Stronger regulation, appropriate pricing model needed to ensure right balance of PHVs

RIDE-HAILING platform Grab said last week it had suspended a driver for failing to arrive at a pick-up point.

According to an AsiaOne article, a Grab user had complained that the driver was found eating at a coffee shop and was waiting for the booking to be cancelled.

Commuters have a three-minute grace period to cancel their bookings, after which they incur a S$4 fee.

If drivers cancel a booking, they may not qualify for incentives.

Judging by the comments on the user’s Facebook post, and how widely it was shared, many could empathise with his experience.

Commuters are increasingly reliant on private-hire vehicle (PHV) platform operators for point-to-point transportation needs, given the high cost of car ownership.

Indeed, shared vehicles are a potentially viable solution to Singapore’s problem of balancing limited land space with the desire for access to a private vehicle.

The lived experiences of commuters, however, suggest that more should be done to raise standards, and ensure an appropriate balance of such vehicles on the roads.

Ubiquitous

Data from the Land Transport Authority (LTA) shows the number of PHVs on Singapore’s roads rose from nearly 19,000 at end-2014, to over 77,000 five years later.

Over the same period, the number of private and off-peak cars fell around 8 per cent, from 575,000 at end-2014 to 528,000 at end-2019.

The taxi population has shrunk from a peak of nearly 29,000 at end-2014 to around 18,500 at end-2019.

The PHV fleet moderated during the Covid-19 years, but it is growing strongly once again – high Certificate of Entitlement (COE) prices notwithstanding.

Between May 2022 and May 2023, an average of 653 private-hire cars have been added to the roads each month. The overall population is now 76,231 – close to 2019’s peak.

Meanwhile, the overall car and taxi population has continued to shrink over the same period.

The PHV proportion is reflective of market forces. Owners who generate revenue from such vehicles can afford to pay more for the COE, which is needed to register a car, and the economic power of fleet operators is stronger than that of the average individual.

If such market forces are allowed to persist, the market could be distorted.

An operator with strong financial backing could choose to grow aggressively and capture market share at the expense of near-term profitability.

Individual owners who are priced out of vehicle ownership would be forced to resort to car sharing or ride hailing to meet their point-to-point transport needs, perpetuating the cycle.

Of course, a more efficient public transport network could act as a counterbalance – by providing a cheaper and equally convenient alternative to PHVs.

Still, it isn’t clear how long it would take for public transport to be efficient enough to fulfil such a role. And the distortions in the near term hurt households with greater need for vehicles.

Another reason market forces may not result in optimal allocations is that the current COE system has some pricing inefficiencies.

The COE bidding model taxes the fixed cost of ownership instead of the variable cost of usage. This doesn’t fully capture the negative externalities of congestion and pollution from heavily-used vehicles.

Ride-hailing and car-sharing vehicles naturally see greater usage than individually owned private cars.

After the high fixed cost of ownership is paid by an operator, it is in the operator’s interest to maximise usage – to recover costs and generate value.

This does not appear to be consistent with Singapore’s goal of less congestion and a car-lite city.

Beyond COE pricing and allocation, tougher regulations for shared-use vehicles should also be explored.

The current “light touch” regulatory framework for service standards seeks to allow market forces to drive service delivery and innovation.

Raising standards to meet public needs

It has been nearly a decade since ride-hailing reached Singapore’s shores, though. Grab, the country’s largest PHV platform, has by now accumulated a sizeable market share and significant pricing power.

As at end-2022, there were over 46,000 chauffeured PHVs and 14,000 taxis. Collectively, this was more than double the taxi population of 28,736 at the 2014 peak.

In spite of the larger aggregate fleet size, there are still complaints over wait times and high prices.

Taxis in the past were subject to minimum daily mileage of 250 km and other requirements to ensure availability during peak periods, but this was later removed in view of technology developments and higher availability of point-to-point vehicles.

Ride-hailing vehicles now dominate, but there are no firm requirements on service standards for availability. They can be used as a private vehicle at will, and some may be used only occasionally to ferry passengers. Variable pricing with surges seems to be the preferred approach to match supply and demand, which has also led to unhappiness among commuters.

It isn’t apparent that having even more PHVs would materially benefit commuters, unless stricter standards are introduced that set out the desired outcomes.

Car-sharing players are a newer, smaller segment of the market. These platforms allow individuals to drive their own vehicle for a few hours when they need one.

Yet, there are drawbacks to this model too.

For instance, there have been complaints about dirty or poorly maintained vehicles. Inexperienced drivers in unfamiliar cars are another concern, as they could negatively impact road safety.

Users who get into accidents have also been saddled with hefty insurance excess payments.

If market forces were to lead to even more fleet-operated PHVs on Singapore’s roads, a regulatory framework that sets out clearer standards is necessary in order to ensure that such services benefit end commuters too – and not just their operators.