An under inflated taxi industry


“If you had a tidy sum of money, would you start a taxi business?” I asked Jimmy Wee, the Executive Secretary of the National Taxi Association.

“No. It would be far too cumbersome,” he said very swiftly and confidently, it was as if he had pondered on this question deeply for some time.

Coming from a man who understands the taxi industry inside and out, his words are worth a thought.
This is a business that is not easy to break into. You have boxes of regulatory requirements to comply with, any breach thereof would attract fines. The profit is not worth the investment and unless you have considerably deep pockets, this is not business you want to get involved with. You are also compelled to invest in technological investments and run audits.

The Land Transport Authority (LTA) had made the running of a taxi company as difficult as running an airline.


Since 2008, the LTA had continue to pile layer upon layer of requirements to the taxi companies. Amongst some of these new rules include: having them to puff up their fleet size from 400 to 800, standardising their fares and beefing up a “Quality of Standards” audit (LTA’s metric on how fast an operator responds to phone calls etc) amongst others.

The Authority has good intentions…but these good intentions had paved the way to an oligopolistic hell. Only the very rich, the very big and the very strong can play the taxi game. And oligopolies aren’t known to be very market efficient.

The troubles probably started in 2008. If you recall, this was the year when the world’s biggest recession occurred. To combat a downturn, the government liberalised employment policies and allowed the foreign talent pool to expand. Population increased and the transport infrastructures struggled to keep up.

Although the number of commuters increased, the drivers were nowhere to be found! Worse, drivers are seen to be picky with their customers. Here’s a familiar scenario: it is 4.30pm in the afternoon, hundreds of taxis are on the streets – but they’re either “on-call” or heading to some location you were not going.

Customer satisfaction plummeted.

How did the LTA respond? They introduced more rules: the “On-Call” sign now had to be electronically and centrally turned on to prevent abuse, drivers had to “show proof” they were driving regularly and yes, they were required to drive up to 250km a day.

With every regulatory brick they played, the barriers of entry increased and soon enough the taxi industry walled itself in, nice and cosy.

In 2013, Smart was one of the companies that buckled under the weight of the rules. The company’s exit raised questions on whether the new service standards are too stringent for smaller operators.

The regulator, in making it difficult for competition…had also made it easy for the operators to make a profit. There was no need to innovate, no incentive to urgently and seriously solve the problem of inefficiency.

Recently, it was revealed that up to 2000 taxis are lying idle in the yards instead of plying the roads. This waste of resource doesn’t come free. Now if I was the operator, I would need someone to pay for these idle vehicles. It is not too difficult to guess who in consumption chain would be footing the bill.

Singapore has a (very) high taxi-to-population ratio. We have some 28000 taxis serving a population of about 5m. Comparatively, Hong Kong has only 17000 taxis serving a population of about 7m.

Why is it then that it feels so easy to get a taxi in Hong Kong (and many other parts of the world for that fact), but not so in Singapore? What is the difference?

Competition is the difference.

In Hong Kong, most of the drivers own their taxis and see it as a business. A cut throat business. In other parts of the world, the regulations are not as prohibitive as it is in Singapore, this gives rise to a prolific number of taxi companies whom combat each other to the satisfaction of the consumer.

I don’t have an answer from the LTA as to whether or not they intend to relax the rigid regulatory environment. What I do understand from hearsay, is that this was the system we had in the past and it was not characteristic of the administration to implement retrogressive policies. Or perhaps it didn’t sound intuitive to say “relax the regulations to improve the customer’s experience”, I’m not sure.

Bring in the competition, watch them fight to create a better system. The consumers will benefit from the availability of taxis, the drivers will benefit from better rentals and welfare. It makes little sense to burden these companies with regulations that create diminishing returns for everyone.

Until more competition is injected into the system, I fear that our taxi industry will sluggishly continue running on under inflated tyres.



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