Sunday, June 26, 2011

The Cox/Vranich Due Diligence Report: The International High-Speed Rail Experience

  So far, we have provided the following sections of the Reason Foundation Due Diligence Report: the Executive Summary; the Introduction; a section called The Necessity for Due Diligence, and now, we provide the section entitled, Overview of High-Speed Rail - International Experience.

The more you read these sections of the Due Diligence Report, the more you see the basis of my high-speed rail education.  I hope that these excerpts work for you that way as well.

Cox and Vranich discuss various role models for the California high-speed rail that promoters, who have taken hundreds of junkets overseas to ride on HSR trains in both Europe and Asia, have brought back to copy here.  They, of course, bring back the politically charged rhetorical question: If those other countries can have these sexy, whizzy trains, why can't we?

This Due Diligence Report provides some of the answers to that question.  A quick response from this blog is that we are different; that is, we are not Europe, we are not Asia.  And those differences are day and night. This issue is subsumed under the category of "context."  We believe that context is everything.  

High-Speed Rail is not a chemical element, like hydrogen, one atom of which is the same (more or less) anywhere in the Universe.  High-Speed Rail is an economic and political reality and those contexts in which HSR is or isn't developed are hugely variable, one country to the next. Failure to understand that permits major tragic mistakes to be made. High-Speed Rail for the US, and especially for California, is such a mistake. 

Among the variables to be taken into account are population density; numbers and sizes of cities; connectivity; and above all, the most important part of the context, national culture. Consider these factors as critical variables that constitute criteria for whether HSR makes sense or not. In such a comparison with overseas HSR and the potential for ours in California, our state makes no sense at all.
Overview of High-Speed Rail
A. International Experience

High-speed rail systems operate in a number of countries overseas. The state of California is
proceeding with its HSR plan based on assumptions that are appropriate to European and Asian
environments but generally hold little applicability in the state.

High-speed rail systems have been developed in the United States, Japan, France (with a British
line connecting through the Channel Tunnel), Germany, Spain, Italy, South Korea and Taiwan.
Generally, high-speed rail is defined as trains that reach 150 mph (241 kph) or more. The top
commercial speed on one line in the world is now 217 mph (350 kph), which came about with
China’s launch in 2008 of Beijing–Tianjin service.25 China expects to run at 236 mph (380 kph) on
the planned Beijing–Shanghai line.26 Within the TGV (Train à Grande Vitesse) system is the TGVEst—
operated between Paris and Strasbourg by the French National Railway (SNCF)—which
reaches a top speed of 200 mph (322 kph). Japan’s Bullet Trains were the first high-speed rail
trains and today operate up to 186 mph (300 kph), as do trains in Spain, South Korea and Taiwan.

Amtrak’s Acela service reaches a top speed of 150 mph (241 kph) on a portion of its Washington–
Boston route. While the infrastructure on the TGV-Est, Korea and Spanish HSR routes are
designed to permit operations at 220 mph (354 kph), no trains currently operate at that speed. Even
faster magnetic levitation (maglev) trains have been proposed for a few lines around the world,
although the only commercial application is an airport line within the Shanghai urban area—one
that reaches speeds near 270 mph (435 kph).27

The proposed California HSR is intended to provide service at a top speed of 220 mph (354 kph)
from Sacramento and the San Francisco Bay Area to the Los Angeles and San Diego areas and
points in between. The system has been variously described in planning documents as having a
route length of from 700 miles to 800 miles.

Comparison With Routes Overseas

The Los Angeles–San Francisco “backbone” route is between 432 and 520 miles, depending upon
the CHSRA source cited.28 Plans are for the non-stop service to operate at under 2 hours and 40
minutes. Generally, the HSR routes most analogous to the Los Angeles–San Francisco route are
the following:

􀂃 Tokyo–Osaka Bullet Train. The rail distance between these terminals is approximately
335 miles, shorter than the Los Angeles–San Francisco route–and the fastest travel time is
approximately 2 hours and 30 minutes. Door-to-door rail and air travel times are similar to
the California HSR, as proposed. Service began on this route in 1964.

􀂃 Paris–Marseille TGV. The rail distance is approximately 480 miles and the non-stop
services take slightly more than 3 hours. Door-to-door rail and air travel times are similar
to the California HSR as proposed. Service began on this route in 2001.

The new Madrid–Barcelona AVE service is similar in distance, rail travel time and air travel time
to the Los Angeles–San Francisco route. However, this service has only recently begun to operate
and so is referenced less frequently. The Taiwan and South Korea routes are also relatively new,
far shorter than proposed for California, and are referenced less frequently.

Comparison of Markets

The market of the proposed California HSR is compared to markets for the Japanese Bullet Train
and European HSR systems. (Comparisons with the Amtrak Acela will be found in Part 3, United
States Experience.) There are considerable differences between these markets with the conditions
in California being far less favorable to the development of HSR. Consider comparisons with
Japan, as indicated below.

The Japanese were prudent to adapt their transport system by using rail to serve their dense
populations stretched into linear corridors. Today the HSR market in Japan is the strongest in the
world, and it is difficult to imagine a more favorable operating environment. The following factors
combine to make HSR far more attractive in Japan than in California.

The current population of the Japanese Bullet Train market is more than double that of the

California market as projected for 2030. The counties and metropolitan areas that will have
stations in the California system are projected to have less than 44 million people in
2030.29 By comparison, the prefectures of Japan served by the Bullet Trains already have a
population of more than 97 million.30

􀂃 The Japanese urban areas are considerably more dense than the California urban areas.
This means that HSR stations are closer to more of the urban population than they would
be in California.31 In addition, the large Japanese urban areas have large central business

districts (CBD’s or downtowns). The Tokyo CBD has more than twice as many jobs as
Manhattan has south of 59th Street. and the Osaka central business district is larger than
any for which data is available, except for Tokyo and New York. Nagoya’s CBD has more
than twice as many jobs as the San Francisco CBD.32 The CBD employment is a strong
generator of ridership because HSR stations are located in the CBD and they are easily
accessed by rapid transit,33 by short cab rides or by walking. This gives the Bullet Trains a
substantial market advantage.

􀂃 Japan has the developed world’s most comprehensive transit systems. In the Tokyo and
Osaka–Kobe–Kyoto urban areas, 63 and 56% respectively of urban travel is by transit.34 In
the third largest urban area, Nagoya, transit’s share is approximately 25%. Approximately
80% of that transit travel is by rapid transit modes in each area, which tend to be
competitive in travel time with cars (subways and commuter rail).35 Finally, in each of
these large urban areas, commercial revenues (including fares) account for more than 95%
of operating and capital costs.36 By contrast, the San Francisco urban (urbanized) area’s
transit market share is 3.8%, Los Angeles is 1.6%, San Diego 1.2%, San Jose 0.8% and
Sacramento 0.7%.37 The existence of Japan’s comprehensive rapid transit systems, which
were built as the urban areas spread out, makes near “seamless” travel possible throughout
the Japanese urban areas. In California, the overwhelming majority of HSR trips are likely
to require a car at one or both ends to complete the trip in a reasonable time and with
reasonable comfort.

􀂃 The automobile ownership rate is considerably lower in Japan. The auto and SUV
ownership rate per household is approximately 70% higher in the United States than in

􀂃 Driving is considerably more expensive in Japan. Gasoline costs more and the intercity
freeways have very steep tolls.

􀂃 Finally, each of the Bullet Train routes were preceded by a strong conventional rail
service—a “ready market” from which a large portion of the high-speed rail ridership was
attracted. Before the high-speed system opened in the 1960s, there was little air service and
there were relatively few automobiles. Thus, much of the HSR ridership simply transferred
from slower trains to faster trains. By comparison, California has a small market potential
in diverting traffic from traditional rail services.

Europe’s inherent HSR market advantages are not as great as those of Japan, but they are still
superior to California’s:

􀂃 Large urban areas are generally closer together than in California. Moreover, a number of
these urban areas are clustered in relatively close proximity to the hub of Europe’s HSR
system, Paris. Western Europe’s two largest metropolitan areas, London and Paris have a
combined population of more than 24 million—approximately the same population as the

Los Angeles and San Francisco combined statistical areas.39 They are less than 200 miles
apart compared to the 380 highway miles that separate San Francisco and Los Angeles.

Also, Brussels, Antwerp, Rotterdam, the Hague, Amsterdam, Lyon, Lille, Aachen and
Cologne, all metropolitan areas with more than 1 million people, are less than 300 miles
away, and all are served by HSR from Paris.

􀂃 In addition to proximity, another important factor is that France is a very centralized
nation. Much commercial travel in France requires connecting through Paris, either
through its airports or its train stations (both in the city and at Charles de Gaulle Airport).
In contrast, no metropolitan area of California is such a travel hub because most travel in
California is point to point.

􀂃 HSR in Europe has a particularly robust market as a result of the strong government
employment that exists in national capitals, such as London, Paris, Brussels and the Hague.
Brussels is also the principal governance center of the European Union, as home of the
European Commission. The TGV-Est line is also likely to have higher ridership because its
terminus is Strasbourg, home of the European parliament.

􀂃 While less dense than Japanese urban areas, European urban areas are generally more
dense than in California. Again, this means that HSR stations are closer to more of the
urban population than they would be in California.

􀂃 Europe’s transit systems are less comprehensive than those of the largest Japanese urban
areas, but are far more so than any transit systems in California. Large European urban
areas typically have transit market shares of from 10 to 25%, which compares to the 0.7
percent to 3.6% in California markets. A number of the European HSR urban areas have
extensive subway and commuter rail systems that can often compete with the auto in travel

􀂃 The European HSR ridership is not all new ridership. On many lines there was
considerable traffic before the coming of HSR. In France, Germany, Italy and Spain, which
accounted for the overwhelming majority of HSR ridership in Europe, conventional (non-
HSR) ridership dropped 27 million between 1990 and 2006.40 This represents 40% of the
HSR increase of 69 million.41 Many HSR riders are former train riders who switched to the
faster services.


As in the case of CHSRA, HSR proponents claim that systems overseas are profitable. However, it
is not clear that the world’s HSR systems have typically covered their operating and capital costs
without subsidies.

France. The TGV system is a sensible adaptation to a nation where Paris is a major transport hub

as a destination and for connecting passengers. The most recent financial reports show that overall
the French national rail operator, SNCF earned a profit.42 However, this is a far more complex

􀂃 SNCF financial reports classify subsidies from national, regional and local governments as
commercial revenues, rather than subsidies, as they would be classified in the United

􀂃 Separate financial data is not provided for the high-speed rail operations. Thus, any
statements to the effect that TGV is profitable (which it may or may not be) have not been
subjected to the normal accounting standards that apply to annual financial reporting.

􀂃 SNCF runs on the national rail system owned by the Réseau Ferré de France (RFF) and
pays fees for its usage.43 According to a report by the French parliament, RFF and SNCF
together have a debt of more than 40 billion Euros, or approximately $55 billion.44 This is
a significant amount for a nation with a population one-fifth that of the United States. The
SNCF access fees paid to the RFF cover little more than infrastructure maintenance and
provide virtually no contribution to debt service, capital costs or depreciation.45 Moreover,
RFF receives annual subsidies from the French government of more than 10 billion Euros.

It is possible that some of the annual subsidy is attributable to TGV.

􀂃 Construction of the newest line, the TGV-Est line, from Paris toward Strausbourg was
subsidized to at least the extent of 75%.46

􀂃 Reports are that RFF will be substantially increasing track access charges to pay for
expansion and maintenance of the French rail network. Any such increase could cause a
deterioration in SNCF financial performance.47

Given the lack of transparency regarding railway debt, continuing subsidies to RFF and the
apparent lack of any comprehensive analysis48 using generally accepted accounting principles, no
definitive statement can be made about the profitability of high-speed rail in France.

Japan. The story is similar in Japan. The Japan National Railway was privatized in the late 1980s
and the new private companies assumed some of the heavy debt that had been accumulated.

However, the public shouldered most of the debt, which amounted to 250 trillion yen at
privatization and grew to 280 trillion after that. At current exchange rates, this is more than $250
billion.49 This is a substantial amount for a nation with a population 60 percent less than the United

As in the case of France, in view of the huge debt and the apparent lack of any comprehensive
analysis using generally accepted accounting principles, no definitive statement can be made about
the profitability of high-speed rail in Japan.50

Summary of Differences

The CHSRA in promotional literature frequently cites developments in Europe and Asia to justify
building such a system in California.51 Absent from such material is recognition of critically
different circumstances and environments. Overall, the dissimilarities are great. Congressional
Digest summarized Europe’s train-friendly circumstances well:

Conditions in those countries are, in many ways, more favorable to passenger rail
transportation than in the United States. Their population densities are higher (which makes
train travel more efficient), their fuel prices, including taxes, are higher (which makes driving
more expensive relative to other travel options), and their land area is relatively smaller
(which makes travel time by train more competitive with air travel).52

While factors exist that allow high-speed rail systems to be well-used overseas, they nonetheless
appear insufficient to allow those very same HSR systems to attain profitability under generally
accepted accounting practices. Moreover, while the conditions were favorable for the development
of HSR in Europe and Japan, they are less clearly so in the United States.53


High-speed rail systems operate in a number of countries overseas. The state of California is
proceeding with its HSR plan based on assumptions that are appropriate to European and Asian
environments but generally hold little applicability in the state.

Considerable market differences exist with conditions in California being far less favorable to the
potential success of such a system. Dissimilarities include population densities in urban areas, size
of central business districts, extent of connecting transit systems, distances between urban areas,
and the degree to which a train-riding market existed prior to HSR service. Financially, it is not
clear that the world’s HSR systems have typically covered their operating and capital costs without
subsidies—a determination that would be appropriate in a due diligence process for commercial
HSR proposals in any nation.

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