Competition must be fair

It is indeed good news that clear rules and regulations governing private-hire operations will finally be rolled out - four years after disruptors such as Uber and Grab entered the scene here.

The rules include requiring all private-hire drivers to obtain a vocational licence, and to display a prominent decal on their cars.

This should raise the competence of such drivers, who are currently as young as 21, and who may have as little as one year of driving experience.

The visibility of such cars on the road can also only be a good thing, as it alerts other road users to their presence, and makes private-hire drivers more aware of their own visibility, hopefully, keeping them on their toes.

Today, these drivers operate under a cloak of anonymity, with many even going the extra mile to mask the label on their car's number plate that says "Lion City Rental" - an Uber-owned company.

Rules ensuring that such cars are properly and adequately insured are welcome, too. Insurers have observed that private-hire vehicles are exposed to higher accident risks, and lawyers have highlighted cases of people running into difficulty filing claims after getting into accidents with these cars.

It is thus a relief that fines and suspensions will be imposed on private-hire drivers and operators who flout the rules. All these moves should go some way towards improving service and public safety.

But more needs to be done to ensure that these newcomers compete on even ground with taxi operators, so as to maintain some competitive tension that lasts over the longer term.

One glaring disparity has to do with the regulation of fleet size. The taxi population has always been controlled, directly or indirectly. This has ensured that drivers can make a decent living and their high-mileage vehicles do not contribute more to congestion than necessary.

The private-hire fleet, on the other hand, has trebled in size since 2013 to more than 50,000 vehicles last year. And there is no sign of their growth slowing.

Congestion aside, the inflationary pressure their companies add by bidding aggressively for certificates of entitlement cannot be desirable.

Another stumbling block that prevents cabbies from competing head-on with the newcomers is the myriad taxi fare surcharges that have put many commuters off taxis.

In this day and age, are surcharges still relevant?

It has been argued that the complex and cumbersome fare structure here is the reason for the dismal taxi service standard.

In theory, surcharges help to regulate supply when it does not meet demand adequately during specific periods of time or in certain areas. In the case of the taxi industry, however, the reality is that surcharges have only given rise to yield-maximising behaviour by cabbies. Their distortionary economic effects cannot be underestimated.

Behavioural economists such as the late Anthony Chin from the National University of Singapore had pointed out the fallacy of surcharges. A study supervised by the professor found that surcharges helped cabbies achieve their target take-home income faster. Once they had achieved their goal, they would either call it a day or take it easy.

Next, there is the annual licensing fee, which taxi operators have to pay and private-hire operators do not. Last year, the fee was doubled from 0.1 per cent to 0.2 per cent of a taxi company's gross revenue. This year, it is slated to go up to 0.3 per cent.

For a mid-sized operator such as SMRT, the fee hike translates to more than $100,000 in additional costs per year - to over $400,000 this year.

Second Minister for Transport Ng Chee Meng said yesterday that the Government preferred a light-touch approach to allow the private-hire industry, which is still evolving, "to continue to innovate and benefit commuters".

But with advancements such as autonomous vehicle technology showing signs of maturing in the next decade or two, point-to-point transport services may yet evolve into something else altogether.

Until then, fairer competition won't hurt.

A version of this article appeared in the print edition of The Straits Times on February 08, 2017, with the headline 'Competition must be fair'. Print Edition | Subscribe