The rise of ride-hailing apps

Taxi, interrupted: Commuters upbeat, but is it downhill for cabs?

A Grab driver uses the Grab app on a smartphone. There are at least 38,000 private-hire car drivers on Singapore roads today, going by the number of private-hire driver vocational licence applications approved by the LTA. Taxi driver Armstrong Ho bel
A Grab driver uses the Grab app on a smartphone. There are at least 38,000 private-hire car drivers on Singapore roads today, going by the number of private-hire driver vocational licence applications approved by the LTA.PHOTO: BLOOMBERG

Convenient and cheap. No wonder commuters are opting for private-hire car services rather than taxis. But four years after the likes of freewheeling Uber roared in, rules requiring their drivers to be trained, among others, kicked in last month. What lies ahead on this dual carriageway?

From the comfort of her home or office, Ms Dawn Lim summons a chauffeured car to her doorstep within minutes with just a few taps on her smartphone.

For the past two years, the 39-year-old business development manager has done away with the "tedious process", as she puts it, of hailing a taxi from the street or using a booking hotline.

With ride-hailing apps Uber and Grab - which use GPS to detect her location - Ms Lim can conveniently call a private-hire car in the vicinity, with a fixed fare that is quoted before she gets into her ride.

Taxis were once her main commuting mode, but no longer.

"I still take taxis, but the last time I took one was when my phone battery died," she tells Insight.

Since they debuted here four years ago, ride-hailing apps have transformed the way Singaporeans commute, and their meteoric rise is giving the incumbent taxi industry a run for its money.


With a few taps on her smartphone, Ms Dawn Lim can call a private-hire car in the vicinity, with a fixed fare quoted before she gets into her ride. PHOTO: GIN TAY FOR THE SUNDAY TIMES

The apps have sent the number of chauffeur-driven private-hire cars soaring. There are more than 42,800 such vehicles, says the Land Transport Authority (LTA) - a figure which has overtaken the current taxi population of 26,000.

Through aggressive expansion, the San Francisco-based Uber and its rival, the Malaysia-founded Grab, have quickly gained a market foothold.

A Public Transport Council (PTC) survey conducted last August found that almost half of all point-to-point trips were served by private-hire cars, with the remainder by taxi.

Flush with funding in the billions and operating without strict regulations, the start-ups have aggressively undercut the market in price, bleeding losses to gain market share.

The taxi operators here have been reeling from the shake-up, with cabbies leaving the job.

For the first five months of this year, the average proportion of the taxi fleet which is sitting idle in yards - also called the unhired rate - hit 9.1 per cent, nearly double the 5 per cent in the same period last year.

  • TRANSPORT SHAKE-UP: A TIMELINE

  • FEBRUARY 2013: San Francisco-based Uber makes its debut in Asia by launching an on-demand limousine service in Singapore.

    OCTOBER 2013: GrabTaxi, which started in Malaysia in 2012, is rolled out in Singapore. Commuters can book taxis near them using the app.

    MARCH 2014: Uber kicks off UberX, a chauffeured saloon car service that rivals taxis in price.

    AUGUST 2015: GrabCar, a private-hire car service rivalling Uber, is launched in Singapore.

    JULY 2016: UberPool, which allows passengers to enjoy a fare discount by sharing their rides with strangers going the same direction, is launched here.

    DECEMBER 2016: Grab launches GrabShare, a similar service to UberPool.

    MARCH 2017: Taxi operators Trans-Cab, SMRT, Premier, Prime and HDT Singapore Taxi team up with Grab to offer dynamic pricing for taxi fares - the first of its kind in Singapore.

    APRIL 2017: ComfortDelGro, the island's biggest taxi operator with a fleet of more than 15,600 cabs, launches a new flat fare option for taxi bookings.

    MAY 2017: GrabShare is expanded to allow taxi commuters to share their rides as well.

    JULY 2017: Regulations require all private-hire cars to have decals and for drivers to have a vocational licence or to have applied for one before the start of the month. Private-hire car drivers have to attend and pass a 10-hour vocational course.

    Adrian Lim

Incumbent and disruptor have been competing on an unequal footing. But starting last month, new regulations kicked in requiring the latter's drivers to go for courses and to obtain a vocational licence. For-hire cars also have to be registered and identifiable with Government-issued decals.

Insight tracks the rise of the ride-hailing apps and examines the impact of the new regulations.

Price war

While both Uber and Grab employ a controversial dynamic pricing system in which fares can more than triple during periods of high demand - such as when train services are disrupted - their regular base and distance-calculated rates are at least 10 per cent lower than those of taxis.

They also do not levy location and time-based surcharges, such as a 50 per cent premium for a midnight ride.

But the main draw lies in the discounts on rides that are constantly on offer - a strategy to battle for market share.

Mr Christopher Parwani, 20, who uses Uber, says: "I don't even open my app without checking online for promo codes first."

These alphanumerical codes - which are either e-mailed to customers, or advertised in ads - have to be entered into the app to redeem the limited discounts.

Mr Parwani, an intern at a public relations firm, says he pays an average of between $8 and $12 for his Uber trips. He estimates that the same trips would cost him at least $15 in a taxi.

His cheapest ride? 90 cents. The trip from Serangoon to Bedok Reservoir should have cost him $8.90, but he had a promotional code that took $8 off.

The new 'cabby'


Ms Thuruga Tangarasu with the Toyota Wish which she rents for $80 a day. Besides driving five to seven hours a day with Grab, she has a full-time job as a pre-school supervisor. ST PHOTO: LIM YAOHUI

Flexible working hours and the perks of having a car are what attracted many like Ms Thuruga Tangarasu to become private-hire car drivers.

The 35-year-old pre-school supervisor rents a Toyota Wish for $80 a day, from a car leasing company which is affiliated with Grab. She drives between five and seven hours a day on average, juggling her time between her full-time job, looking after her 10-year-old daughter, and up till June, night classes for a degree in early childhood management.

Ms Tangarasu estimates that in a good month, she can earn as much as $3,000 in fares, but after deducting rental and petrol, and the 20 per cent commission that Grab takes, she has about $1,000 left. Uber also takes a similar cut.

Still, she points out: "I get to choose when I earn and when I work. This is also one of the most workable ways to own a car."

In Singapore, the curbs on bank loans for cars and high car prices mean that buying a new $100,000 Japanese sedan would require a down payment of at least $30,000 - a hefty sum for many.

So to expand their supply of for-hire cars and recruit drivers, both Uber and Grab partnered with car rental firms, and set up their own operations, Lion City Rentals and GrabRentals respectively.

RACE TO THE BOTTOM

When product offerings are the same, what is left to compete (on) is price. This is obviously not good for profit, but perhaps worse for traditional cabs.

ASSISTANT PROFESSOR YANG NAN of NUS Business School's strategy and policy department, who notes that both Uber and Grab are "getting too similar in terms of product design".

They dangle a common proposition: Own a car for as little as $60 a day, and pick up passengers to defray the costs. Besides making money from fares, the apps give cash incentives to drivers for doing more trips or for taking bookings during certain hours of the day.

The gambit has worked. There are at least 38,000 private-hire car drivers on the roads today, going by the number of applications for a private-hire driver vocational licence the LTA has approved.

For an industry just four years old, it is catching up fast with the estimated 50,000 active taxi drivers here.

The head of Grab Singapore, Mr Lim Kell Jay, says through GrabRentals, the firm wants to "empower and enable driver-partners who want to rent a car without buying their own".

Uber Singapore's general manager, Mr Warren Tseng, says Lion City Rentals helps to improve the utilisation of cars because they are both privately owned and used for ride-sharing - making them part of the transportation solution.

Below age 30


Drivers and applicants at the Uber office in Paya Lebar. There is no age requirement for private-hire drivers, but they must have held a driving licence for at least two years.ST PHOTO: ALPHONSUS CHERN

The lure of car ownership and flexible work has attracted many under the age of 30 to join the industry, raising concerns about the new employment trend.

Taxi drivers have to be at least 30 years old. On the other hand, there is no age requirement for private-hire car drivers. However, they need to have held a valid driving licence for a continuous period of at least two years.

Grab has said in newspaper reports that between 20 and 30 per cent of its private-hire drivers are younger than 30; for Uber, about 25 per cent.

UNFAIR COMPETITION

Private-hire cars and their drivers should be held to the same standards as taxis.

MADAM VALERIE CHEE, a limousine cabby who used to net about $200 in fares during the evening peak period of 6pm to 9.30pm, but is only hitting between $120 and $130 now.

Grab added that only an extremely small number of its young drivers do the job full-time, while Uber said such drivers are in it to achieve financial goals, such as paying for higher education.

Still, National Taxi Association (NTA) executive adviser Ang Hin Kee, also a labour Member of Parliament, is concerned.

He questions the long-term prospects. "A suspension of driving licence will mean a severe dent on livelihood, and a lack of Central Provident Fund (contributions) will affect longer-term medical and retirement adequacies," Mr Ang adds.

Low barriers to entry could lead to more younger workers abandoning opportunities for trying out new careers or upgrading themselves, he says, adding that ride-hailing apps - and even taxi operators - need to be responsible in how they market the jobs.

Shaking up incumbents

While they have given commuters more choice and created jobs, ride-hailing apps have encroached into the turf of the taxi industry.

Many cabbies whom The Sunday Times spoke to say incomes have been hit by at least 20 to 30 per cent due to the competition.

One is Madam Valerie Chee, 44, a limousine cabby who used to net about $200 in fares during the evening peak period of 6pm to 9.30pm, but is only hitting between $120 and $130 now.

"Because I cannot hit the target within the same hours as before, I will just have to stay positive and keep driving," said Madam Chee, who has been a cabby for eight years.

The numbers tell the story.

According to LTA data, the average daily ridership for taxis was 853,000 in the first four months of the year, a drop of 13 per cent from 977,000 in the same period last year. This is also an eight-year low.

The taxi population is also shrinking. As of May, it stands at 26,172, down 7.2 per cent from the 28,211 in the same month a year ago.

Cab companies, such as Trans-Cab and Premier, have been fighting back, by slashing rentals by up to 40 per cent; while SMRT launched an hourly-rental scheme to reduce the daily cost burden on cabbies. ComfortDelGro, the largest operator with close to 16,000 cabs, launched a flat-fare option for taxis booked via its own app, to rival the new players.

Cabbies, ultimately, see the ride- hailing apps as unfair competition. Madam Chee says: "Private-hire cars and their drivers should be held to the same standards as taxis."

Up until the start of last month, when new regulations for the private-hire car industry kicked in, ride-hailing apps have been given free rein to recruit drivers. Unlike cabbies, drivers did not need to be registered with the LTA or go through any formal training.

Impact of new regulations

In a move to safeguard the interest of commuters, private-hire drivers are now required by law to attend a 10-hour vocational training course and to display their licences in their cars. Cars used for private hire must also have a serialised decal on the front and back windscreens, for them to be identifiable by passengers and the authorities.

Experts say these measures are a good move, in the light of the increase in road accidents, which the General Insurance Association (GIA) surmises is due to the growth of private-hire car numbers.

The GIA said in March that motor accident reports last year soared to a five-year high of 161,361 - about 8 per cent higher than the 149,511 reports made in 2015.

While the association said it would be taking a closer look at the issue, its chief executive Derek Teo points out that there were more private-hire cars, and many drivers were young and inexperienced.

Motor insurance lawyer Anthony Chey says: "The new regulations require the licence holder to keep a register of the private-hire car, which has the effect of establishing the identity of the driver driving the car at any point of time.

"This requirement is similar to that imposed on taxis... Often, passengers involved in road traffic accidents are injured and sent directly to the hospital, and they do not have the opportunity to gather any information relating to the vehicles or drivers involved," says Mr Chey, a partner with RHTLaw Taylor Wessing.

Based on cases he has handled, Mr Chey says it has always been challenging to find out the identity of a private-hire car driver in accident cases, leading to "undue delay in the processing of the claims".

Lawyer Patrick Yeo, a partner at Withers KhattarWong, says with decals, other motorists will recognise the private-hire cars immediately and may be more cautious when driving past them.

Despite the new regulations, NTA's Mr Ang says more could be done to level the playing field.

He noted that taxi operators are still saddled with compliance costs, such as the need to monitor quality of service standards, like how efficiently phone bookings are met with dispatched taxis. As more commuters turn to apps to book trips, this is less relevant, he says.

Mr Ang says private-hire cars should also be subject to safety standards similar to those for taxis, such as being inspected every six months for roadworthiness.

The safety of private-hire cars was cast in the spotlight earlier this month, when the Wall Street Journal revealed that Uber had leased out more than 1,000 Honda Vezel cars that were defective to drivers in Singapore.

The LTA said that only 9 per cent of Uber's fleet of defective Vezels had been fixed, contradicting the firm's earlier claim that all affected cars had been repaired.

Asked repeatedly if it had replaced the defective parts which made the cars fire-prone, Uber would only say it is "working closely with LTA and importers to ensure that LTA's records are up to date".

Mr Ang says: "While taxis and private-hire cars are technically different products of service, the difference is less obvious to commuters and the gap is closing."

The lines are getting blurred.

The Grab app, for example, has pooled all taxis and private-hire cars into a single service called JustGrab, which means passengers who call for a ride can be dispatched to either. Uber still makes a differentiation.

Grab's Mr Lim says passengers are "prioritising efficiency and accessibility over specific vehicle types".

Can ride-hailing apps last?

Out of 10 rides he picks up on the Grab platform, private-hire driver S. K. Tan, 61, estimates that around seven of them are on a promotional fare.

Through chatting with his customers, Mr Tan learnt that some of them were given discounts on rides for an entire week, if they put monetary credits into their Grab app accounts. The recent deal: Top up $20, and get $4 off all rides in the week, up to four rides a day.

While he is paid the actual fares, he expresses concern about whether his job is sustainable. "They are giving so many cheap, and even free, rides to customers and they are also paying us fares and incentives," says Mr Tan, who has been a private-hire driver for three years.

Of the $1,100 he makes in a week, about $400 of it is a bonus which Grab gives him for hitting a trip target. The goal is 180 rides a week, which is achievable if he clocks about 10 to 12 hours of driving a day.

Despite their stellar growth, neither Uber nor Grab is profitable.

Grab incurred combined losses of nearly US$40 million (S$55.2 million) in 2014 and 2015 in Singapore alone. For the first quarter this year, Uber said that it lost US$708 million for its worldwide operations.

But they are heavily backed. According to the crunchbase website, Uber has raised US$8.81 billion in funding, and Grab, US$3.44 billion.

Assistant Professor Yang Nan of the National University of Singapore (NUS) Business School's strategy and policy department says: "As long as investors are still interested in financing the price war, I don't see their patience running out."

When asked about its financials, Grab's Mr Lim says that the firm is "close to profitability in our more mature services and market", though he did not name which.

He says incentives given to drivers helped to "bridge the gap" in the initial stages of business, when there were fewer bookings. He says the reliance on incentives will be reduced as more passengers travel with Grab and drivers take home more fares to cover their overheads.

Uber's Mr Tseng, meanwhile, declined to talk about sustainability, saying only that the firm's goal is to offer commuters "greater reliability and affordability", while for its drivers, "greater stability and opportunities to increase earnings".

NUS transport researcher Lee Der Horng says the bleeding losses may end with either Grab or Uber exiting the Singapore market.

Dr Lee notes that this happened in China, where the millions lost between Uber China and rival Didi Chuxing resulted in Didi buying over the Uber business there.

He says: "The moment when one player controls the market, that's when it will reduce subsidies and incentives, and make profits."

The death of taxis?


Taxi driver Armstrong Ho believes the taxi industry will survive. Foreign visitors will still take taxis, and there are people who will pay for better service, he says.ST PHOTO: WONG KWAI CHOW

Experts such as transport researcher Park Byung Joon from the Singapore University of Social Sciences wonder if the taxi industry will cease to exist one day. Dr Park says: "The future is shaky. There is no real cap on the growth of the supply of private-hire cars."

Prof Yang notes how both Uber and Grab are "getting too similar in terms of product design".

"When product offerings are the same, what is left to compete (on) is price. This is obviously not good for profit, but perhaps worse for traditional cabs," he notes.

A dearth of taxis could impact commuters in a big way, especially during peak periods.

Dr Park says: "Right now, commuters have an option - wait in the taxi stand queue, or you book an Uber car, pay a higher fee and get the ride quickly.

"In the future, if taxis disappear and all rides are priced dynamically, commuters won't have this (more affordable) option anymore."

NUS' Dr Lee says that with regulations, the authorities have in a way given the "endorsement" to the private-hire industry to operate here, which may spur their growth further.

While cab operators are cutting rentals and introducing new fare options, it appears that they are unlikely to go the route of the start- ups and throw money at fighting a price war with the new players.

Some are hopeful the onslaught will end one day. Mr Neo Nam Heng, chairman of the Prime Group, believes that when ride-hailing apps cut back on discounts for commuters, business will swing back to the taxis. "I am confident that while the taxi business is down, it is not out," he says.

He may not be wrong. Commuters like Ms Stella Ang, 36, say they will return to taking taxis in time, if the discounts stop.

Ms Ang, who works in client management, says: "My experience is that taxi drivers tend to be better drivers and tend to know the roads better."

Despite the gloomy outlook, cabby Armstrong Ho, who has been driving for 19 years, believes the taxi industry will survive.

"Because taxi drivers are finding it harder to get by, the number of cabs and cabbies will reduce in numbers," Mr Ho, 49, says.

"But there will always be passengers who want to walk out to the streets, and flag a cab. Tourists and foreign visitors will still take taxis. And there are people who will pay for better service," he says.

A version of this article appeared in the print edition of The Sunday Times on August 13, 2017, with the headline 'Commuters upbeat, but is it downhill for taxicabs?'. Print Edition | Subscribe