and there is a lack of available taxis as substitutes, people will just pay the higher fare.”
“Yah. I agree. They have no choice. What else can they do?” agreed Teng.
The young man continued, “But that’s not the interesting part. The interesting part is – we found that the number of taxis available do not match with the surge factor within an area during the time when there is surge pricing. Let me explain.
“When we book a taxi, the supply of taxis comes from the same pool of taxis as those available for street pick-ups. So when people are booking a ride either through Grab or calling for a taxi, of course the taxi driver will prefer to take up the booking because he earns the additional booking fee of $3 to $5. Street pick-ups, on the other hand, becomes less attractive. And so the number of street pick-ups goes down because taxis are diverted to pick up passengers from such bookings.”
[T]he number of taxis available do not match with the surge factor within an area during the time when there is surge pricing.
“That makes sense,” thought Teng as he obviously would rather have more booking rides than street pick-ups because of the booking fee earned.
The young man continued. “So, during the time of a taxi booking, the total number of taxis available in that area does not change. This means that the available taxis on the road in that vicinity can absorb these bookings, at least for a short period of time.”
“But what about when it is raining?” asked Teng.
“Good question. Rain is relevant because obviously rain affects demand. More people need a ride when it is raining, especially when it is raining heavily.
“The problem with rain is that not all taxi drivers are able to observe the surge factor due to rain. Only drivers near the area where it is pouring can observe the rain and know whether a high demand for taxis is likely to occur. So whether it is raining or not is common information only to drivers in the rainy area.
“Now, rain may increase taxi supply because drivers are anticipating more demand. But rain can also raise concerns about road conditions, safety and congestion. There are some drivers who avoid driving on rainy days.”
Teng nodded as he knew of some taxi drivers who do not like driving when there’s a heavy downpour.
“We found that in general, during rainy periods, taxi supply increases by 0.37 percent. But when it rains and the surge factor goes up by 10 percentage points, guess what happens? The total taxi supply goes down by 2.3 percent. Down, OK? Not up.
“And as to be expected, we found that when the surge factor is high and people are booking either through Grab or directly from the taxi company, there are more booked taxis and fewer ‘Available’ taxis. Taxis on the street are diverted to absorb the demand from such bookings and there are less for street pick-ups.”
“Yah, that makes sense,” nodded Teng.
“But let me ask you this. If you were a smart passenger and there is surge pricing, how should you book your ride?”
The young man paused for effect.
“Let me tell you how much a passenger can save if he books a taxi directly instead of using Grab when there is surge pricing,” said the young man as he lowered his voice as if to share a secret.
“Shh . . . It’s quite a lot, OK? We did a rough calculation based on the average distance of travel. We found that when the surge factor is higher than one, if a person switches from using ride-hailing to booking a taxi through the taxi operator, he saves about . . . You guess?” teased the young man as he felt Teng’s anticipation.
“10 percent?” Teng hazarded a guess.
“18 percent!” said the young man excitedly and yet trying hard not to raise his voice. “That’s a lot! If your ride cost $10, you’ll be saving $1.80!”
Teng wasn’t quite sure whether to feel good or bad because obviously he’s a beneficiary of increased taxi bookings but he would also have made more driving on the Grab service.
“The good news for passengers though is that only the surge factor during the last half hour or so affects current taxi bookings. So the effect of surge factor is temporary. The impact becomes zero after an hour. This means Singaporeans, especially those not in a hurry, can self-select whether to take Grab or book a taxi if they don’t want to pay unnecessarily more for the ride.
[T]he effect of surge factor is temporary. The impact becomes zero after an hour.
“Or they can wait out till the surge pricing is over. Or use another mode of transportation. After all, Singapore is small and we can go from one place to another using alternative transportation such as the bus or MRT.”
“Wow! So my parents can save 18 percent if they use taxi booking instead of Grab when there is surge pricing. And if they can outwait the rain, the surge pricing will go away after half hour to one hour,” said Teng as he digested the information. “I should tell Pa and Ma this, and even to Siew Ling as I can’t be driving them around all the time.”
Better Prediction
For Teng as a taxi driver, this meant it pays for him to look at the weather forecast so that he can anticipate areas where there’ll be rain and hence increased taxi demand. He’s a bit of a kiasu. So knowing such information before other drivers would give him an advantage. He wished Singapore’s weatherman would provide more granular information on location and time of rain. Then he would be around that vicinity when it starts raining to maximise bookings.
Such information would be beneficial not only to him, but also to the taxi company. If the taxi company could make better predictions of taxi booking demand, then congestion could be alleviated and there would be fewer idle taxis in no-rain areas.
The young man had told him that if a taxi operator could predict demand more accurately by 15 percent, this would lead to an almost 10 percent of additional reduction in vacant roaming time for drivers.
When taxis are better utilised on the roads by carrying passengers instead of vacant roaming, it makes for a greener environment.
The young man had also told Teng that there is a prototype already developed outside Singapore with 500 taxi drivers where recommendations are given by the taxi company on where to drive to for more pick-ups. These drivers experienced almost 30 percent reduction in their vacant roaming time.
“Wouldn’t that be fantastic if my taxi company could give recommendations on where these ‘hot spots’ are? Provided of course they are accurate,” thought Teng.
The Future of Taxis
“What about this new ERP that I hear about?” asked Teng to the young man, who seemed to keep up-to-date on transport matters.
“Oh, that one. Some call it ERP 2.0,” replied the young man. “The toll you pay is based on distance. And I think it uses some GPS system.”
“Doesn’t that mean that when I drive around looking for passengers, it will cost me more if I can’t find one?” asked Teng as he mentally calculated
