Jun 25, 2015
EYE ON SINGAPORE
Back to the days of 'pirate' taxis?
By Christopher Tan, Senior Transport Correspondent
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.
[Call only cab company? Might be the solution!]
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.
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.
Uber drivers not quite employees nor contractors
By Justin Fox
THE question of whether an Uber driver is an employee doesn't matter just to Uber.
As you may have heard, the on-demand car-service juggernaut lost a case early this month before the California Labour Commissioner on whether a driver was an independent contractor or an employee and thus eligible for expense reimbursement.
Uber is appealing against that ruling in court, but it already faces a class-action lawsuit over the same issue in federal court in California and similar fights in Florida and Massachusetts.
These legal battles have actually become pretty common lately for car services and taxi companies, not just Uber. Sometimes, the issue is that drivers who clearly are employees (they don't own the cars, they only drive for one service) are treated as independent contractors by skinflint car-service owners. More often than not, though, it is cases like Uber's, where drivers own their cars, can drive for other services and can set their own timetables - all attributes of an independent contractor - but are dependent on the service in ways that make them seem not quite independent.
It isn't just car services, either. Drivers of larger vehicles are also frequent litigants in what are called "independent contractor misclassification" suits - FedEx settled one earlier this month with 2,000 California pickup and delivery drivers for US$228 million (S$305 million) and has similar suits pending in other states. I asked Mr Richard J. Reibstein, a New York-based partner at the law firm Pepper Hamilton who represents employers in such cases, to reel off some other industries in the crosshairs of plaintiffs' attorneys and regulators. His list: "construction, janitorial, staffing, Internet services, landscaping, cable companies, security, health services, educational services, performing arts, publishing".
In many of these disputes, there are reasonable arguments for both sides. In a March ruling that a class-action lawsuit against Uber rival Lyft should go to trial, for example, US District Court Judge Vince Chhabria wrote: "At first glance, Lyft drivers don't seem much like employees… But Lyft drivers don't seem much like independent contractors either."
This quandary isn't a new one. Here's Supreme Court Justice Wiley Blount Rutledge in 1944: "Few problems in the law have given greater variety of application and conflict in results than the cases arising in the borderland between what is clearly an employer-employee relationship and what is clearly one of independent entrepreneurial dealing."
This was in the majority opinion in National Labour Relations Board v Hearst Publications, in which the court backed up an NLRB decision that, for the purposes of collective bargaining, newsboys who delivered or sold newspapers should be classed as employees. Three years later, Senator Robert Taft tried to make it clear with the Taft-Hartley Act that no, they were independent contractors. But he didn't make it quite clear enough - newspaper publishers are still losing lawsuits to news carriers who say they were misclassified as independent contractors.
Along the way, the focus has shifted from collective bargaining to benefits and worker protection. Only 6.6 per cent of US private-sector workers were union members last year - down from 24.2 per cent in 1973. But those classed as employees now enjoy a wide variety of federal, state and local protections, from minimum wage and overtime laws to unemployment insurance not available to independent contractors. Most of the lawsuits and regulatory enforcement actions, then, are about wages, expenses and benefits that workers would have had had they been treated as employees rather than contractors.
While legal wrangling over these matters is, as noted, not at all new, Mr Reibstein said it has really heated up during the past six years. That's partly because the Obama administration has been much more interested in the subject than the Bush administration was. But it's also because such semi-independent work arrangements seem to be on the rise, and are definitely getting new prominence as fast-growing companies such as Uber, Lyft, Airbnb, TaskRabbit and Upwork make them central to their business plans.
The great forerunner of all these companies is online marketplace eBay, and its experiences illustrate some of the issues at work here. "Employee" doesn't seem at all the right term for those who sell their wares on eBay - infrequent sellers are equivalent to somebody holding a yard sale; "PowerSellers" are simply merchants. Yet eBay sellers are dependent on the firm's platform and the rules it sets in ways that a yard-seller or a Main Street merchant are not. The result: lots of class-action lawsuits about the terms eBay imposes on sellers.
Still, eBay is at least at no real risk of having its sellers deemed employees. Mr Reibstein says Uber could lessen its legal risk a lot "by exercising less direction and control" over its drivers. But that could make it harder for the company to offer its customers reliable service.
The employer/contractor legal dichotomy might push Uber and its peers in directions that economic logic and general good sense would not.
"The dichotomy makes the provider-platform relationship more adversarial than it needs to be, which hurts platform culture," Professor Arun Sundararajan of New York University, who has done much research on what is often called the "sharing economy", said in an e-mail when I asked him about this. "It introduces an artificial distance."
Prof Sundararajan has in the past contrasted Uber's less-than-cosy relationship with its drivers with the culture at lodging marketplace Airbnb. In his e-mail, he said: "With Airbnb, there's little or no risk of a host being considered an employee, so the platform has more freedom to bring the providers 'closer' and engage in interaction with their hosts that might be associated with a firm-employee relationship in a traditional company. I believe many of the platforms would give their providers more (if for no other reason, as a retention and brand-building strategy) if the risk of 'might be considered an employee' were lower."
One possibility that Prof Sundararajan suggested in a recent Financial Times op-ed would be to decouple the employee safety net of health coverage, worker's compensation and the like from full-time employment. Another that's been getting renewed attention lately would be to add a new legal class of worker somewhere between the employee and the independent contractor - the "dependent contractor". The term was introduced to North America in a 1965 law review article by Canadian scholar H. W. Arthurs, who said he got it from a 1962 book on Swedish labour relations, and Canada, Sweden and Germany are among countries that have long had such a classification.
In Mr Arthurs' account, the distinction was, as with the newsboys of the 1940s, all about allowing dependent contractors to organise for the purpose of collective bargaining. That's clearly one big issue. When it comes to what other benefits of employee-dom dependent contractors should enjoy, things would presumably get very complicated very quickly. Also, because there is pretty much zero chance that the current Congress will address this issue, advances are more likely to come state by state. That's good in the sense that it will allow room for experimentation and comparison - but it may prove maddening to companies operating in multiple states. Still, acknowledging that the current classifications aren't enough seems like it would be a big step forward. "The jury in this case will be handed a square peg and asked to choose between two round holes," wrote Judge Chhabria, who heard the Lyft case. Time to start carving out some square holes.
BLOOMBERG VIEW
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