Kong and Ah Mah had been concerned with Teng’s unstable earnings but he had assured them then that he knew where and when he could pick up passengers easily. And he remembered the budgeting and financial planning advice he had received from a well-meaning finance professor from NUS (National University of Singapore) whom he had given a ride to some years back. The professor had enlightened him of his research that showed some taxi drivers do not know how to target their earnings effectively.1 And thankfully, he had signed up to be a Grab driver too as almost everyone he knows has a Grab app on their mobile phone.
But with two growing young kids and ageing parents to look after, household expenses were mounting. Teng was finding it more challenging to make ends meet. Siew Ling’s salary as a sales assistant at a nearby shoe store could barely cover the enrichment classes that she and Teng wanted the boys to attend.
“Should I become a full-time Grab driver?” Teng thought.
Ever since his parents raised their concerns about his taxi-driving vocation, the thought of making a career switch nagged at him now and then. Sometimes on a slow day while driving along the highway, Teng wondered whether it was still worth the while to stay on as a taxi and Grab driver. Or should he switch to be a full-time Grab driver? He had heard from his cabby friends who had decided to stop driving taxis altogether and become full-time Grab drivers that the expenses were less. It seemed that the rental of the car is lower too.
But with his easy-going personality, Teng tended to let matters slide. “Never mind. Don’t think too much. Just do good and be kind to others,” as he muttered his mantra while rubbing the small Goddess of Mercy statuette that his wife had carefully placed on his taxi dashboard on his first day of taxi driving, to ward off evil spirits.
Weather Changes
In 2019, Singapore experienced unusual weather for several months. From January to August, the island state had sweltering heat with temperatures rising to 39°C with not much rain. The same scorching weather was also experienced in Europe, India and several other parts of the world.
“This must be due to global warming,” mentioned Siew Ling. “Thankfully we have changed our lights to LED to save on electricity. That helps in gas emissions.”
“And remember the news report you told me about saving on air-con bills? I want to conserve but how can I do that since the weather is so hot? I need to use the air-con more often,” Ah Mah chimed in.
Ah Mah was referring to the time when she was shutting the windows and turning on the air-conditioning unit when there was heavy construction next to their flat. While their electricity bill was higher whenever there was such construction, their bills remained high even after the construction ended.2
Teng and Siew Ling learned from the news that Singaporeans tend to continue using air-conditioning because it has become a convenient habit even though there is no more noise or air pollution from nearby construction. Ever since then, the family has become more mindful of air-con usage.
Eventually there was some respite from the hot weather. Rain had been torrential. The weather extremes saw an increase in visits to the doctor. Many were falling sick.
The rainy weather had also made it difficult to commute. That was good news for Teng. His services were in demand whether through taxi or Grab. Once, when there was a sudden downpour, Teng received a flurry of bookings both through the taxi as well as Grab. With so many requests and having to constantly keep an eye on the road, he wasn’t sure which booking he should respond to.
On the one hand, the NTUC Comfort taxi that he had been driving for so many years had fixed rates. On the other hand, Grab had a surge pricing mechanism which allowed fares to escalate when there was unusually high demand.
Surge Pricing
Surge or dynamic pricing is a system used by car-sharing apps that adjusts fares according to passenger demand in a particular area at a particular time. Some ride-hailing apps claim that they use surge pricing to encourage more drivers to get out on the road when demand is high such as on rainy days.
Grab introduced surge pricing with its JustGrab services in 2017. JustGrab allows commuters to book a ride from the closest private car or taxi at a similar price. It pools together taxis from participating fleets as well as private cars that have independent drivers not affiliated with a taxi company. Prices are based on a dynamic surge factor mechanism where taxi trips booked via the JustGrab service are priced dynamically within the Grab service platform using Grab’s surge pricing scheme.
Teng, as a driver for NTUC Comfort as well as for Grab, was in two minds as his fares vary. Taxis hired through either street pick-up or the taxi company’s own booking app have fixed meter prices based on location and time that do not vary according to real-time market conditions. However, taxis hired through Grab’s app are priced dynamically according to the surge price mechanism.
Teng recalled how his parents were once left stranded because of a heavy downpour and they couldn’t get a cab. And the surge prices were, to him, quite astronomical at times compared to fixed meter prices. While on the one hand it’s a pure money-making transaction to use the surge price, he felt badly as he remembered all too well how some people especially the elderly could not afford the high fares when they needed the ride most.
Teng had not quite got a handle on how surge pricing works and how the supply of taxis is affected when such pricing takes place. He had talked to several of his taxi driver friends who claimed they know much about surge pricing but didn’t seem to know what they were saying when probed further.
“More like bravado talk than anything else,” thought Teng.
The Young Man
Then one day, while on a break at the crowded Pek Kio market, it so happened that Teng was sitting next to a Grab driver eating kaya toast with half-boiled egg over a cup of coffee. He was curious why such a young man would be driving Grab. Doesn’t he have any other job?
It turned out that the young driver had been a research assistant at NUS Business School working on a research project involving taxis. The project had just been completed and his contract ended. So while in between jobs, the man decided to be a Grab driver to earn some money in the meantime.
“How come Grab can charge fares that are sometimes cheaper than taxi fares?” asked Teng, in his Singapore English. He was curious how Grab does it. He understood that in the early days, discounts were given when Grab was competing with Uber for market share. But with Uber out of the picture, discounts are still sometimes given for rides in conjunction with food purchases on GrabFood.
“Well, Grab has so many investors interested in injecting capital into this start-up,” said the young man.
“Have you heard of SoftBank? This Japanese company injected lots of money into Grab. So with the capital raised, Grab can subsidise the fares and incentivise their drivers.”
“Oh . . . So they have lots of money,” said Teng as he tried to figure out the business model.
“Let me tell you about my previous job. I was at NUS working for my professor after I graduated. He had this very interesting study on how surge pricing affects the supply of taxis on the road,” said the young man, happy to share what he knew with Teng.
Teng was keen to listen. After all, this was an issue that he had been grappling with for a while and none of his taxi driver friends seemed interested or to know enough about it.
“Compared
