Rail Freight Problems in Japan: Accessing Track Challenges - ITS Research Seminar

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

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

Separation and Privatization of JNR 3

Background of Separation and Privatization of JNR 1960 s Development of mortorization Inefficient operation as Public body Labor dispute (strike, sabotage) 1970 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 1987 Separation and Privatisation of JNR c.f. UK Railway privatisation in 1997 4

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

Comparison of National Railway Separation/Privatization JNR BRB Passenger Train A Passenger Train A Passenger Train B Passenger Train C Passenger Train B Passenger Train C Freight Train A Freight Train B Freight Train A Freight Train B .. .. .. .. Rail Track Rail Track TOC A TOC B TOC C FOC A FOC B Freight Company Passenger Company A Passenger A Passenger Company B Passenger A Passenger Company C Passenger A Passenger Company D Passenger A Passenger Company E Passenger A Passenger Company F Passenger A . . access access Network Rail access 6

Current state of rail freight in Japan 7

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

High Density Area Sapporo Nagoya Fukuoka Tokyo Osaka 9 1,000km

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

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

Rail freight Transport Volume Comparison between Japan and UK Freight lifted (million ton) Freight moved(billion ton-km) 110.5 21.1 22.2 44.1 Coal (43.5) Freight trains in Japan are operated on long distance Coal trains in U.K. are operated on short distance 12

Goods transported by rail freight Chemical drugs 1% Coal 1% Metallic minerals 1% Other 4% Other 8% Lime stone 2% International 3% Cement 2% Oil and Pertoleum 5% Coal 29% Petroleum products 21% Metals 8% Intermodal 68% Construction 18% Intermodal 29% Sorted by ton Sorted by ton-km 13

Rail freight problems in Japan (Overall sorting out the problems) 14

Needs for Rail freight and actual condition Background Truck driver shortage Environment problem Traffic congestion Traffic accident (especially dangerous goods transport) External cost happen 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 The policies don t work (They are in trouble) However government actions don t achieve the shift 15

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

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 17

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 18

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

Passenger companys behaviors 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 20

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

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

Freight Train Commercial transaction Access pay access charge between passenger company and freight company Passenger Train Rail Truck managed and owned by Passenger Company Government don t touch the problem regarding truck access (Government regard the access as commercial transaction) 23

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

Freight companys standing 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 25

Track access Comparison between Japan and UK Passenger companies (Private company) Network Rail (Public Body) Rail Track Owner Relationship between Freight company and Rail Track Owner Competition (for using same rail rack) Freight company is in disadvantageous position Complementary MC Freight train Access Charge MC (Passenger: MC+/-) Government don t want to touch Rail track issues Government(ORR) solves conflict Response for conflict 26

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

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 28

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 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 29

Current Study 30

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 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 31