Special Interest Group on Maritime Transport and Ports
a member of the WCTR Society
Genoa - June 8-10, 2000
State subsidy system for remote island liner
services in Japan
Alfred J. Baird
Director, Maritime Transport Research Unit,
Sighthill Court, Edinburgh EH11 4BN, Scotland,
Tel: 00 44 131 455 3459. Fax: 00 44 131 455 3484.
Japan has one of the most extensive remote island ferry systems
in the world, with services linking several hundred populated
islands to the mainland. This paper gives an overview of remote
island ferry services in Japan and describes the existing liner
services subsidy scheme. The paper explains the background to
the subsidy system and relevant laws.
The paper then analyses the structure of the remote island liner
industry, and identifies some of the key problems faced by operators.
Likely changes to the liner shipping subsidy regime are considered,
and recommendations are made as to how services might be improved
in future, with particular emphasis on the need to modernise,
liberalise and restructure the industry.
Data collection was facilitated through interviews with ferry
lines and ports in Japan, and with governmental and statutory
organisations responsible for remote islands.
2. Remote islands
2.1 Japanese islands
The four main islands of Japan - Honshu, Kyushu, Shikoku, and
Hokkaido - are collectively known as the mainland. All other islands
are known as isolated or remote islands.
Excluding the mainland, there are 6,848 islands in Japan. Of these,
433 are inhabited, and 6,415 are uninhabited.
2.2 Island population
The remote island population totalled 814,496 in 1995, equivalent
to less than 1% of Japan's population (126 million). There has
been almost a halving of remote island population since 1955 when
there were 1.44 million island residents. This is in marked contrast
to mainland Japan which has seen population increase from 90 million
in 1955 to just under 126 million in 1995, a rise of over one
The remote island birth rate has fallen by almost half in recent
years, from 12,475 births in 1982 to 7,603 in 1994. The islands
now have an ageing population and suffer from continued out-migration
as younger people move to mainland cities to take advantage of
better paid employment and more work opportunities.
Population also appears to be concentrated on relatively few islands.
Largest remote island populations can be found on Sadogashima
in Niigata Prefecture (74,949) and on Amamioshima in Kagosima
Just twenty islands account for almost 70% of all remote island
population (560,000 people). Almost 300 islands each have a population
of fewer than 5,000, with some 240 of these with a population
under 1,000. These figures relate to 1995 levels.
2.3 Island Industries
In 1990, primary industries accounted for 31% (125,494 jobs) of
remote island employment (7% on the mainland). According to the
MoT, and ferry operators, main primary industries on remote islands
consist of fishing and agriculture. Secondary services account
for 21% of island employment (84,623 jobs) and tertiary 48% (191,300
Total remote island employment declined by 18% (38,000) between
1985 and 1990, with the primary and secondary sectors taking the
brunt of the fall. Tertiary employment has remained almost static
over the period (191,000 jobs) although the overall relative importance
of this sector has increased.
2.4 Island problems/trends
Depopulation and a narrow, fragile industrial base are the main
problems faced by remote island economies. The National Association
for Island Development (NAID) has strongly argued for increased
government expenditure to help fund the introduction of modern
vessels to expand the tourist market and aid the economy.
Fast ferry services are deemed to be especially attractive for
remote island access. A fast ferry service introduced to the island
of Awashima (population 450 people), where fishing is the main
industry, resulted in the number of tourists increasing from 15,000
to 50,000 per annum. Route length in this instance is 35km.
NAID are arguing strongly that many island routes require investment
in faster vessels to help enhance tourism, thereby protecting
and creating island employment and reducing depopulation.
Trends cited as important by the Japan Passengerboat Association
(JPA) in relation to remote island liner services, and on which
action is needed, include:
- Remote island population is decreasing;
- Long term liner passenger traffic is in decline;
- Port facilities are inadequate making it difficult to handle
3. Remote island laws
3.1 Liner service subsidy Law
The Remote Island Liner Services Development Law of 1952 prescribed
the national government's special subsidisation measures for remote
island liner businesses, thereby contributing to stablisation
and improvement of people's living standards. Every year, and
within the scope of the budget, the government can pay to remote
island liner businesses subsidies for maintaining liner services.
The Law provides for government to subsidise part of the loss
incurred by remote island liner businesses, and to subsidise the
cost of modernising vessels.
3.2 Organisations dealing with Isolated islands
Aside from the Ministry of Transport (MoT), there are a number
of organisations with specific concerns and responsibilities for
remote islands. The main bodies, all of which are headquartered
in Tokyo, are as follows:
- National Land Agency, formed in 1974 and responsible for remote
- Governor's Association for Island Development, a group consisting
of governors of public bodies (by prefecture);
- The National Association for The Development of Japanese Remote
Islands, formed in 1952 and consisting of governors of local public
bodies (e.g. cities, towns and villages);
- National Institute for Japanese Islands, also consisting of
governors of local public bodies (e.g. cities, towns and villages);
- Isolated Island Council (IAC), founded in 1966 and comprising
island towns and villages.
The Japan Passengerboat Association (JPA), an organisation representing
liner operators, is concerned with securing stable marine transport
services for islanders. The JPA has established a Sectional Committee
on Isolated Islands to improve all aspects of remote island liner
JPA has also developed a new insurance system for member companies
and has campaigned for compensation to be paid to liner operators
adversely affected by the building of new bridges or tunnels between
the mainland and remote islands.
3.3 Licensing and tariffs
Under the Maritime Transport Law, a license is required for all
liner operators serving isolated island routes. There are several
kinds of license, however, all subsidised services require a 'General
Passenger Service License'.
Licenses are only issued when a liner route is able to survive
as a business, or in other words, 'when supply equals demand',
in addition to meeting other criteria (see section 4 below).
However, government will not consider the issue of feasibility
after the Act is revised if an operator meets the other criteria.
The licensing system was due to be revised in 1999. It is expected
that the MoT condition on demand will be abolished together with
certain other procedural changes.
Liner service tariffs in respect of each route must be approved
by and registered with government. A lifeline service is generally
a monopoly provider but an article in law prohibits high pricing.
4. Subsidy system
4.1 Subsidy criteria
According to Japan's MoT, in order to qualify for a liner route
subsidy, government considers the following six criteria:
- The route must involve liner service to an isolated/remote
- The service provided must be regular;
- The service should incur a financial operating loss;
- The route must serve island people and carry essential goods
- The prefecture government must recommend the route for subsidy,
- Government then applies income/expenditure scale to establish
expected loss and gauge the level of subsidy required.
Subsidy for liner services is given under the Remote Island Liner
Services Development Law (Law No. 226 of 1952). Covered period
is one year from October 1 of the previous fiscal year to September
30 of the current fiscal year.
Aside from meeting these basic conditions, the level of liner
service subsidies may also be affected by the relative remoteness
of the island in question. According to the Japan Remote Island
Center, the concept of remoteness is measured through assessment
of a range of specific criteria. The measurement process primarily
considers the following factors:
- Identification of the shortest public transport route between
a remote island and its mainland prefectural capital or to major
city in the region;
- Access on the mainland side, and the liner route between mainland
and remote island;
- Time required to make the journey;
- Transport fare required;
- Frequency of service;
- Cancellation rate;
- Availability of alternative transport routes/methods, and;
- Comparison with other remote/handicapped areas.
Scope of measurement also takes account of natural barriers such
as lengthy peninsula, mountainous areas, and areas with heavy
snowfall. The concept of relative remoteness is important in any
assessment of the need for national subsidy to help sustain remote
island liner services, and can be used to help prioritise subsidy
allocation to the most deserving routes.
4.2 Subsidy payment
To estimate likely loss on a given route, government first considers
all 350 liner routes, of which 127 currently qualify for subsidy.
This leaves 223 services outside subsidy qualification. Of these
223 non-subsidised routes, government takes the upper and lower
earning extremes and then works out the average earnings based
on route distance.
All 127 services in receipt of subsidy must show operating losses
in their accounts. In addition, all subsidised operators must
make re-application for subsidy every year.
The budget for fiscal year 1999 amounted to Yen 4,212 million
(US$35 million), of which Yen 4,086 million related to liner operating
subsidies and Yen 126 million to subsidies for ship construction
and modernisation (Table 1). While operating subsidy levels have
been maintained at just over Yen 4.0 million for the last three
years, the much smaller amount allocated to vessel construction
and modernisation has fallen by half.
|Table 1: Remote island liner subsidies, 1997-1999
|Liner service operating subsidies||4,085
|Subsidies for ship construction and modernisation
Source: Ministry of Transport, Tokyo.
According to the JPA, the current subsidy system does not cover
all company losses, and local government covers some uncovered
losses. JPA is arguing for more government support but recognises
there are budget limitations.
In applying for subsidy, liner operators stress the importance
of securing an island's mail contract from the Ministry of Postal
4.3 Ship subsidies
Government provides financial support for new vessels by giving
loans up to 80% of the capital cost. Liner operators, most of
which are very small one-route outfits, find difficulty in raising
the additional 20% on their own.
The 80% loan is obtained via the government's Maritime Credit
Corporation, with payback usually allowed up to a maximum of 15
years. NAID is looking for government to move to a 90:10 arrangement
thereby making it easier for small operators to raise finance.
The government subsidy scheme also provides for a grant of up
to 10% of vessel capital cost, though clearly the budget allocated
for this is capped at a very low level, which implies few ships
receive any aid. In fiscal year 1998, the Yen 140 million allocation
for ship capital subsidy was paid to only 4 ferry routes out of
127 routes receiving subsidy, and 350 routes in total.
The main requirements for vessels to qualify for subsidy are as
- Vessels to be 'speeded up';
- Vessel to be built with increased capacity;
- Vessels to be replaced with ferries;
- Vessel modernisation must contribute to the island's development
(such as through amelioration of disparities in the living and
production conditions on the island, and promotion of industries
and tourist development).
4.4 Subsidy application
Liner businesses desiring to receive subsidies must apply to the
Minister of Transport. Applications must be accompanied by an
Operation Plan, Route Profit/Loss Estimate, and other documents
prescribed by Ministerial Ordinance concerning the following matters
related to the relevant remote island service:
- The route's starting point, ports of call and destination
and the distance between these (to be indicated on a track chart);
- The details of the passenger liners to be used (including
reserve vessels), and;
- The number of services and departure and arrival schedule.
Subsidised liner services are subject to specific government controls,
- The Minister can instruct the operator to improve the remote
- The Minister's approval is necessary where an operator wishes
to modify its operational plan;
- Subsidised liner operator's must submit to the Minister the
Route Profit/Loss Statement and other documents relating to the
remote island service as prescribed by Ministerial Ordinance;
- The subsidised operator must provide the account books and
other documents to clarify the calculation of profit and loss
for each relevant route;
- Liner subsidies cannot be used for purposes other than the
ones for which they were intended, and;
- Failure to comply with any of these conditions can result
in the Minister ordering repayment of all liner subsidies
Lines suggest the application procedure itself is not complex,
but it can be very difficult to get approval.
4.5 Changes in the law
The industry anticipate that the current remote island subsidy
scheme and regulations will be altered in October 2000. The main
change expected is that the industry will be liberalised in an
effort to modernise and improve the level of service. However,
lifeline routes will still be designated and there will be specific
criteria covering new entrants, for example:
- A set standard of service must be met, and;
- Lifeline designated routes can only have one subsidised operator.
The JPA anticipate that some lines may withdraw from the industry
as a result of the new law, mainly due to increased competition
from new entrants.
5. Remote island liner services
According to the MoT, some remote island routes are maintained
by private operators, some are publicly operated by the relevant
municipal or local authority, and others by the '3rd
sector', i.e. a joint venture between public and private sector.
In 1998 there were a total of 279 companies offering liner services
on the 350 remote island routes, of which 189 were private, 62
public, and 28 3rd sector. Most of remote island liner
services are small-scale, with many operating just one service
between the mainland and a remote island.
5.2 Traffic flows
Due to factors such as depopulation, passengers transported by
remote island liner services in FY 1996 amounted to 69,829,000,
down 0.8% from the previous year (see Table 2). Transport km also
decreased to 1,740 million person km, down 0.2%.
Figures provided by the JPA suggest ferries carried 7.7 million
trucks in 1998, a slight reduction from the 7.8 million trucks
carried in 1997 (Table 3). Accompanied car traffic amounted to
15.7 million, up from 15.4 million units in 1997.
|Table 2: Passengers transported by remote island liners, 1995-96
(Units: thou. Persons, thou. Persons km, %)
||Transport persons km
Source: Maritime Transport Bureau, MoT, Tokyo.
Car km in 1999 amounted to 94.3 million giving an average car/ferry
trip distance of 6 km. Truck km amounted to 126.8 million, giving
an average truck/ferry trip distance of 16.4 km.
|Table 3: Cars and trucks carried by ferry, 1997-99
|(Units: thou. units, thou. Vehicle km)
Source: Japan Passengerboat Association
5.3 Service profitability
The majority of subsidised routes, according to the MoT, gain
most of their revenue from passengers and accompanied car traffic.
However, across the whole liner industry, the MoT maintain that
approximately 50% of revenues come from passengers and 50% from
Financial performance of remote island services is described as
'severe'. Reflecting a decrease in passenger ridership, cash flow
in 1996 compared with the previous year deteriorated. Operating
income fell by around Yen 1 billion, while operating expenses
increased by around Yen 0.5 billion.
According to the JPA, in fiscal year 1996, the 350 liner routes
recorded a combined operating loss of over Yen 6.1 billion. With
government subsidy amounting to only Yen 4.0 billion, this left
a shortfall of more than Yen 2.0 billion. The JPA claim that only
90 of the 350 liner routes (26%) are profitable.
Lines state that central government are trying to place more responsibility
for liner subsidies on the shoulders of local government. Although
central government claims it pays for 75% of liner subsidies,
local government 25%, lines claim the reality is more like 50:50.
Indeed, some lines only receive local government support (e.g.
Tokai Kisen). Japanese liner operators point to much greater subsidy
levels paid to liner operators in Korea and argue that the government
should do more to ensure adequate service provision.
5.4 Service pricing
Table 4 illustrates that single trip Second Class passenger fees
for car ferry services range from Yen 1,689 on a typical High
Sea route (average distance 59.1 km) to Yen 519 on Inland Sea
routes (average distance 14.5 km). Passenger fees charged by fast
ferry services are Yen 2,971 on a typical High Sea route (58.4
km) and Yen 827 for Inland Sea routes (24.7 km).
|Table 4: Average fee for High Sea/Inland Sea routes, 1995
|Ship Type||Fee Type
||Ave. Distance km||Ave. Fee
|General Pass. Ship||2nd Class Passenger Fee
|Fast Ferry||2nd Class Passenger Fee
|Car Ferry||2nd Class Passenger Fee
|Passenger Car Fee||High Sea
|8m/4tonne truck Fee
Source: Remote Island Statistics (based on 1995 survey of 122 remote island routes, 106 of which eligible for national subsidy, 16 not eligible).
The fee for a car on High Sea routes is estimated to be Yen 11,088
(average distance 64.4 km) and Yen 2,740 for shorter Inland Sea
routes (14.5 km). Fee for 8m/4 tonne trucks is Yen 21,711 for
Inland Sea routes (64.4 km average) and Yen 4,996 for Inland Sea
routes (12.9 km average). These rates are based on averages taken
from a survey of 122 remote island routes, 106 of which were receiving
6. Vessels and routes
The MoT state that 187 regular vessels are employed on the 127
subsidised routes, of which 53 are ferries, 30 are 'fastships'
(e.g. over 24 knots), and the remaining 104 are 'general passenger
Figures provided by the JPA for all 350 remote island routes suggest
there are an estimated 450 passenger/car ferries employed. Some
25% of these vessels are estimated to be over 15 years old, and
almost half the fleet are over 10 years old.
However, the JPA estimate appears to include only association
members as fleet figures provided by the MoT Maritime Transport
Bureau suggest a far larger number of vessels employed on remote
island trades (Table 5).
According to MoT data, there were a total of 700 ships serving
remote island routes in 1996, down from 829 ships in 1986. While
the number of ships has fallen over the period, gross tonnage
has increased from 248,610 grt to 315,781 grt, a rise of over
|Table 5: Tonnage and number of ships on remote island routes, 1986/96
|Ferry||No. of ships||277
|Ave. Gross tonnage||606.9
|Fastship||No. of ships
|Ave. Gross tonnage||84.7
|Other ships||No. of ships
|Ave. Gross tonnage||160.5
|Total RI fleet||No. of ships
|Ave. Gross tonnage||299.9
Source: Maritime Transport Bureau, MoT.
Fleet composition has also markedly altered. Ferries now account
for over 78% of the fleet by gross tonnage, compared with 67%
in 1986. The number of fastships (i.e. vessels over 24 knots)
has increased from 107 in 1986 to 137 in 1996, although gross
tonnage represents only 3.2% of the overall fleet (less than in
1986). Ferry capacity has increased at the expense of other vessel
types, mainly general liner vessels, the latter accounting for
less than 20% of the remote island fleet in terms of gross tonnage.
Most vessels offer relatively moderate passenger carrying capacity.
Some 85% of car ferries in service are under 500 passenger capacity.
Almost 95% of fastships carry under 300 passengers, while 88%
of other general liner vessels also offer passenger capacity below
Liner operators are seeking to introduce more modern and especially
faster vessels, but adequate government support is not forthcoming
for capital investments in ships and shoreside facilities. With
regard to the latter, volcanic islands surrounded by deep water
means it is very expensive to create breakwaters and this can
prevent the use of ferries in some instances (e.g. Ogasawara Islands).
The table in Appendix I provides details of all 127 subsidised
remote island liner routes in Japan. Only four of these routes
appear to be maintained with fast craft, all others being served
either by conventional ferry or by general liner.
Excluding fastship routes, 4 routes over 250 km length, and 25
other routes for which information is unavailable, average subsidised
remote island route distance (based on 98 Routes) is 25.6 km.
Some 81 of these 98 routes involve distances under 30 km.
Average vessel speed in respect of all subsidised routes for which
information is available (excluding fastship routes) is 13 knots.
This suggests that relatively slow vessels serve a majority of
Additional information provided by the MoT suggests most remote
island liner routes (i.e. over 80%) involve a voyage time of under
2 hours. Fastships serving Inland Sea routes all offer trip times
of between 30-60 minutes.