Friday, 2 May 2014

Taxi woes

Singapore has more taxis than HK, but arguably has less satisfaction with our taxi service. This is a perennial problem. 30 years and counting.

The problem as a lot of people have noted is that Singapore doesn't have even 1 taxi company.


What about Comfort Cabs? CityCab? SMRT Cab? And TransCab?

Nope. Those aren't Taxi Companies.

At best, those are taxi rental companies.

Their business model is to buy a fleet of taxis, rent it out to taxi drivers and make sure that very few taxis are idle in their garage. Their income comes from the taxi rental. If there are more passengers, it doesn't affect their income. If there are fewer passengers it still does not affect their income. Only if there are fewer driver-renters, then they have a problem with their revenue.

So how do they ensure that there will be enough taxi driver-renters? Make sure taxi drivers believe that there is money to be made driving taxis.

How to ensure this impression is what taxi drivers have? Keep fares low (good for the passengers/taxi-taking public; it raises demand for taxis), and don't supply enough taxis to satisfy demand (bad for the public). An impression that there is insufficient taxis will also allow the taxi rental companies to keep the taxi rentals high.

[Afternote: Taxi Rental companies would only buy and maintain only enough taxis that they are sure they can rent out. And taxi-renters (a.k.a. taxi drivers) will only rent taxis if they believe they can cover the costs of renting a taxi. So it is NOT in the interest of the taxi rental companies to have too many taxis. They should be under-supplying in order to be able to keep their rental rates high. Or the cost of buying and maintaining a taxi is rather high, so it would be a loss to have too many taxis that you will have to lower your rates to get renters.]

So other than the low fares, the rest of their strategy works against the public!

The taxi passenger is NOT the taxi rental company's customer. Their customer is the taxi-renting DRIVER.

Because their customer is the taxi driver, they have very little incentive to punish their customer. Say a taxi driver gives you bad service. However you define bad service. And you complain to the "taxi company". What do you think they would do? Suspend the driver? Who's going to pay for the taxi rental while he is suspended?

The problem as pointed out in the article is that the fares are not set right. Set too low, and there is a lot of demand, and taxi drivers can pick and choose passengers. Set too high and demand falls and drivers can't make a living. It has to be set at a point higher than current, because there is a LOT of demand which tells you that fares are too low. 

When fares are too low it is also not worth the drivers' while to work longer or take more passengers. The opportunity costs of skipping a passenger is too low, so drivers can afford to get off the road (or run personal errands). The benefits of another hour of driving is too low. In a factory, overtime work is paid at a higher rate. There is no such incentive for the taxi driver.

So how did we try to solve the problems? Surcharges.

Not enough taxis at the airport? Surcharge.
Not enough taxis in the CBD? Surcharge.
Taxi's disappearing before midnight? Surcharge.

Problem with all these surcharges?

Confusion. Uncertainty. Misunderstanding. More importantly, in the end, there will be a surcharge for every place, everything, and every time. And that defeats the purpose of surcharges. Or rather, it proves that taxi fares are too low. Surcharges raises the fares.

The other problem or question is where does the Taxi fit in the whole scheme of public transport? Unlike buses and trains where routes are set, taxis do not have formal routes. Their business is more unpredictable. Demand and the distribution of demand, is more fluid.

Taxi drivers can try to "pursue" the customer. But it requires perfect knowledge.

The best way is to let the customers tell you. By phone booking.

Except that here we penalise the customer for doing so, with a booking charge.

In some cities, cabs have to be called by phone. And there is no charge.

So here are the things we need to get right.

1. The fares have to be right. It is too low currently. We know it is too low because even though we have more cabs than HK, we have more instances of people wanting a cab, and not being able to get a cab. Some may say that this is because the drivers are not on the roads. Yes. Because the fares are too low and the opportunity costs of not working is low. Raise the fares and it will be more worthwhile to be on the road, and then there will be more cabs on the road. And taxi drivers will be "hungry" for customer-passengers. Every passenger is a small gold nugget, and they cannot afford to be picky because there are fewer customers now.

2. Reduce or eliminate surcharges. Surcharges attempt to channel supply to some area or other, but this reduces supply in other area. If the fares are set right, drivers will drive, and there will still be enough passengers. Surcharges should only be used sparingly and after considerable deliberation. Raising fares is unpopular, but if you raise fares as you eliminate surcharges, it may be more justifiable.

3. We need a REAL taxi company. One that sees the passenger as the customer, not the taxi-renting driver as the customer. One that is directly serving the passenger. In such a business model, the taxi driver should just be an employee. They will be required to drive X hours a week on salary, and if they do overtime, then they either get a cut of the fares, or overtime rate.

However, to optimise the use of the cab, this cab service should be an all-booking service. That is the cabs do not cruise on the streets. They are based at various waiting points, and they only take call bookings and there is no booking charge. Because the taxi drivers are employees, sending them out to cruise the streets would be too random. So they work on assignments (call bookings).

How will this Call-booking only Cab company help?

The company will be directly responsible for serving the customer, not renting taxis to drivers. As a call-booking only taxi company, their Unique Selling Proposition is to provide a cab from door to door when you want it at no extra charge. If there are more callers than cabs available, the company loses potential customers. If there are too many cabs and not enough customers, the company incurs higher costs. Over time, the company should be able to know when are the peak demands, and plan for them better.

Drivers will be on salary, have CPF, get benefits like medical insurance, and can benefit from overtime work if necessary.

The difficulty will be that there are cruising cabs which may "hijack" the passenger who has booked a cab. Currently the booked cab cannot do a thing, and the passenger has an incentive to be "hijacked" - he doesn't have to pay the call-booking surcharge.  However, if there is no surcharge, the only incentive, is that the passenger would get a cab a little earlier. The cab company will need to figure out a way to protect their business model. Say a "three strikes and you're blacklisted" policy. If you frequently call and abandon the called-cabs, after three such instances, your number will be blacklisted, and will get lower priority for cabs.

Or charge a lower fare, or lower starting fare, compared to cruising cabs. Then there will be a built-in "penalty" for abandoning a booking.

Sidenote: Taxi fares around the world from Airport to Town

Afternote: The smartphone app Uber provides a way to "socialise" cab-booking. It would be interesting to see a Uber-based/Uber-only cab company.

1 comment:

Dead Poet said...

The only wayto have good taxi service like the good old days, is to let taxi drivers own their own vehicles. These GLC companies are screwing the taxi drivers and the populations