Smith shakes his head. “I tell you, it’s a hell of a way to run a railroad.”
John Goff is technology editor at CFO.
A Model Train?
In announcing the Administration’s free-market vision of Amtrak, Secretary of Transportation Norman Mineta attempted to debunk the notion that passenger rail service cannot be a moneymaker. “I just returned from a trip to Asia, where I saw firsthand how the Japanese have transformed failed passenger rail into a model of efficiency.”
Indeed, critics of Amtrak often cite Japan’s system — which features six private operators — as an example of train service done right. But while Japan’s sleek bullet trains are impressive (and mostly on time), admirers ignore some salient details.
First, when Japan’s government privatized the country’s national rail service in 1987, it assumed nearly $300 billion in legacy debt — or roughly 4 percent of the country’s gross domestic product. In addition, the government offers tax breaks to rail commuters and encourages train travel by imposing sizable taxes on gasoline. Further, freight carriers in Japan are not allowed to use the busiest part of the network during business hours. By contrast, Amtrak’s trains compete with cargo carriers on the vast majority of rails the carrier traverses. Also important: passenger trains in Nippon travel relatively short distances between densely populated urban centers — a far cry from the 13 long-distance lines Amtrak operates.
So, are Japan’s intercity passenger trains truly profitable? Depends on your definition. The government still invests in the rail network, relieving operating companies of a large expense. Moreover, the double-digit earnings reported by some of Japan’s passenger services are above the rails — meaning they don’t include such things as amortization of fixed costs. In 2004, depreciation and debt servicing totaled $852 million at Amtrak. The railroad’s total loss? Just north of $1 billion. — J.G.