Friday, December 9, 2011

No easy way to fix cab conundrum

Dec 7, 2011

System of surcharges is confusing and remains a second-best alternative
By Christopher Tan

MAKE no mistake, ComfortDelGro's 'taxi fare structure revision' is, to the man in the street, nothing but a fare hike. And a pretty fat one, at that.

The actual list of changes is long: a higher flagdown and metered rate, lengthened surcharge periods, and so on. But the bottom line is, taxi rides will cost appreciably more come Dec 12. A 10km journey to the office in the morning will easily cost 33 per cent more than today.

The most significant change is the extension of the peak period by one hour in the morning and the addition of four new peak hours at night from 8pm to midnight, every day of the year including Sundays and public holidays.

What this means is that only 81/2 out of 24 hours on any day will be effectively 'non-peak' and free of time-based surcharges.

The question is: Why have we reached this state of affairs? After all, Singapore has more taxis per person than most - if not all - big developed cities.

As at 2008, there were close to 5,200 cabs here for every one million people, versus 2,640 in Hong Kong, 3,280 in London and 1,520 in New York.

Yet, complaints from commuters who can't find a cab when they need one have never ceased, whatever we seem to throw at the problem.

The latest attempt is a two-pronged strategy that aims to do two things at the same time - reduce demand and increase supply.

On the demand side of the equation, the fare hike is meant to price out some commuters during the peak period crunch, making it easier for the rest to get a cab.

But whether this will actually happen, of course, remains a function of the size of the fare increase. And past experience has shown Singapore commuters to be fairly resilient in this regard.

The increase has to be substantial enough to have an effect on demand, or it will be a meaningless exercise.

On the supply side, the hope is that more cabbies will find it worthwhile to drive at night.

But here, simple economics does not always translate to the desired change in driving patterns.

Most cabbies, one National University of Singapore study supervised by transport economist Anthony Chin found, have a target take-home income. Once they have achieved it, they either call it a day, or take it easy. Enhancing surcharges will only help these cabbies reach their target earnings faster.

So it remains to be seen what effect the new surcharges will actually have on the ground.

In the meantime, however, the country will be left to deal - more than ever - with the distortionary economic effects of surcharges.

Whoever devised surcharges meant well. In theory, surcharges help to target specific areas or periods of time when supply does not meet demand adequately.

In the case of the Singapore taxi industry, however, the reality is that surcharges have only given rise to yield-maximising behaviour on the part of cabbies.

Better known distortions that customers know all too well include:
  • cabs disappearing before midnight,
  • taxi queues growing longer as empty cabs cruise in nearby lanes waiting for phone bookings, and
  • a supply void that materialises at the same time at dawn and dusk as every driver changes shift at the same time (to allow the next driver a fair shake of the next peak surcharge period).
And we have not even factored in the messy confusion that tourists are faced with every time they pay for a cab ride.

Is it time, therefore to 'reset' the system here?

One way is to dismantle all the clunky surcharges and simply raise the flagdown and metered fares. Let market forces dictate how supply matches demand.

Indeed, there are examples of simple fare structures working well elsewhere.

Hong Kong, where the cab service is rated favourably (at least by Singaporean visitors), has none of the surcharges applied here. Call-booking charge is a flat HK$5, or around 85 Singapore cents. While there are surcharges for luggage and pets in Hong Kong, they are nominal.

Of course, implementing a simple fare structure alone won't solve the problem of an excess demand for cabs. It is a question of price.

Trebling or quadrupling fares to make cabs a luxury (like in places such as Tokyo or New York) could therefore be an effective solution.

But it is a brutal one, and the social and political costs may be too high.

Such a move would easily price out half of the one million or so daily cab trips - something we may not want to do today, with trains and buses so packed and car prices so steep.

Such a system will also see far fewer cabs in operation, and consequently, working cabbies.

So all things considered, ComfortDelGro's fare revision seems a more palatable solution, even if inelegant.

Whatever you may say, it should work to keep cabs plying for longer by rewarding main drivers who can muster longer hours each day.

It will also make it worthwhile for more relief drivers to come into the market. There are more than 93,000 people with vocational licences to drive taxis here - roughly 31/2 for every cab.

But it remains very much a second- best alternative.

Come next Monday, commuters will realise that the only hour of the day that a cab ride will be cheaper than today will be between 5pm and 6pm.

And that might create yet another curious effect in the local market: a mad Happy Hour rush akin to pub goers quaffing down as many beers as possible.

No comments: