Singapore taxis

[updated for brevity]

I was asked by the media to comment on the taxi industry in Singapore, which has been in the news here recently. These were some of my comments.

[BTW, since I first blogged this, some of the comments below have been mentioned in 'Today', 22 July 2006 in a long article which offers a pretty good overview of issues for the Singapore taxi industry.]


Background: Singapore's taxi deregulation
Singapore has 'deregulated' the taxi industry. But what does that mean?

First, there is now no cap on the number of taxis. And the numbers did indeed go up.

Second, there is no limit on the number of taxi companies (although complying with service standards means that tiny operators would have difficulty staying in the market).

Third, each taxi company can set fares to whatever the market will bear - provided they inform the government and the public in advance. Thus, deregulated fares does not mean unpredictable fares. The drivers must still use the tamper-proof meters. In practice, the differences among the companies are small and restricted mainly to the extras.

See here for the official line on the basics of Singapore's taxi deregulation policy (as of 2003) and here for a basic guide (for tourists) on Singapore's taxis.

Below is my take on a few specific issues.

A. Competition among the cab-owning companies not yet sufficient?
Most taxi drivers here rent their cab from one of the companies (at S$90 per day). The taxi companies are thus basically rental companies - with medium term rental agreements with the drivers of their fleet.

In this model, the drivers face an extremely competitive environment out on the streets. The companies are competing to keep drivers so that their taxi fleets are fully utilised.

However, this competition does not yet appear very fierce. For example, drivers complain that the cab companies have never reduced their daily rental, even though COE prices have gone down. This complaint sounds like a fair comment.

Why have the companies not been offering lower rentals? There is certainly one dominant player in the industry (Comfort-Delgro) and it is hard not to wonder if this market dominance is the problem. On the other hand, there are reports that some of the companies now do have significant numbers of idle taxis. So maybe stiffer competition to retain drivers is coming soon? Or maybe there are grounds for requiring the market dominant player to divest part of its fleet?

BTW, see here for a brief official explanation of the thinking behind deregulation.

B. Exempt taxis (and car-share cars and car-rental cars) from purchase taxes like COE and ARF?

In Singapore private motor vehicle purchases are heavily taxed, via the Vehicle Quota Scheme (which results in an extra cost, the COE) and the Additional Registration Fee (ARF). Together with Excise Duty, these more than double the price of a new car. So a small car costs around S$60,000 (about US$38,000).

Taxis (and car-share and rental cars) are currently treated almost exactly like private cars for the purpose of these taxes (except for some small differences) (see for example, the 2002 Budget for the rationale - because they are like cars basically). So the cost structures of the taxi industry and car-sharing (eg NTUC car-coop) and car rental are heavily weighed down by COE and ARF.

BUT I beg to differ. The rationale for ARF and COE is to contain the rate of growth of privately owned motor vehicles? Carsharing, taxis and car rentals (together with public transport, walking and cycling) are among the ALTERNATIVES to owning your own private vehicle.

So exempting these industries from COE and ARF would be in line with the objectives of these taxes.

Would this cause some of these low-tax vehicles to leak into the private car fleet? I don't think so. It is easy to enforce such things with relatively few actors in the industry.

Of course, lower capital costs for taxis will not help drivers or customers, unless there is real competition among the cab companies so that they pass on the savings (see point A above).

C. Peak period issue - allow 'ERP on entry' to be passed to next customer?

Singapore's taxi users have long complained about how difficult it can be to get a cab in peak periods. Peak hour surcharges are aimed at fixing that problem and probably do help.

BUT, one part of the afternoon peak problem for taxis has not been solved yet. It is an unintended side-effect of the Electronic Road Pricing (ERP) cordon around the city centre. Taxi passengers have to pay for ERP. However, for an empty cab ERP costs the driver. This creates an artificial shortage of taxis in the central zone in the late afternoons when few occupied cabs are entering the area and empty ones avoid the extra cost of ERP.

Here is a suggestion. How about we change the rules to allow cabs enteringt empty to automatically add the ERP charge to the next fare. I suspect that taxi meters could handle this, since they are already equipped to add on various surcharges and ERP costs. This "ERP needs paying" status could also be displayed somehow - say on the cab's rooftop display or simply with a low-tech sign (like the change of shift signs).

In evening peak, some customers will be willing to pay this extra in order to get a cab. Some will not. Which is not a problem. They will just continue to wait for a cab without ERP to pay.

The driver would need to be able to cancel the extra ERP charge in case he/she cannot quickly find a willing customer. If no luck, then just cancel it and swallow the loss.

We would need to think through how this would work at cab ranks. I don't think these issues would be impossible though. So maybe this idea is worthy considering?