East Japan Railway Company - Company Profile, Information, Business Description, History, Background Information on East Japan Railway Company

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History of East Japan Railway Company

East Japan Railway Company (JR East) is the largest passenger railway company in the world. Approximately 16 million passengers travel on its 4,665-mile network each day. The company operates a five-route shinkansen, or bullet train, that travels between Tokyo and the eastern mainland of Japan. While transportation accounts for the majority of JR East's sales, the company is also involved in real estate, advertising, publicity, hotel operations, information services, housing development, construction, car rentals, and credit card services. JR East was once a government-owned entity; it became fully privatized in 2002.

Early History

East Japan Railway Company was the largest of the six regional passenger companies into which Japan's state-owned railroad company, Japan National Railway, was divided in April 1987. Japan's railroad first began as a national railroad, since at the beginning of the Meiji Restoration no other organization could finance such a large project. The first railroad, opened in September 1872, ran from Shimbashi, west of Tokyo, to Yokohama in Kanagawa Prefecture, the main port near Tokyo. It was 23.8 kilometers long, with a gauge of 1,067 millimeters. To finance its construction, the Japanese government raised £1 million in London by issuing bonds through the Oriental Bank.

British engineers such as Edmund Morel, John Diack, and John England supervised the line's construction, giving advice to the Japanese government on railroad management and technology. Most of the materials and machines were brought from Britain as well. The British engineers were paid high salaries; for instance, the foreign general manager in the railroad office earned ¥2,000 per month, whereas the highest-ranking minister in the Japanese government earned only ¥800 per month. Most of the foreign railroad engineers left Japan by the end of the 1880s. The Japanese had learned enough about railroad construction and management from the British, and Japanese government-sponsored students of modern railroad technology had returned home from Britain to apply their expertise to domestic railroad construction.

One of these students was Masaru Inoue, who had studied civil engineering and mining at University College in London. He was invited to participate in the construction of the first Japanese railroad, and as head of the ministry of transport took the lead in railroad construction and in forming Japanese railroad policy. He was responsible for the government's decision to build all the railroads itself, but soon realized the difficulty of funding the project. Economic problems and a shortage of government funds meant that the construction of private railroads had to be permitted, though the government provided subsidies and other assistance.

The first and largest private railroad was the Nippon Railroad, operating between Ueno, Tokyo, and Aomori, the largest city in the north of Japan's main island. The Nippon Railroad was financed mainly by the daimyo, or nobles, who had received compensation from the government for losing their former status at the time of the Meiji Restoration. The first stretch of the railroad opened in 1883, and its success induced the railroad boom from the end of the 1880s. As a result of the boom in railroad construction, the total length of the private railroad soon came to exceed that of the national railroad by a considerable margin: in 1905, the mileage of the private railroads attained 5,282 kilometers, compared with the national railroad's 2,414 kilometers.

Private Railroads Are Nationalized: 1906

There was a lobby in the Japanese government for the nationalization of the private railroads. After the Russo-Japanese War, the military powers were especially anxious to nationalize major private railroad companies to facilitate through-traffic on all trunk lines, particularly in the event of an emergency such as war. Much discussion took place in the Diet, and there was strong opposition from the private railroad shareholders.

In 1906, 17 private railroad companies were nationalized as Kokuyo Tetsudo or Japan National Railway (JNR). The financial compensation paid to the private shareholders was equal to approximately double the paid capital. From the national economic viewpoint, the nationalization of the railroads made it possible to mobilize assets into other heavy industries. About ¥450 million--equal to about two-thirds of Japan's industrial, mining, and transport assets in 1907--were paid in the form of national debt to shareholders, who converted it into cash and invested it in other key industries. As the result of the nationalization, the government controlled 4,833 kilometers including unopened lines, 1,118 locomotives, 3,067 passenger carriages, 20,884 freight carriages, and 8,409 employees. The national railroad's share of transport increased drastically from the pre-nationalization level of 32 percent to 90.9 percent, in terms of lines in operation. In terms of passengers per kilometer and tons per kilometer, the national railroads had 83.8 percent and 91.4 percent of the total respectively, compared with 37.7 percent and 29.4 percent before nationalization. The national railroad had gained a monopoly in land transportation.

Accordingly, the management structure had to be changed. In 1907 Tetsudosagyo-kyoku (the Railroad Bureau) was reorganized to become Teikoku Tetsudo-cho (the Imperial Railroad Department), and in 1908 the latter was placed under the direct control of the Cabinet, changing its name to Tetsudo-in (the Railroad Ministry). Tetsudo-in was composed of five Control Divisions: Hokkaido, Tobu, Chubu, Seibu, and Kyushu. These divisions had a certain degree of autonomy.

The first president of Tetsudo-in was Shimpei Goto, who had been president of the South Manchuria Railroad for about three years. He established Kokutetsu Dai Kazokushugi (JNR familism), an ideology designed to unify a staff of about 90,000 into a kind of family, bringing together numerous employees who had belonged to various private railroad companies.

Goto also made efforts to change from narrow gauge--10.67 centimeters--to standard gauge--14.35 centimeters, though almost all the private and national railroads had adopted the former. It is not clear why the Meiji government had originally adopted narrow gauge, but Shigenobu Okuma, who had negotiated with the British over the introduction of the railroad system into Japan, remarked that the government had not foreseen the kind of problems that would be incurred as a result of its choice of gauge. The British engineers' recommendation of narrow gauge had been based on Japan's economic climate at that time. Goto wished to increase traffic capacity by widening the gauge. However, there was strong opposition to the change from the military powers. In the end, the government chose to extend the railroads rather than widen the gauge. Japan National Railway had to wait until the introduction of the Shinkansen (Bullet Train) in 1964 for its conversion to standard gauge.

In 1910 Japan had 7,838 kilometers of railroad; by 1930 it had increased to 14,574 kilometers. The national railroad was, however, easily affected by the politicians who promoted the construction of lines in certain regions in order to win local support, regardless of profitability.

Japan National Railway increased the amount of passenger and freight traffic from the mid-1910s to the 1920s. Forty-five million tons of freight were transported in 1916, as opposed to eighty-one million tons in 1926. In 1916 the number of freight carriages was about 43,000, increasing to about 60,000 in 1926. However, from the latter part of the 1920s, especially during the Great Depression from 1929, JNR's freight transport growth was slow, with a 17 percent increase from 12.5 billion tons per kilometer in 1926 to 14.5 billion tons per kilometer in 1935, a sharp contrast to the freight traffic growth rate of 79 percent in the 11 years from 1916 to 1926. Passenger traffic was similarly affected. In the 1910s and 1920s, passenger numbers had increased rapidly, especially season ticket holders, as workers tended to commute by train from the expanding suburbs. In the latter part of the 1920s JNR faced increasing competition from motor vehicles. In 1930 JNR's freight traffic revenue in the 50-kilometer range fell by 41 percent owing to competition from trucks. As for passenger transport, JNR faced competition from bus services for short-distance journeys of between five and 20 kilometers. Urban transport was gradually taken over by private and municipal electric trams and private electric railroads, and by the subway system, which first opened in 1927. However, JNR still held a strong position and its business flourished, especially long-distance transportation. It also launched bus services, connecting with railroad stations, in 1930. Bus services acted as feeders for the railroads as well as replacing railroads in areas where the demand for transport was not strong, but some form of transport was essential.

The development of civil and mechanical engineering was an important part of JNR's history, culminating in high-technology systems such as the Shinkansen. The construction of early railroad lines was undertaken by Japanese civil engineers, though initially under the guidance of British engineers. By 1880, however, the time of the Kyoto-Otsu project, Japanese engineers were able to carry out all types of construction, including a tunnel of 18 kilometers.

JNR was also able to manufacture rolling stock at an early stage, first by importing the main parts and later obtaining them from Japanese suppliers. Passenger and freight carriages were relatively easy to manufacture, compared to locomotives. At the beginning of the 1880s, almost 100 percent of passenger carriages and freight cars were manufactured in Japan. By contrast, most of the locomotives were initially imported from Britain, but from the 1890s American locomotives were introduced, mainly in Hokkaido, in the north of Japan's main island, and German locomotives in Kyushu, south of the main island. The dominance of British locomotives was gradually eroded by these newcomers.

It took some time for Japanese engineers to master locomotive manufacturing. The first domestic-built locomotive was made in 1893 under the guidance of Richard Trevithic, a grandson of Richard Trevithic, one of the pioneers of British railroad engineering. As the length of lines and volume of transport increased, the number of Japanese-produced locomotives grew as Japanese familiarity with Western technology increased, especially through maintenance and repair. The nationalization of the railroads promoted the growth of the indigenous locomotive industry, because at the time of nationalization 147 types of locomotives from different countries and different manufacturers came under government control. It proved difficult for the government to combine these in one system. By 1912, Japanese factories had produced 162 locomotives and JNR ceased to import locomotives. At that time, 6.7 percent of the total locomotives available at that time were Japanese-made. Between the wars, Japanese factories gradually increased the locomotive manufacturing capacity. Japanese locomotives performed well, even in comparison with western locomotives.

The early introduction of electricity to the railroads indicated the formation of a technocratic element in JNR. Electrification was urgently needed to increase speed and capacity. Around the end of the 1910s, high coal prices became another reason for accelerating electrification. The electrification of the lines was largely restricted to urban areas and some hilly areas such as Yokokawa. By 1935 JNR had electrified 579 kilometers of its lines, but this was only about 4 percent of its total track length. The private railroad companies were more active in converting from steam to electricity because they were more innovative, operating in urban areas over relatively short distances. Generally speaking, JNR's profitability increased along with freight volume.

In World War II, JNR buildings and lines sustained heavy damage and JNR was under strong pressure from the government to cooperate in military transportation. During the war JNR lost 10 percent of its rolling stock, including 891 locomotives, about 14 percent of JNR's total. About 20 percent of JNR's buildings, including stations and warehouses, were destroyed, and 1,600 kilometers of track were damaged, about 5 percent of the total. 65 percent of the tonnage of ships owned by JNR was lost. About ¥1.8 billion was estimated lost as the result of war damage.

Postwar Changes

Following the war, JNR had to rebuild its transport facilities and begin to reform its management structure, including its relations with the government. During the occupation period, JNR was under the control of the Railway Transportation Office of the 3rd Transportation Military Railway Service of the U.S. army, but was left to operate by itself. In 1949 JNR was reorganized as a public corporation, as were the Nippon Telegraph and Telephone Public Corporation and the Japan Tobacco Monopoly Corporation, though they were still owned and heavily supervised by the government. JNR was to be run as an independent profit-making unit outside the government budget, though considerable subsidization was needed, especially for investment in new lines. JNR's management was regulated and supervised by the Ministry of Transport. Increases in fares, freight rates, and employees' wages had to be approved by the Diet.

Freight and passenger volumes increased particularly rapidly during the period of strong economic growth which began in the 1960s. Freight volume in 1955 was 81.8 trillion tons/km, rising to 341.9 billion tons/km in 1970, an increase of 4.2 times. Over the same period, passenger traffic rose 3.5 times from 165.8 billion persons/km to 587.2 persons/km. Modernization of JNR could be measured by the rate of electrification of the lines and the growth in the percentage of double tracks among JNR lines. Only 9.8 percent of the lines were electrified in 1955, but by 1984 it had risen to 43.4 percent. Only 12.7 percent of JNR lines were double tracks in 1960, against 27.1 percent in 1984. The number of steam locomotives decreased from 3,974 in 1960 to 1,601 in 1970, in contrast to the dramatic increase in electric locomotives from 4,534 in 1960 to 12,582 in 1970. In provincial areas single track was laid, as it was cheaper and adequate for low levels of traffic. The conversion from steam to electricity and the introduction of diesel engines were the preferred ways of increasing capacity rather than the conversion of lines from single to double track.

Development of the Shinkansen (Bullet Train): 1964

The most significant event in the postwar development of JNR was the introduction of the Shinkansen (bullet train) in 1964, for a distance of 515 kilometers between Tokyo and Osaka. The maximum speed attained was 200 kilometers per hour, which made it possible to shorten the time of the journey from six and a half hours by the earlier trains to four hours by Shinkansen. The Shinkansen reached peak performance in time for the increase in passenger demand for the Tokyo Olympic Games, which opened in 1964. The sum of $80 million, estimated to cover total construction costs for the Shinkansen, was borrowed from the World Bank. The total cost when it was completed in 1961 was nearly double the original estimate. The Shinkansen line was extended westward to Okayama in 1972 and then to Hakata, the largest city in Kyushu, in 1975. In 1982 the Shinkansen line was extended further, northward from Ueno, Tokyo to Morioka in Iwate prefecture, and to Niigata.

As a result of heavy investment in the Shinkansen and modernization of old lines, JNR's accounts were in the red from the latter part of the 1960s. The deficit was exacerbated by the comparative decline of freight transportation by rail as against other forms of land transport, and the costs of maintaining a work force of 400,000 employees. JNR's performance was particularly poor in provincial areas which were responsible for 94 percent of the total deficit in 1970, although they represented only 8 percent of JNR's total traffic. The railroads' share of freight and passenger transport was decreasing dramatically. In 1950 the railroads had a 51 percent share of all freight traffic compared with 9 percent for road transport and 39 percent for coastal shipping, but in 1980 the railroads' share was only 8 percent, compared with 41 percent for road transport and 51 percent for coastal shipping.

Privatization in the Late 1980s

JNR's deficit grew rapidly in spite of huge subsidies from the government, and was a major political problem. JNR's total accumulated debt in 1987 was ¥37.5 trillion (US$357 billion), the result of employees' pension financing, retirement payments, and the construction of new Shinkansen lines. The Diet, the government, and JNR made several attempts to resolve the problem. However, none of these plans were successful. Eventually, in 1982, the government's Second Special Committee for the Rationalization of Administration (Daini Rincho) proposed the privatization of JNR as a solution to its deficit. This occurred during the course of discussions on the simplification of public sector administration in general. Following the recommendation of the committee, a new committee, Kokutetsu Kanri Jinkai, was established to carry out the privatization of JNR.

At this time JNR was operating more than 20,000 kilometers of railroads nationwide, with about 200 railroad lines, 500 stations, and 600 kiosks. JNR's assets also included 45,500 railroad cars and ¥41.5 billion of capital investment in 155 related businesses with 58,500 hectares of land. The biggest problem was to reduce the number of personnel, which totaled 276,000.

In April 1987, ending its 115-year-old history as the state railroad firm, the Japanese National Railway was divided into six regional passenger companies--Hokkaido Railway Company, East Japan Railway Company, Tokai Japan Railway Company, West Japan Railway Company, Shikoku Railway Company, and Kyushu Railway Company--and one freight company, Japan Railway Cargo, with four other companies, including JNR Settlement Corporation (JNRSC), charged with custody of JNR's assets and the clearing of debt through real estate sales and public share offerings. The total work force was reduced by 61,000 to 215,000.

In April 1988, the company's first anniversary, the six regional passenger companies and one freight company reported total pretax profits of ¥151.6 billion, four times greater than the initial target. In 1989 the seven Japan Railway group companies posted total current profits of ¥211.8 billion, which represented a 39.8 percent jump from the previous year, over 70 percent greater than projected in their business plan. The following fiscal year, the seven companies announced a 26.7 percent increase in total profits from the previous year, and in the fourth year the total profits of the seven companies reached ¥387.6 billion, a 44.4 percent increase from 1989.

JR East in the 1990s and Beyond

Success for JR East continued into the early 1990s. At this time, many of Japan's nationalized companies continued their privatization process by offering shares on the stock market. JR East was the first regional passenger company to go public in October 1993 when 62.5 percent of its shares were listed on the first section of the Tokyo stock exchange.

JNRSC, JR East's majority shareholder, was restructured and then dissolved in October 1998. The company had failed to liquidate certain assets and debt continued to linger. In fact, by 1998 debt was hovering at 28 trillion yen. As such, the Japanese government passed new legislation that required the seven regional companies to pay off 180 billion yen in debt. The government, in turn, was responsible for 23.5 trillion yen in debt that would be paid from the national treasury. The Japan Railway Construction Public Corporation (JRCC) was created to oversee the debt reduction process and handle the remaining assets of the regional railway companies.

In August 1999, JRCC made a second public offering of JR East shares, bringing the company one step closer to full privatization. Meanwhile, JR East worked to control costs and shore up profits as passenger volume declined during an economic downturn. The company continued to focus on upgrading and maintaining its railway system while branching out into new areas. As part of its strategy, JR East developed shopping centers and hotels near its stations in the Tokyo area.

The company entered the new millennium on solid ground. It adopted a new business plan, New Frontier 21, in 2000. According to the company, the plan's five key points included: creating customer value and customer satisfaction; business innovation utilizing advanced technologies; harmony with society and coexistence with the environment; creating motivation and vitality; and raising shareholder value.

JR East became fully privatized in 2002 when JRCC sold its remaining shares. Free from government involvement for the first time in its history, JR East forged ahead with its New Frontier 21 strategy. The company enjoyed success from its new Suica transport cards. Over nine million passengers were using the card just two years after its introduction. It also extended its Tohoku Shinkansen line to Hachinohe in late 2002. JR East remained active in other business ventures as well. The JR Shinagawa East Building was opened in 2004 along with the Hotel Dream Gate Maihama, which was built under railway tracks at Maihama station at the entrance to Tokyo Disney Resort.

With its eye on the future, JR East planned to expand its Shonan-Shinjuku line, complete upgrades and developments at its Omiya and Shinagawa stations, refurbish its Tokyo-area stations, and construct a route that would join the Ueno-Tokyo portion of the Tohoku line, the Takasaka line, and Joban line with the Tokaido line. This would create an additional travel route connecting the northern and southern portions of the Tokyo metropolitan area. As the largest fully-privatized passenger rail company in the world, JR East appeared to be on track for success in the upcoming years.

Principal Subsidiaries: Tokyo Monorail Co. Ltd. (70%); JR Bus Kanto Co. Ltd.; JR Bus Tohoku Co. Ltd.; East Japan Transport Technology Co. Ltd. (58.6%); Tohoku Kotsu Kikai Co. Ltd. (50.7%); Niigata Rolling Stock Machinery Co. Ltd. (40.5%); JR East Mechatronics Co. Ltd.

Principal Divisions: Transportation; Station Space Utilization; Shopping Centers & Office Buildings; Other Services.

Principal Competitors: Keihin Electric Express Railway Co. Ltd.; Keio Electric Railway Co. Ltd.; Keisei Electric Railway Co. Ltd.


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