Back to the days of 'pirate' taxis?

TRANSPORT apps providers like Uber and GrabTaxi are leading the charge in a revolution that is rising slowly but surely in the taxi industry.

For decades, the industry has been a cocooned sector controlled by giants such as ComfortDelGro and SMRT.

Even when the industry was liberalised 12 years ago, paving the way for a number of new players to enter the fray, it did not change the status quo dramatically.

Taxi commuters still complain of not being able to get a cab at odd hours of the day, or if they happen to be in far-flung locations. Sometimes, people downtown struggle to get a cab during Electronic Road Pricing (ERP) hours - despite the taxi population having ballooned by some 45 per cent since "liberalisation".

And, of course, the convoluted taxi fare structure has become even more confusing since.

As for taxi drivers, their lot has not changed much either.

Initially, they had the choice of migrating to a new company if they felt their terms with the incumbents were unfair. But it did not take long for rental rates of the newcomers to level up to what industry leader ComfortDelGro charges its drivers.

Daily rentals currently range from around $130 for a regular Korean cab to close to $180 for a new Mercedes-Benz taxi - 50 to 60 per cent higher than pre-liberalisation rates.

Cab companies often cite the rise in certificate of entitlement (COE) prices as a reason for the escalating rentals. But that is too convenient an excuse, if not downright false.

  • First, not their entire fleets were bought with high COEs. Many cabs were bought when premiums were less than $20,000.
  • Second, if you were to total up the rental increases over the lifespan of a taxi, it would far exceed the actual increase in COE premium.

In short, nothing has really changed, because the taxi business model has not changed.

Companies like Uber and GrabTaxi look like they will disrupt the industry. Ever since they started arriving two years ago, these tech start-ups have been trying to find an operating model that gives them an edge over traditional cab companies, and which will not run afoul of regulations.

And it looks like they have found it. Four months ago, Uber set up a wholly owned rental company. It rents out oldish cars to drivers at rates that are half the rate for taxis of a similar age.

Hirers have to set up a shell company, to meet a regulation that says that only employees of a limousine company can provide chauffeured services. (In this case, the hirer is both employee and boss of the shell company.)

GrabTaxi is following suit, although it has decided to team up with a local car rental company instead of starting its own.

This development may well be the tipping point. Although industry observers point out that call-booking jobs currently account for only 20 per cent of all taxi rides (Uber and GrabTaxi drivers are not allowed to do street hails), it will not be long before the percentage grows.

Smartphone penetration is rising, call-booking rates are falling on the back of competition, and rising affluence means more people will want to summon a taxi with a couple of keystrokes than wait for one in the hot sun.

And when distance-based ERP is rolled out a few years down the road, taxi drivers will be disincentivised to cruise for passengers.

Moreover, those who want to offer paid rides for a living might find the Uber/GrabTaxi model more attractive. They drive an unmarked vehicle, which they can pass off as their own car.

And their service requirements are less onerous than the ones traditional taxi drivers have to fulfil. (For Uber, drivers have to cater to a minimum of 40 rides a week. Traditional cabbies have to clock at least 250km a day.)

In short, the kitchen will become a lot hotter for the incumbents. Eventually, they will have to lower rental rates to meet the competition. They will most definitely have to lower or waive call-booking charges on drivers.

But until then, these parallel taxi services are unlikely to attract many full-time cabbies. Street hails still account for the bulk of a cabby's income today.

They are more likely to attract part-timers who have a day job. These drivers are likely to drive during the morning and evening peaks (before and after work) - when demand for taxis usually outstrips supply most starkly.

To commuters, that can only be a good thing, right? Generally, yes, if not for the small worry of safety and security.

It is easier for someone with ill intentions to get hold of an unmarked rental car than a taxi. Parallel taxis do not display photo identities of drivers. Their drivers are not trained or licensed.

In other words, the filter against mischief is thinner in the alternative operating model. And because these cars do not have traditional taxi meters, fare disputes could arise - for instance, if a passenger changes destination midway through a journey.

Even if policymakers welcome the likes of Uber and GrabTaxi because they can address the inefficiencies of the taxi industry - an inefficiency they are partly responsible for - they will have to address these concerns, as well as accusations that these services compete with taxis on an uneven playing field. For instance, traditional cab operators have to meet strict service standards whereas the new set-ups pretty much operate in a laissez-faire environment.

Taxis have a statutory lifespan of eight years, whereas these operators can use vehicles for 10 years - more if they revalidate the COE. Taxi companies have to invest heavily in dispatch and meter systems (as well as their own apps).

The starkest difference - and the one that is most pertinent to consumers - is insurance coverage. Are these new parallel taxis adequately covered to reflect the risks drivers, passengers and third parties face?

Because if they are, the insurance premiums they pay should be similar to taxi premiums. But they are far lower.

The argument that chauffeured services have always been in existence is no comfort. With technology, the dynamics of the business have changed drastically. These services are in fact on-call taxis. Hence they should be regulated as such.

Otherwise, if all it takes is a $2 company for someone to offer paid rides, there is practically no barrier to entry. In essence, we may be on our way back to the days when "pirate" taxis ruled the roads.


A version of this article appeared in the print edition of The Straits Times on June 25, 2015, with the headline 'Back to the days of 'pirate' taxis?'. Print Edition | Subscribe