger capacity, brake performance,
telecommunication systems, and safety measures. The two railways have to keep inclose communication and promote understanding regarding their integrated schedule androlling stock operation to avoid problems and accidents (Kurosaki, 2008).
For through-train services in Japan, the responsibilities in train operation are clearly
separated at the border station, and each railway is fully responsible for train operation
on its own tracks. As a rule, the drivers change at the border station and therefore drive
trains only on their own network. This helps guarantee operational safety, and this kindof measure has become fundamental policy since a serious train accident occurred on the
Shigaraki Highland Railway in 1991. Since this accident, in order to guarantee greater
safety, each railway company has taken measures to more clearly distinguish its own
operational responsibility from that of other railways. Similar to the Shinkansen trains
shown above, most conventional inter-company trains, such as those between two JR
passenger companies and those between a JR passenger company and a private railway,
are operated in the same way (ibid.).
Taking the Shinkansen Lines from Tokyo Station to Kagoshima-Chuo Station for example,
a number of trains operate crossing border stations between JR passenger companies.
Nevertheless, operational responsibilities are clearly separated at the border stations,and each integrated railway company takes responsibility of train operation within its
own network only, as shown in Figure 6.
Figure 6. Operational Responsibilities of the Three Shinkansen Lines

Source: Revised from “Kurosaki and Okuda (2012)”

As discussed in Section 4, vertical separation has been adopted in the sections whichwere constructed since JNR reform. Nevertheless, even in these sections, single railway
company implements all operation, similar to an integrated railway. This integrated train
operation is largely different from the recent case in European railways, where train
operation has been separated into train operators and an infrastructure manager.
Both Shinkansen and conventional trains in Japan have gained a high reputation in termsof safety and punctuality even under conditions of very dense traffic. It should be notedthat through-train services in Japan have been operated as described above, and there isno case of competition on the same track on any railway network in Japan.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

6. CHANGES IN PERFORMANCE AND ITS EVALUATION

6.1

Changes in Transport Volume

As discussed, construction of Shinkansen lines started from the most important trunk linewith heavy congestion and was gradually extended to other outlying cities. Thus, conditionsof transport market vary to a large extent, and transport volume of Shinkansen also differs
between the initial line, the Tokaido Shinkansen Line, and other lines which wereconstructed later.
Figure 7 shows the changes of transport volume (passenger-km) of each line since JNR
reform in 1987.
Figure 7. Changes in Transport Volume on Shinkansen Lines(million passenger-km)
50,00045,00040,00035,00030,00025,00020,00015,00010,0005,000

TokaidoSanyo

TohokuJoetsuH okuriku

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

1991

1990

1989

1988

1987

0

KyushuSource: MLIT (2013), JR West (2013), JR Central (2007; 2013a)

The Tokaido Shinkansen Line, which operates between Tokyo and Shin-Osaka, has thelargest transport volume, and it has increased by 38% in the 24 years since JNR reform.
Although transport volume of the Hokuriku Shinkansen Line, operating between Takasaki
and Nagano, has remained level, all other Shinkansen Lines have increased in traffic
volume since JNR reform or the line’s opening.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

6.2

Traffic Density and Management of the Lines

Table 5 shows traffic density on each Shinkansen Line in 2011. Traffic density(passengers/day) can be calculated dividing transport volume (passenger-km) by theoperating line length (km) and operating days (normally 365 days). As shown, the traffic
density also varies among these lines.
Table 5. Traffic Density of Shinkansen Lines in 2011
(Unit: thousand passengers/day)No.

Name of Shinkansen Line

Traffic Density

1

Tokaido

219.6

2

Sanyo

71.8

3

Tohoku50.8

4

Joetsu39.6

5

Hokuriku

17.8

6

Kyushu17.3

Source: Calculation based on MLIT (2013), JR West (2013), JR Central (2013a)

It is very difficult to practically allocate the company’s expenditure by line. Thus, since JNR
reform, no JR company has publicised the revenue and expenditure by line. Thus, officially,
the profitability of each line is unclear. But, according to Table 5, it is assumed that there
are large differences in the profitability of each Shinkansen Line. In the following, the levelof profitability is to be estimated based on the financial results of the operating company.
Firstly, it is certain that revenue from the Tokaido Shinkansen Line sufficiently covers
operating expenses and depreciation of the assets, as JR Central has been profitable eventhough the company inherited a part of JNR’s debt. As Section 3.3 noted, JR Central alsobought Shinkansen infrastructure assets from SHC, and its long-term debt amounted to
5 456 billion yen in 1991. But, this amount had decreased to 2 615 billion yen by 2012 (JRCentral, 2013b). The smoothness of this financial transition supports the above.
Secondly, it is also certain that the Sanyo Shinkansen Line gains profits with its sufficienttraffic density. When JR West bought Shinkansen infrastructure assets from SHC in 1991
the long-term debt of JR West amounted to 1,595 billion yen. It has decreased to 973
billion yen by 2012 (JR West, 2013). As a number of local lines in JR West are notprofitable, this financial transition shows that the Sanyo Shinkansen Line is profitable
including capital costs and cross-subsidise unprofitable local lines.
Thirdly, regarding the Tohoku and Joetsu Shinkansen Lines, during the JNR era, they were
profitable in operating cost but were not profitable when capital cost was included (JNR,
1985). As transport volume has increased significantly on some sections since then, it isassumed that the profitability has largely improved as well. In terms of the financial changeof JR East, which operates Tohoku and Joetsu Shinkansen, its long-term debt amounted to
5 378 billion yen when the company bought the assets of two Shinkansen Lines in 1991.
Then, the debt had decreased annually and amounted to 3 425 billion yen in March 2012.
Nevertheless, JR East operates a profitable network of Tokyo metropolitan area, and theoperation of these conventional railways also contributes to the profits of the company.
Thus, different from JR Central and JR West, above-mentioned financial transition does notnecessarily verify that the two Shinkansen lines cover the capital costs. In addition, since
the line provides long distance inter-city transport services, covering 714 km in the Tohoku

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Shinkansen Line and 304 km in the Joetsu Shinkansen Line, the level of traffic density ofeach section varies to a large extent as the following section shows. Thus, it is possible thatthe lines still have some unprofitable sections on which are difficult to cover the capitalcosts.
The level of traffic density of the Hokuriku and Kyushu Shinkansen Lines is less than half ofthat of the Joetsu Shinkansen Line, and it is not quite certain whether the operation ofthese lines covers the capital costs through the revenue. But, passengers on Shinkansen
lines usually transfer to conventional lines, and the increase in ridership contributes to the
profit of other lines. In addition, JR companies are active in promoting non-rail businesses
such as real estate development around stations, operation of hotels and shopping centerin their station buildings, etc. Passenger increase is also beneficial for promoting these nonrail businesses. Thus, it is possible that the operating company can report a profit withthese related businesses. It is worth noting that the scheme, which was explained in
Sections 4.1 and 4.2, is not designed so that JR companies should cover capital costs inthese lines, as JRTT had invested into the infrastructure and retains it.
6.3

Changes in Traffic Density by Sections: A case of JR East

JR East operates the Tohoku, Joetsu and Hokuriku Shinkansen Lines, and it publicises thelevel of traffic density of each section.
Figure 8 shows that they are largely different according to the distance from Tokyo. It isclear that the sections closer to Tokyo have larger traffic.
Figure 8. Traffic Density of the Tohoku Shinkansen Line
(Passengers / day)

180,000
160,000
140,000
120,000
100,000
80,00060,00040,00020,000

20078) Hachinohe- Shin-Aomori

20027) Morioka- Hachinohe

19976) Ichinoseki- Morioka

5) Sendai- Ichinoseki

19924) Fukushima- Sendai

19873) Utsunomiya- Fukushima2) Omiya- Utsunomiya

1) Tokyo- Omiya0

2012

Source: JR East (2013)

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Table 6 examined how the traffic density of each section has increased from 1987 to 2012.
It shows that the sections closest to Tokyo have increased in ridership much more than theother sections further from Tokyo.
Table 6. Increase of Traffic Density of the Tohoku Shinkansen Line
1987 to 2012
Section between Station (A) and Station (B)No

Increase of Traffic Density from1987 to 2012

Station (A)Station (B)Distance to Station (B)from Tokyo Sta.
(approximate time) *1

Increase of Traffic
Density(passengers/day)

1

Tokyo

Omiya

30 km (0.4H)

59 556

59.5

2

Omiya

Utsunomiya

110 km (0.8H)

38 48953.1

3

Utsunomiya

Fukushima

273 km (1.6H)

22 17337.7

4

Fukushima

Sendai352 km (1.7H)

17 17438.2

5

SendaiIchinoseki

445 km (2.3H)

8 495

28.0

6

Ichinoseki

Morioka

535 km (2.5H)

7 995

34.3

7

Morioka

Hachinohe

632 km (3.1H)

14 758

8.9 *28

Hachinohe

Shin-Aomori

714 km (3.2H)

9 453

-

Increase
Rate (%)*1: Travel time varies depending on the types of trains.
*2: This figure is the increase rate since the first days after opening.
Source: Calculation based on JR East (2013) and JR Group (2013)

In the same way, Figure 9 shows traffic density of the Joetsu Shinkansen Line (by section)and the Hokuriku Shinkansen Line.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Figure 9. Traffic Density of the Joetsu and Hokuriku Shinkansen Lines(Passengers / day)
100,000
90,00080,00070,00060,00050,00040,00030,00020,00010,000

1987

1992

1997

2002

4) Takasaki-Nagano- Niigata3) EchigoYuzawa

2) Takasaki- EchigoYuzawa

1) Omiya- Takasaki

0

2007

2012

Source: JR East (2013)

Figure 9 shows that the section closer to Tokyo, between Omiya and Takasaki, on the
Joetsu Shinkansen Line has more ridership than the other sections further from Tokyo.
Table 7, which shows the changes in traffic density of each section, also indicates that thesection closer to Tokyo has increased its traffic density largely. As opposed to this, thesections further from Tokyo lessened their traffic density during the years as shown in thesegment between Echigo-Yuzawa and Niigata in the Tohoku Shinkansen Line and thesegment between Takasaki and Nagano in the Hokuriku Shinkansen Line.
Table 7. Increase of Traffic Density of the Joetsu and Hokuriku Shinkansen Lines(1987 to 2012)
Section between Station (A) and Station (B)No

Increase of Traffic Densityfrom 1987 to 2012

Station (A)Station (B)Distance to Station (B)from Tokyo Sta.
(approximate time) *1

Increase of Traffic
Density(passengers/day)

1

Omiya

Takasaki

105 km (0.8H)

41 826

94.1

2

Takasaki

Echigo-Yuzawa

199 km (1.2H)

208

0.6

3

Echigo-Yuzawa

Niigata

334 km (2.0H)-3,224-13.7

4Takasaki

Nagano222 km (1.4H)-3,430-15.6 *2

Increase Rate (%)*1: Travel time varies depending on the types of trains.
*2: This figure is the increase rate since the first days after opening.
Source: Calculation based on JR East (2013) and JR Group (2013)
Fumio KUROSAKI — Discussion Paper 2013-27 — © OECD/ITF 201319

SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKIThe above statistics clearly show that the section closer to Tokyo metropolitan area not
only has large transport volume but also has been increasing its ridership further since
opening of the lines.
In relation to this change, Figure 10 shows the average number of Shinkansen commuting
passes sold in a month, and the figure shows that the number has been increasing steadily.
Railways, including high-speed railways, have significant external effects such as increasing
the land values along the lines. This means that people prefer to live around stations, andrailway lines serve to develop residential/commercial areas around stations. The increase of
the Shinkansen commuting passes sold, shown in Figure 10, provides evidence that
Shinkansen has expanded the commutable area especially around metropolitan areas.
Figure 10. Average Sale of Shinkansen Commuter Passes Per Month **: The statistic shows the number of commuters.
A pass valid for three months is counted here as three one-month passes.
Source: MLIT (2013)

6.4

Evaluation of the Performance with Conventional Railways

This section compares the performance of Shinkansen Lines with conventional lines in each
JR passenger company. Figure 11 shows 1987 and 2011 revenues from Shinkansen andconventional lines in the three companies.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

Figure 11. Changes in Revenue from Shinkansen and Conventional Lines

Source: JR East (2012), JR Central (2013a), JR West (2013)

Figure 11 shows that the revenue from Shinkansen Lines has increased to a large extent inall the three companies since the establishment of the companies in 1987. It is worth
noting that JR Central and JR West have attained the increase without extending new
segments of Shinkansen lines since 1987. In addition, the increase in Shinkansen lines is incontrast to the situation on the conventional lines, where revenues have been stable orshow a slight decrease.
As a result of these changes, the Shinkansen share of the total revenue has also increased
in all the three companies. Table 8 shows the change in the share of Shinkansen lines’
revenue in total transport revenue in each company.
Table 8. Share of Revenue and Rolling Stock Kilometers of Shinkansen Operation
Shinkansen Share ofTransport Revenue *1

Shinkansen Share of
Rolling Stock Kilometers *2

1987

2011

2011

JR East

22%

28%

20%

JR Central

87%

91%

81%

JR West

42%

46%

37%

*1: Shinkansen revenue / total transport revenue*2: Shinkansen rolling stock kilometers / total rolling stock kilometers
Source: Calculation based on JR East (2012), JR Central (2013b), JR West (2012; 2013)

To compare the effectiveness of Shinkansen operations, Table 8 also listed the share of
Shinkansen’s rolling stock kilometers compared with total rolling stock kilometers. It showsthat the share of revenue is higher than the share of rolling stock kilometers in terms of
Shinkansen operation of each company. This means that if rolling stock km is taken as thebasic unit, a unit of Shinkansen operation brings in more revenues to the company than aunit of conventional train operation.

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SHINKANSEN INVESTMENT BEFORE AND AFTER JNR REFORM – FUMIO KUROSAKI

The results of this section show that, despite the severe competition from other transportmodes, Shinkansen operation retains its competitiveness and has been increasing its
transport volume, especially in the segments close to metropolitan areas. In terms of therevenue per rolling stock kilometer, Shinkansen operation is a better revenue earner thanconventional train operation.

7. CONCLUSIONSHigh speed railway system, initially introduced by JNR in 1964, has been extended and now
covers most of Japan. As JNR was reformed in 1987, the schemes for construction andoperation were also modified accordingly. At present, the construction of the system isimplemented as a public works project, and it is mostly financed by the public sector
without adversely affecting the financial situation of each railway company.
Although the operation has been divided into independent companies, many Shinkansen
trains are operated smoothly over tracks of two of these companies. Although the new
segments constructed since JNR reform have a vertically separated structure, each railway
company controls its entire system. This is also the case for the operation of through-train
services crossing the borders between companies. This way of train operation is in stark
contrast to the recent European railway operation.
It is true that Shinkansen operation has large impacts on the social and economic
development. For example, it provides economic benefits such as raising real estate value,easing highway congestion, stimulating job creation, etc. In order to evaluate theeffectiveness of the project, it is of course necessary to include these social and economic
benefits.
But, to narrow the focus, this paper primarily discussed Shinkansen’s effects on theoperating companies. The paper examined the changes in transport on each Shinkansenline opened so far, and found that the traffic density of Shinkansen lines varies to a large
extent depending on the lines and segments.
Since it is difficult to allocate the overhead expenses, each JR company does not publicise
the profitability of each line. Thus, based on the financial change of the companies, thisstudy tried to evaluate the financial effects of Shinkansen operation depending on its traffic
density.
The study also showed that Shinkansen transport is competitive against other transportmodes and is increasing its transport revenue by a much higher rate than conventionallines operated by those railways. Along with the increase of the inter-city passengers asshown in the Tokaido and Sanyo Shinkansen Lines, the number of Shinkansen commuters
has been also increasing especially around Tokyo metropolitan area. Owing to its
competitiveness, the share of revenue brought from Shinkansen operation has been
increasing in those railway companies in Japan.

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