A Flat Fee Suffices - On Taxi Fares in Singapore

Recently, the news media discuss the issue of a cab fare hike as the  cab drivers are complaining of rising operational costs. A member of parliament has recently suggested to further increase surcharges during peak hours as a possible solution. That solution does not solve the present problem but instead exacerbate the crisis to a new level. The problem with his proposal is that the increase of surcharges will lead to further abuse from the taxi drivers during the peak hours. Instead, the better solution is to get rid of all the surcharges and instead impose a higher flat fee (say S$5-S$6) that can solve the problem for both the taxi drivers and the customers. Of course, the other thing is that LTA and the taxi companies must understand why surcharges are failing currently in Singapore.

Here is the problem cut down into one paragraph in simple economics. There are many customers during the peak hours and there are finite number of taxis. In order to create incentive for the taxi drivers to fetch customers, the taxi companies increase the surcharge and the number of taxis after clearing permission from the Ministry of Transport. Strange enough, till today, people are still complaining. Consider the following information, the taxi companies are continuing rolling out more and more taxis but the number of complaints has not gone down at all. One can infer that there is a missing gap between both the taxi operators (taxi companies, cabbies) and customers.

Why is it so, you may ask? First of all, the taxi drivers gave excuses for not fetching some people because the distance is too far. For example, a taxi driver finds no incentive to drive someone up from the city to Jurong because he would have difficulty finding an customer such that he can enter back into the city. So, as a result, most drivers, after sending their first customer out of the city, are wasting time hovering around the town areas like Jurong, Ang Mo Kio, Pasir Ris and Yishun. The problem for the taxi drivers, given their lack of education, is that they actually believe that they are worse off driving back down to the city and pick up another passenger than to hover around the area. Most cab drivers don't realize that driving around Jurong to find a customer in wee hours costs more fuel than immediately driving back to Boat Quay or Clarke Quay to pick up another. So, the surcharge model fails because it does not address the taxi driver's nuances about wasting fuel. Whereas, a higher flat fee solves the problem by paying the cab driver upfront fees that help him to sort out operational costs.

Second, the surcharge system is abused blatantly. During peak hours, you are likely to get a SilverCab or a SMRT cab than getting a Comfort-Delgero cab (both the blue and the yellow ones). The reason is the phone booking system and the surcharges. Since the blue and yellow Comfort cabs make up the bulk of the taxi population, the tendency is for a rogue taxi driver to sit out and wait for the phone call so that he or she can earn a few dollars more. In fact, the cab drivers made it blatant to have their supper between 10.30 to 11.30 pm such that they will pick up all those poor people waiting outside Clarke Quay after that time with the surcharge. The way how taxi drivers are gaming the system is just the economic behaviour of perverse incentive. To deal with that problem, we don't give privileges and instead force them to compete by giving everyone a level playing field with a higher flat fee.

So, is there a possible solution to the problem to solve both problems? Yes, the solution is simple - take away the surcharges during peak hours and force the taxi drivers to compete fairly. By doing that, you reduce the chances of bad behaviour and reward good behaviour. Unless the taxi companies and LTA decide to adopt some economic sensibility, otherwise two things will happen in the long run: one, more people will buy cars if they can afford it and stop using taxi cabs and two, getting a continuous stream of complaints every day.

Comments

[Timothy Chua]

Your article is not contrarian at all. It makes perfect sense. I would say its a bit daring though, the part about the cabby's education level, which could have been ommitted and would still get the message through.

May I add that a flat fee will also solve the problem by reducing demand if its high enough. Let's say SGD 10 flag dowm and 10 cents every 100m. Demand will drop dramatically and nobody will have to wait for a cab. Drivers will only need make 6 trips a day (down from 28 now) to make a decent living. Taxi stands will have long lines of taxis like Japan, Denmark etc... The mileage on the vehicles will drop significantly and hence the operating costs for the operators will decline. This can be cost transferred into free call bookings which will enhance efficiency.

The higher takings for cabbys will encourage more to take up the vocation. More taxis will have reliefs, thus ensuring more cabs are on the road and the untilized fleet of the taxi companies will be reduced. This cost reduction can again be transferred to the public by means of the operator's ensuring the highest service standards.

If such a direction is not adopted, I fear the only solution is time. A time when the MRT connects the island like Orchard Road/Shenton Way supplemented by a loss making Bus service.

[Masindi]

Take the bus/MRT or join car-coop.

[Krish]

I think its time to reduce the call booking charges to 0.50 cents, and let everyone call and book and that's how taxi is directed to where there is demand...

[Kaffein]

Taxi companies will never reduce their rental costs. And these surcharges are just a front for the taxi companies to make more monies out of the customer.

The admin charge on the phone booking is totally ridiculous. Yet taxi companies get away with off-loading the setup cost to the customers, as they did with many implementations (ie ezlink, nets, etc)

One of the major solution is this:
Singapore is already a small country. Having various semi-private taxi operators who ultimately serve the GLC are not going to work. They can tweak fo all their lives and yet never solve even the most minute problems.

Focus on serving the public and their needs, and making more $$$ from us. Make it as a service and not a profit-oriented focus. Once this bottom line has been established, the policies and major solutions will fall in place. And we won't have this surchage review, etc.

Yet this will be wishing thinking.

[Hun Boon]

Hello,

I think you meant higher flag-down fee, and not a higher flat fee?

A lot has been said about the taxi problem. My personal take on this is a combination of the following:

1) reduce taxi rentals

Taxi operators are making obscene, guaranteed profits while leaving the drivers to bear the risks. This is patently unfair.

2) fare sharing

To compensate for the loss in rental income, have a fare-sharing scheme. Operators will also have incentive to help their drivers.

3) remove surcharges

They distort the market and result in over-supply in certain areas and under-supply in others.

4) Free phone booking

Phone booking is the most efficient way of allocating supply to meet the demand. Drivers spend less time cruising, and passengers spend less time waiting.

We should encourage more of it by making it free.

In some cities, flagging down taxis by the street is not allowed. I can see the logic in this, as it discourages cruising and eliminates sudden swerving manoeuvres.

Of course, the above won't happen because it means more work and uncertainty for the taxi companies. The market leader is a GLC, there's even less incentive to change the status quo.

So my feeling is that the taxi woes will persist for years to come.

Best advice is to work hard and buy a car instead. :)