Shigeki Oxawa is Associate Professor at the Department of Integrated Informatics, Daido University and part-time Lecturer in Transport Economics at Hosei University. He is a transport economist with a strong interest in transport policy. He is currently an academic visitor at Leeds University (April 2016-March 2017) working in the area of intermodal transport (with a focus on rail freight transport) and in turn track access charges. Abstract: In the national railway revolution in Japan, the passenger division was divided into 6 companies by regions. They operate trains and own/manage the rail track (vertical integration system). On the other hand, vertical separation was introduced into freight companies, therefore, freight companies have to access rail track owned/managed by passenger companies. The Japanese regulator regards track access transactions between passenger companies and freight companies as private business. In the vertical separation system, freight companies cannot get access to the slots required and efficient allocation of rail track cannot be achieved. The vertical separation is a very significant issue in railway policy and freight transport policy in Japan. In the presentation, causes and possible solutions to the issue will be shown. Shigeki is Associate Professor at the Department of Integrated Informatics, Daido University and part-time Lecturer in Transport Economics at Hosei University. He is a transport economist with a strong interest in transport policy. He is currently an academic visitor at Leeds University (April 2016-March 2017) working in the area of intermodal transport (with a focus on rail freight transport) and in turn track access charges. He has 20 years of experience in research and teaching.

1. Rail freight problem in Japan
- Difficulty accessing for rail track -
Shigeki Ozawa
1
ITS Research Seminar (1st December 2016)

2. Agenda
■ Separation and Privatization of Japanese National Railways(JNR)
■ Current Sate of Rail freight transport in Japan
■ Problems of Rail freight transport in Japan(sorting out the problems)
■ Rail freight problems caused by track access (problems in Railway industry)
+
■ My current study
2

3. Separation and Privatization of JNR
3

4. ■Development of mortorization
■Inefficient operation as Public body
■Labor dispute (strike, sabotage)
1960’s ～
■High fee
(repeated fee increase: 1974, 76, 78～82, 84～86)
■Bad service
(rolling stock, delivery service, attitutes of empoyees etc.)
Big deficit as serious social problem
1970’s ～
1987
Separation and Privatisation of JNR
c.f. UK Railway privatisation in 1997
Background of Separation and Privatization of JNR
4

5. Japanese National Railways
(JNR)
・ Hokkaido Railway Company
・ East Japan Railway Company
・ Central Japan Railway Company
・ West Japan Railway Company
・ Shikoku Railway Company
・ Kyushu Railway Company
・ Japan Freight Railway Company
Separation and Privatization of JNR
Separation
by region
5

6. FreightCompany
PassengerAPassengerCompanyF
PassengerAPassengerCompanyE
PassengerAPassengerCompanyD
PassengerAPassengerCompanyC
PassengerAPassengerCompanyB
PassengerAPassengerCompanyA
access Network Rail
TOCA
TOCB
TOCC
FOCA
FOCB
…. ….
access access
Rail Track Rail Track
JNR BRB
Comparison of National Railway Separation/Privatization
6
PassengerTrainA
PassengerTrainB
FreightTrainA
….. …..
PassengerTrainC
FreightTrainB
PassengerTrainA
PassengerTrainB
FreightTrainA
….. …..
PassengerTrainC
FreightTrainB

7. Current state of rail freight in Japan
7

8. Rail Freight Network
Rail Freight Network Length
83,473km
8
UK Railway Network Length
16,423km
(source:IBRD)

9. High Density Area
TokyoOsaka
Nagoya
Fukuoka
Sapporo
9
1,000km

10. Domestic Freight Volume in Japan
10
0
100 000
200 000
300 000
400 000
500 000
600 000
700 000
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Air
Truck
Rail
Ship
Million Ton-km

11. ton
over
Truck
Ship
Rail
Modal share by distance in Japan
11

12. Rail freight Transport Volume Comparison between Japan and UK
⇒ Freight trains in Japan are operated on long distance
⇒ Coal trains in U.K. are operated on short distance
Freight moved(billion ton-km)Freight lifted (million ton)
22.221.1
44.1
110.5
Coal
(43.5)
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13. Goods transported by rail freight
Intermodal
68%
Intermodal
29%
Petroleum
products
21%
Coal
29%
Construction
18%
Metals 8%
Oil and Pertoleum
5%
International 3%
Other 8%
Cement 2%
Lime stone 2%
Metallic minerals 1%
Coal 1%
Chemical drugs 1%
Other 4%
Sorted by ton Sorted by ton-km
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14. Rail freight problems in Japan
(Overall sorting out the problems)
14

15. Needs for Rail freight and actual condition
15
Government have tried to shift truck to rail
- Subsidy for rail facilities, new transport with rail freight
- Interest subsidy for rail facilities
- Preferential tax treatment for rail facilities
However government actions don’t achieve the shift
■ Truck driver shortage
■ Environment problem
■ Traffic congestion
■ Traffic accident (especially dangerous goods transport)
The policies don’t work
(They are in trouble)
Background
External cost happen

16. Problem outsideof railway
Disadvantage of rail freight as compared with truck
Causes
○Characteristic of rail freight transport
・Higher rate in case of small amount and short distance
・Train operation in specified time and section
(difficulty making flexible response)
・Difficulty for recovering traffic incident
・Necessity for corporation with truck transport
○Poor infrastructure (handling station, access road to handling
station, freight yard, evacuation track, handing machine）
○Inadequate container or swap body(not to meet needs
(capacity, figure, damage avoidance) of shippers
○Regulation(entry/exit, fare, truck transport)
○Original rule and Common practice in railway
(lot, unit, separated fare）
○Train operation by monopoly (Barrier for efficiency and cost
reduction)
○Competitive relationship between rail freight company and
forwarding company (poor sales power)
○High employment cost and large number of labor
○International Border (inconsistent of standard, system,
regulation and low)
Problem areas
□Higher track access charge
□Unstable rule to make track access charge low
□Difficulty to prove trains to meet shipper’s
demand (Passenger trains have a high priority)
□Lack of Incentive for improving efficiency
Problem areas
□Higher rate
□Longer transit time (lead time)
□Worse transport qualities (damaged shipment)
□Lack of trains to meet shipper’s demand(time zone, section)
□Unstable train operation (delay, poor response to recover
after rail incident)
Causes
○High access charge for freight train
(unbalance between freight train and passenger train)
○Fixed slots (time table)
Absent of adjustment and arbitration system
○ Adversarial relationship between train operators or
between train operators and infrastructure manager
○No competitor in rail freight haulage market
Problem insideof railway
Problem between train operators or
between train operator and infra-manager
Possibility of shifting to rail freight
Non/poor shift from truck to rail freight
□Small amount transport
□Short distance transport
□Adhock transport demand
□Characteristic of freight
No possibility
of shifting
to rail freight
Summary of the points for not developing rail freight transport
Problems of road transport
-Barriers to increase road
Transport-
■Traffic regulation
-Noise regulation
-Environmental regulation
(Exhaust gas regulation)
-Congestion regulation
■Charging for highway
■Bottle neck
-Geological condition
-Weather
■Shortage of driver
Red.：especially happed in Europe
Purple.：especially happed in Japan
Railway industry
issue
Intermodal
issue
16

17. 17
Problem inside of railway
Problem between train operators or
between train operator and infra-manager
Problem areas
□Higher track access charge
□Unstable rule to make track access charge low
□Difficulty to prove trains to meet shipper’s demand
(Passenger trains have a high priority)
□Lack of incentive for improving efficiency
Purple.：especially happed in Japan

18. 18
Problem inside of railway
Problem between train operators or
between train operator and infra-manager
Causes
○High access charge for freight train(unbalance between freight train and passenger train)
○Fixed slots (time table)
- lack of adjustment and arbitration system
○Adversarial relationship between train operators or between train operator and
infrastructure manager(rail track owner)
○No competitor in rail freight haulage market

19. Parcel Companies (e.g. YAMATO, SAGAWA) want to increase rail freight transport
especially between Tokyo and Fukuoka (ca. 1,000km)
Over 1000km transport………
- Truck driver shortage
- Carriage Cost
- Affordance of transport time (2 days-later deliver is allowed over 1000km move)
Developed Parcel service in Japan
- within 1000km area, we can send parcel by next-day delivery with cheaper price
However they cannot do it, because of capacity constrain
(Freight company can not increase the number of freight trains)
Rail freight demand increase in parcel industry
19

20. Passenger companies refuse the request from freight company
↑
Because passenger company don’t want to give up their
capacity to freight company and wants to do railtrack
maintenance work on their convenience schedule
(⇒Passenger company seeks for their profit maximization)
Gap between passenger company’s profit maximization
and social benefit maximization
⇒Market failure
⇒Need for government intervention
Passenger company’s behaviors
20

21. Rail freight problem regarding track access in Japan
(problems inside rail industry)
21

22. Track access rule(condition)
■Track access charge : incremental cost (=MC)
■Rail track is owned/managed by passenger companies
■Passenger companies and freight company are competitor for using same rail
■Rail track use is regarded as commercial transaction
（Government don’t want to touch the use)
Freight company cannot take slots required
Capacity (slot) is not allocated efficiently
- High willingness to pay is ignored
- It is impossible to make policy with access charge and slot allocation
(lack of opportunity to take slot)
Government intervention is required for efficient capacity allocation 22

23. Passenger
Train
Freight
Train
Rail Truck managed and owned by Passenger Company
Access
pay access charge
Government don’t touch the problem regarding truck access
(Government regard the access as commercial transaction)
Commercial
transaction
between passenger company
and freight company
23

24. Passenger
Train
Freight
Train
Rail Truck managed and owned by Passenger Company
Access
pay access charge
Government don’t touch the problem regarding truck access
(Government regard the access as commercial transaction)
Commercial
transaction
between passenger company
and freight company
Reject !
Freight trans can
not be increased,
despite of big demand
×
24

25. Freight company is in disadvantageous position……….
■ there is no “appeal” system (no arbitration body)
■ Rail track is essential capital for freight company (Hold-up problem)
■ Passenger companies ask freight company to pay much access charge
if freight company get much profit (lack of incentive to maximize profit)
■ Freight company has fear of “tit-for-tat” from passenger companies
Freight company’s standing
25

26. Rail Track Owner
Passenger companies
(Private company)
Network Rail
(Public Body)
Relationship between
Freight company and
Rail Track Owner
Competition
(for using same rail rack) Complementary
Freight train
Access Charge
MC
MC
(Passenger: MC+/-)
Response for conflict
Government(ORR)
solves conflict
Government don’t want to
touch Rail track issues
Freight company is in
disadvantageous position
26
Track access Comparison between Japan and UK

27. Needs for government intervention (Limit of market mechanism )
- Access charge can’t achieve efficient slot allocation-
■ Difficulty to set access charge by Social Marginal Cost (SMC)
- Difficulty to calculate SMC (SMC changes by time and place)
- Information asymmetry between government and rail track owner
■Limit of auction
-Needs for many auctions
(one train concerns many other trains because railway is network)
- Information asymmetry between incumbent operator and new comers
- Endowment effect, IKEA effect (incumbent has much higher WTP)
27

28. 28
Needs for government intervention (Limit of market mechanism )
- Access charge can’t achieve efficient slot allocation-
■Limit of transaction between operators
- Supply monopoly happen due to no substitute
- Slots are captured for the purpose of speculation
- Slots are captured for the purpose of obstruction for competitor
- Information asymmetry between seller and buyer
- Transaction cost happen
- Endowment effect, IKEA effect (incumbent has much higher WTP)
- WTP difference depend on scale of operators

29. Sorting out problems (as Conclusion)
■Access charge is set by MC, but freight company can’t take slot required
- Passenger companies have high priority to use rail track
- Market mechanism does not work in rail track use in Japan
- Freight company’ position is weak (Hold-up problem etc.)
■There is no opportunity to appeal for government and no arbitration body
(Government don’t want to touch rail capacity problems)
● Efficient slot allocation is not achieved
● Current cconditions prevent new entry
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■ Rail freight (freight company) could be victim of passenger rail prosperity
- Government intervention is needed to develop rail freight in Japan
■ Lack of combination between railway policy and intermodal policy
- Railway reform has not been completed yet

30. Current Study
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31. Meaning of study British rail freight policy
ORR has been trying to achieve efficient slot allocation
↓
Until now, slot allocation and access charge in main line have been treated
in academic area. However, slot allocation in freight terminal has not been treated
↓
With studying slot allocation in freight terminal, we can see and consider
“true/actual” efficient slot allocation of freight train and rail freight policy
Motivation of current study
Considering that Japanese government don’t concern with slot allocation of
freight trains……….
I would like to know:
- how ORR try to achieve efficient slot allocation
- how ORR take care for freight trains in slot allocation
- what kind of help does ORR provide for freight trains
31