Cover Story: Disrupting the taxi industry

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This article first appeared in Corporate, The Edge Malaysia Weekly, on August 22 - 28, 2016.


PARKED at a taxi stand near a hypermarket in Mutiara Damansara, Petaling Jaya, Zakaria Ishak is waiting for customers. He has been on the prowl for business for a while, even though the area is bustling with activity.

A couple of blocks away, private cars are seen picking up passengers from an office building. These cars could be using e-hailing apps that have drawn the ire of traditional taxi drivers.

“There are fewer passengers now. Even the taxis don’t come here very often ... only those that have been booked will come,” says Zakaria, who is in his mid-fifties and has two children, one of whom is four years old and the other just six months.

“Uber and GrabCar have taken away our customers. Some taxi drivers with individual permits have quit as it has become tougher for us to make ends meet,” he laments, looking around to see if anyone wants to hail a taxi.

E-hailing apps from Uber Technologies Inc, GrabTaxi Holdings Pte Ltd and Go-Jek have disrupted the traditional taxi industry in the region. Malaysia has become fertile ground for such services as domestic taxi services are reportedly among the worst in the world.

Uber and Grab have been able to capitalise on the public’s dissatisfaction, especially in major urban areas such as the Klang Valley, Penang, Johor Baru and Ipoh.

Suruhanjaya Pengangkutan Awam Darat (SPAD) chairman Tan Sri Syed Hamid Albar says a survey showed that 80% of respondents were in favour of e-hailing apps, and 70% wanted the services to be regulated.

The outcome of the survey is evidence of the people’s unhappiness with local taxi drivers, who have been known for not using the meter, charging exorbitant fees for short journeys, and turning down passengers.

But who is to be blamed for this state of affairs? Is it all the fault of the taxi drivers, many of whom are hard-pressed to earn a decent living?

There are two types of taxi drivers in Malaysia: those who rent the permits from a taxi operator under a leasing system, and those with individual permits. SPAD controls the issuance of permits to ensure a sufficient supply of taxis.

The leasing system has been criticised for creating a rent-seeking economy. Observers says well-connected individuals get taxi permits from the government, and rent these at rates that unfairly burden the drivers.

A driver under the leasing system has to pay a daily rent to the taxi company that ranges from RM45 to RM80 per day, depending on the type of vehicle.

According to Datuk Aslah Abdullah, Federal Territory and Selangor Taxi Operators Association (Perpekli) president, fuel, namely liquefied natural gas (LNG), is the major cost for a company driver.

“If they are hardworking enough and take care of their passengers, they should be able to get RM100 per day. They pay the companies RM45 per day, and still have RM55. Don’t tell me they can’t make money,” he tells The Edge.

Aslah is the founder and chairman of Destination Transport (M) Sdn Bhd, one of the biggest taxi operators in Malaysia with a fleet of about 1,000 taxis under the “Comfort” brand.

The cost of filling up a tank of LNG ranges from RM12 to RM15. A full tank can last up to a day, depending on the mileage covered and other factors like the condition of the engine.

After deducting the fuel cost, a driver could take home about RM40 a day. However, this does not include other costs such as breakdowns and inspections. On average, a company driver takes home less than RM40 per day, which works out to barely RM1,200 a month — a meagre amount to live on, especially in major urban areas.

Taking a base rate of RM45 per day, a driver under a taxi company would have to pay a total of RM1,350 per month for the car, usually a Proton. After several years, depending on the contract signed with the taxi company, ownership of the car is transferred to him. However, the permit would still belong to the taxi company. The driver ends up with a worn-out car that has been on the road for 12 hours a day for the last seven or nine years, and which would need extensive maintenance and repairs.

“The current system has forced many taxi drivers not to use the meter and charge exorbitant fares because it is hard for them to meet the daily rental payments, and at the same time, try to make a decent living in the city,” says an ex-official of Cradle Fund Sdn Bhd, a unit under the Ministry of Finance, which was an early investor in Grab.

 Grab’s founder Anthony Tan had presented the MyTeksi app to Cradle Fund in 2011 to get financial and marketing backing, and was awarded pre-seed funding of RM150,000.

Apart from taxi drivers having to resort to flouting the rules in order to earn a living, a lack of enforcement by the Road Transport Department has also been blamed for their errant behaviour.

There is also no proper screening system to vet those who apply for a Public Service Vehicle (PSV) licence, which can be obtained by any Malaysian aged 21 and above, who is in good health and has a full driving license.

 While taxi drivers were generally happy when MyTeksi was launched in 2012, they felt betrayed when Grab launched its car-hailing service GrabCar. The latter allows passengers to book a private car to get to a destination, bypassing the taxi system.

“Grab had to introduce its car-hailing service because at that time, Uber had launched its service here. They could not sit by and watch Uber dominate the sector because they knew there was a lot of demand for such services,” says the former Cradle Fund official.

As the popularity of GrabCar and Uber grew and the services were launched in more cities across the nation, taxi drivers began to feel the squeeze. Naturally, passengers who had had bad experiences with local taxi drivers preferred to book a private car.

The frustration of taxi drivers stems from the fact that Uber and Grab are not regulated by SPAD. For about four years, they were allowed to roll out services without being subjected to the same regulations that taxi drivers and operators had to adhere to.

“From the first day I started this company in 1970, I have adhered to the Road Transport Act and Land Public Transport Act. Every taxi company needs to have an operator’s licence and permits for their fleets to operate,” says Aslah, a septuagenarian. “But here come Uber and Grab, and they are not regulated at all. Is this fair?”

His was the first taxi company owned and operated by bumiputeras and benefited from the New Economic Policy launched by Tun Abdul Razak’s administration in the 1970s.

Now, the government has given SPAD the nod to transform the taxi industry and regulate e-hailing apps. A study was done between December 2014 and December 2015, and a proposal was submitted to the Cabinet for deliberation in February.

The proposal, called the Taxi Industry Transformation Programme (TITP), is aimed at creating a level playing field for traditional taxi services and e-hailing apps, according to SPAD chairman Syed Hamid.

“At present, Uber and Grab are not regulated, even by the Malaysian Communications and Multimedia Commission (MCMC). My view is that, before there is a law, they should not operate. But they already have and the public is very happy with their services,” he said at a press briefing last Tuesday.

“If they are here to stay, we are going to regulate them. It is not our intention to favour the e-hailing apps over taxis, but we have to recognise that the world is changing, and technology cannot be stopped.”

Asked for his views on TITP, Aslah seems to be in a state of denial. He says the TITP has not been gazetted and as long as the government has not made it official yet on how to regulate Uber and Grab, taxi operators will continue to regard them as kereta sapu.

But for Uber and Grab, TITP has given them legal clarity for their operations in Malaysia. Their ambiguous status before this had made them targets of taxi drivers and operators.

In an email reply to The Edge, Grab’s country head for Malaysia Jaygan Fu says the company has been in constant dialogue with SPAD and the government to encourage a level playing field for all parties involved in the taxi and hire car services.

Fu says the dialogue and discussions with SPAD and the government were to encourage the inclusion of technology to improve the transport industry and the livelihood and working conditions of drivers.

“We look forward to working closely with the relevant authorities, especially SPAD, to understand the proposed amendments to current regulations, which no doubt will represent the government’s progressive stance and reflect society’s demand for ride-hailing services.

“We are appreciative of the relevant parties and stakeholders who spent many hours tirelessly reviewing, collating and sharing data related to the industry and has led to this milestone,” he says.

Uber Malaysia general manager Leon Foong says in a blogspot post that “Uber welcomes the Malaysian government’s recognition that ridesharing is a positive contributor to riders, drivers and cities.

“We look forward to continuing to work with the government on these important pro-innovation reforms.”

Institute for Democracy and Economic Affairs (IDEAS) CEO Wan Saiful Wan Jan applauds the Cabinet’s decision to transform the taxi industry and regulate the e-hailing apps industry, saying the move is a progressive game-changer for public transport in Malaysia.

“We welcome the much-needed reforms to the taxi industry. As we have previously highlighted, this industry has been plagued by regulations which unfairly punish individual drivers and which negatively impact the quality and efficiency of their services.

“With these new reforms, there will be an incentive and impetus for our current taxi system to uplift itself and perhaps even learn from the best practices of its competitors. Taxis will always be needed, and with the right incentives, I am sure they will be able to compete healthily,” he says.


A positive step forward

IDEAS calls on SPAD to consult with the public and publish a white paper that details the reforms of Malaysia’s public transport as a whole. This should now also include a positive treatment of all models of ride sharing, says Wan Saiful.

The growth of the internet and mobile application services has given impetus to the rise of the sharing economy. Besides e-hailing services, the sharing economy also includes accommodation renting such as Airbnb, peer-to-peer trading and services, as well as crowdfunding.

In fact, Malaysia has the right ingredients for the sharing economy to take off. E-hailing services basically plugged into the excess of car ownership in Malaysia  — some 92% of households own a car, the third highest level in the world, according to Nielsen.

Nielsen also found, in a survey published in 2014, that 54% of Malaysian households own more than one car — the highest level in the world. E-hailing apps have managed to reassign these abundant and idle resources to better economic use.

“The sharing economy is growing globally and we should ride it to make sure our public transport system improves. SPAD is well positioned to lead this transformation,” concludes Wan Saiful.

While Aslah of Destination Transport has opted for a wait-and-see approach towards TITP, the writing is on the wall. The taxi industry in Malaysia cannot maintain the status quo. Change is inevitable in today’s world, and taxi operators should be ready to face the reality.