For once I agree with the Global Times: their headline “New rules won’t end taxi torment” is quite right. We all know how difficult it is to flag down a cab during rush-hour, i.e. between 5-7pm, and in some particular locations and time zones. If you’ve been on a night out to Nanlouguxiang or Houhai and are trying to get back home after 11pm, good luck in trying to find a cab take you home for the mandated price. I would estimate ninety per cent will try to gouge you. The same at the train station: once I came back from a visit to Tianjin on the last train. The drivers stood at the exit like a gang of striking pickets, demanding outrageous prices (around RMB200 for an on-fare RMB40 journey), and preventing non-gouging drivers from picking up passengers reluctant to be scalped. Fortunately a five-minute walk down the street took us (I was with my wife and young daughter, and it was pouring rain) into the vicinity of fare-accepting drivers and we got home fine. But more often I am left stuck – working in CBD and regularly needing to attend evening events, I often have to accept glorified scooters, black cabs and gouged fares in order to get to a venue without being outrageously late. No chance for a fapiao either!
However, despite the irritation I feel at drivers passing me by, waving their hands or simply sitting at a junction, I understand the cabbies’ position. The new rules will not work. It’s a simple matter of incentives. Per Global Times:
The new regulations, issued by Beijing Municipal Commission of Transport, stipulate taxi companies could face closure if it is discovered they have received too many complaints, such as drivers refusing to pick up passengers at peak times.
Drivers who severely violate rules such as refusing passengers, taking detours, and bargaining will be barred from cab driving for three years.
OK. So there’s a stick or two, but no carrots. But this of course fails to address the root cause of why are the cabbies refusing to pick people up. It’s simply because at rush-hour, they are losing money. They are not driving far enough in that time-frame to create a large enough fare. With traffic congestion on the third ring road bumper-to-bumper, and the fourth getting more clogged by the week, rush hour traffic means you ain’t going anywhere fast.
Let’s look at the raw facts as a cabbie sees it:
Monthly franchise fee – RMB4500
Gas per gallon – RMB30
Taxi fare – RMB10(+2RMB per km over 3km)
Surcharge – RMB2 when over 3km.
Therefore just to make a profit, a cabbie has to bring in over RMB4500 above fuel costs, per month. Let’s say they work 5 days a week – about 22.5 working days a month – that’s RMB 200 a day over fuel costs just to make a profit. That’s RMB20 every hour, if they’re working a 10-hour day. Remember this is just to avoid making a loss.
So let’s say that you want a journey at rush hour for less than 3km. The fare for these journeys is RMB10. However, with congestion, they can take up to 30 minutes (let’s say) – I’ve certainly been on journeys where that’s been true. Your Hyundai Elantra get roughly 25 MPG (40km/gallon). The fuel cost will be around RMB3, and likely higher, bearing in mind idling, which decreases efficiency. In 30 minutes, therefore, your cabbie has earned a maximum of RMB7, and more likely closer to RMB5. Add in wear and tear to the car, and it’s virtually nothing. And keep in mind that they have to make an average of RMB20 per hour every hour just to avoid making a loss!
No wonder they won’t drive in rush hour.
In reality, to make a reasonable living of say around RMB5000 a month, they need to average a profit of RMB220 per day. Which means bringing in RMB200 (franchise fee per day) + fuel costs + RMB 220 (profit). I don’t know how many miles they drive daily, but New York cabbies drive around 180 miles a day. Using that as a yardstick, that’s 7.2 gallons, or RMB216. So per day they need to pull in RMB636 to make a blue-collar living. Your rush-hour fare that brings in RMB10 in half an hour ain’t going to cut it. Would you work for nothing in real terms, in the most stressful working environment your industry offers?
No wonder, then, that cabbies try to gouge customers when they can. If they do pick up customers during rush-hour, they have to make the profits up elsewhere. The only times that demand outstrips supply are at bottlenecks like Houhai, Nanlouguxiang, the train stations, and Sanlitun after hours. While demand and supply might be at equilibrium during rush-hour, it simply isn’t profitable to take passengers then. Moreover, if cabbies are seen to refuse rides, they put themselves at risk of loss of license or franchise. Little wonder that most just sit there. Why entertain the risk?
There is, of course, a simple solution to all this. Let the market operate. Let a variety of taxi companies operate. Some can operate out of hours and charge more. Some can offer more plush cars and charge more. Raise the minimum charge to RMB14, or RMB16 or whatever. I don’t know anyone who wouldn’t be willing to pay twice the rate. When you can get across town for about US$8, there’s enormous room to raise prices. As it is, the only people profiting from the taxi situation are the Beijing taxi firms. And I don’t see why they merit any sympathy.
at 1:50 pm
Thanks for putting this together, I’ve always been curious about how they earn and how the drivers view this. I do have one small issue with your numbers though, you’ve basically made the assumption that short trip that gets stuck in traffic for 30 minutes will only earn 10 kuai. Past experience in traffic tells me that it’s probably closer to 20. The meter still continues to increase even during idle scenarios. If they are fully occupied during non-peak times, then would a 30-minute, 20 kuai fare actually be good for them?
at 12:51 pm
I would agree with Jeremy, a 30 minute taxi ride could never only cost 10 rmb. On top of that, the logic here is not quite correct.
4 short trips going only 2 kilometers each is actually more money for the driver than one longer ride going 8 kilometers. If the driver can make many short trips one right after another with no waiting in between, that is actually how they make the most money.
The problem is of course the traffic, whether its a long trip or a short one. The taxis can’t make as much standing still as they can moving. So it isn’t that the taxi should want to go further necessarily, but simply they want to go directions where there are less cars.
So if they wait for thirty minutes at the airports or train stations, sure a five minute drive is not going to make up for the 30 minutes they sat idle not doing anything-that is why they want a longer ride at that point. So some guys preference in driving is sitting for a long time waiting, take one long fare, then sit for another long time waiting. Others can make just as much or more, by taking one small trip after another.
If I was going to be an advocate for the drivers, I would tell the taxi companies to stop buying only manual transmission cars for them to use. Imagine how much harder their job is made having to drive a stick shift, in Beijing traffic for ten hours a day. How many shifts is that? How much working the clutch, and always having to be ready in the right gear. That stress and energy use adds up real quick in a city like Beijing.
at 5:31 pm
Why should we pay more? Why can’t the taxi company earn less? For example, they could share in wear-in-tear and maybe earn less rent?
at 8:15 pm
Thanks for the analysis, Michael. Jeremy – yes, the idle fee hasn’t been taken into account, and it would be interesting to see the figures adjusted to do so, but I doubt that the idle fee swings it too much – it just doesn’t go up fast enough to make it worthwhile to sit in traffic.
Eurotrash – I think the taxi companies are in too strong a position to be forced to do that – they get money every month no matter how much or little the driver takes in, making the driver bear a disproportionate amount of the business risk. It would only start to affect them if significant numbers of drivers were defaulting on their franchise fee and if they couldn’t find enough new drivers.
I think the only real solution is allowing the fares to rise – as they have in other Chinese cities following driver strikes. There’s anecdotal evidence to suggest that while Beijing drivers would like to strike and demand higher fares, they are afraid that the repercussions of striking in such a high-profile city would be ruinous for them personally.
at 12:13 pm
Franchise fee can be as high as 7,000 or 8,000 yuan at some companies. It is all because a few companies have monopoly in the market, most of which are government owned. This is what happens when you don’t have a free market.
at 1:18 pm
You are missing another piece of the pie. Beijing taxi fares are included in CPI basket for the city. Letting them rise to a reasonable (even if not market) rate would seriously push up one section of CPI.
Also worth considering is the 2007 – now living cost inflation, versus the static taxi meter situation (minus the inadequate fuel surcharge fee). Taxi driver lives are getting progressively worse = (i presume) a shortage of people wanting to drive taxis relative to other occupations (not just black taxis but anything that maintains earnings value relative to inflation)
at 12:51 am
What’s wrong with having fewer taxis at rush hour? Removing them from the traffic mix reduces congestion and reduces tailpipe emissions. Customers are forced to share rides or (horrors!) take buses or subways, all of which result in reduced air pollution. If the customers decide to work longer, or shop, eat, or otherwise spend time where they are, and travel when congestion is reduced, great! Again, that leads to lower tailpipe emissions. The only losing proposition is if customers insist on buying their own cars and joining the mob creeping along on the ring roads. Good luck getting a license and finding parking places!