Profiling e-hailing services

Profiling e-hailing services

E-hailing services such as Uber and Grab have now been legalised after the Land Public Transport (Amendment) Bill 2017 was passed in the Dewan Rakyat. Minister in the Prime Minister’s Department Datuk Seri Nancy Shukri said e-hailing services as well as conventional taxis would be supervised by the Land Public Transport Commission (SPAD). It follows therefore that all complaints regarding e-hailing services can now be directed to SPAD and the body will take action accordingly.

All rules and regulations imposed on conventional taxis will be applied to the e-hailing drivers as well and this includes regulations on medical check-ups, periodic vehicle inspections, insurance requirements and drivers’ identification card. e-hailing service providers should be responsible in providing car insurance to the drivers, which also includes insurance coverage for its consumers.

The amendments to Malaysia’s Land Public Transport Act and the Commercial Vehicles Licensing Board (CVLB) Act will allow ride hailing services to operate on an “intermediation business license”, a new category specific for the service. The new license will regulate “the business of facilitating arrangements, bookings or transactions of an e-hailing vehicle whether for any valuable consideration or money’s worth or otherwise”, according to the CVLB bill made available on the Malaysian parliament website.

The Cabinet since last year had agreed to legalise ride-hailing services even as taxi driver associations protested, arguing that their livelihoods were threatened by the private hire services.

                                                                                                                              

This also means that Grab and Uber are set to expand in the region. Grab expects to raise US2.5 billion from investors in a bid to extend its lead over Uber in the region, as major companies aim to tap into Southeast Asia’s developing economies driven by a young and tech-savvy population.

Implementation

On July 27, the Dewan Rakyat passed amendments to the Land Public Transport Act 2010 and the Commercial Vehicles Licensing Board Act 1987. They are scheduled to be gazetted by October for implementation nationwide.

On Aug 1, Land Public Transport Commission (Spad) chief executive officer Mohd Azharuddin Mat Sah held a press conference on the Land Public Transport Act (Amendment) Bill 2017.

The briefing touches on the Taxi Industry Transformation Programme (TITP) that was unveiled on Aug 16 last year, and said the 11 programmes are on track.

The first was to regulate e-hailing as an intermediary service. Azharuddin spelt out the definitions and criteria for e-hailing operators, vehicles and drivers. Many people are not aware that e-hailing included taxi apps such as EzCab, and not just Uber and Grab. All e-hailing operators are required to be locally incorporated, and their vehicles and drivers in Peninsula Malaysia must be registered with SPAD.

The insurance must cover driver, passenger, vehicle and third party. Under the Road Transport Act 1987, all motor vehicles must be insured for legal liability for death or bodily injury to third parties, and this is incorporated in all motor insurance policies. However, the cover could be null and void if the vehicle was driven under the influence of drugs or alcohol, or a private vehicle is used for hire or reward, such as carrying fare-paying passengers. As such, terms and conditions of motor insurance policies for private vehicles must be amended, and premiums adjusted if necessary, when they are used for e-hailing services.

Under the old Motor Tariff, the premium for private vehicles was only RM26 for every RM1,000 under comprehensive insurance, but RM69.80 for painted taxis (metered and non-metered), and RM102.50 for limousine taxis. Insurance cover for painted taxis includes legal liability to passengers. To insure four passengers in a limousine taxi under similar cover, the additional premium was RM78.

As for taxi and e-hailing drivers, they would be covered under the Self-Employment Social Security Act 2017, which was enforced in June. It is compulsory for them to be registered by end of the year, but they will have to pay between RM157.20 and RM592.80 annually.

  

Individual permits

The second programme listed under TITP was issuance of individual permits and cash grant for drivers exiting rental-purchase agreements with taxi companies.

On June 21, 157 metered taxi drivers and 143 non-metered taxi drivers received individual taxi permits, with 43 receiving RM5,000 each for the purchase of a new taxi. Since last September, SPAD has received 3,474 taxi permit applications and approved 1,722.

Since inception in 2010, SPAD had not issued any new permits to taxi companies and this was recently confirmed by Nancy Shukri, when replying to a question in Parliament recently.

The third programme was to liberalise vehicle model for taxis, allowing all vehicle brands and models that achieved a minimum 3-Star safety rating under the Asean New Car Assessment Programme to be used. This move was also in line with small and affordable models, such as the 4-Star Perodua Axia, being used for e-hailing services. But new taxis of various models are not seen on the road.

The fourth programme was to standardise the terms and conditions of rental-purchase agreements between taxi companies and drivers. Half a century ago, the Hire Purchase Act 1967 was passed in Parliament and hire-purchase agreements were standardised.

The fifth programme was to introduce mandatory KPIs for taxi operators. This imposition is certain to upgrade professionalism of taxi companies and drivers but would surely be the death knell for weaker operators and cabbies.

The sixth programme was to impose stringent pre-screening processes on drivers, including health checks, criminal records, traffic offences and violations of SPADs operating licence conditions.

But it would be difficult to filter out those with mental health issues. The National Health Morbidity Survey 2015 by the Health Ministry revealed that 4.2 million out of 14.4 million Malaysians aged 16 and above suffered from mental issues, or over 34 percent.

Use of a merit and demerit system

The prevalence in Kuala Lumpur was higher at 40 percent, and that was for ordinary folk. It would be no surprise the percentage was much higher for taxi drivers, given that many refused to use the meter and were aggressive towards passengers, e-hailing drivers and enforcement authorities.

The seventh programme was to use a merit and demerit system to increase service standards by working closely with RTD to include a full list of offences for taxi drivers under the Kejara Demerit Points System.

The eight programme was to rationalise metered fare structure. The same metered rate would be applicable for all new Teksi 1Malaysia (TEKS1M) and budget taxis. Existing TEKS1M drivers are given the option to migrate or remain with higher fares.

The ninth programme was to rationalise zonal fare using distance-based calculation to ensure consistency and fairness for both taxi drivers and passengers at terminals and airports.

The tenth programme was to allow for dynamic fare for metered taxis providing e-hailing services. While they can continue to collect higher regulated fares as clocked by the meter from street-hailing passengers, taxi drivers may also participate in e-hailing and accept lower fares to run more trips.

The eleventh programme was to implement mandatory training for taxi drivers, which include orientation, entrepreneurship, safety, vehicle maintenance and customer service. Perhaps this is an area where The Chartered Institute of Logistics & Transport Malaysia could play its role by providing for the much needed training to upskill the drivers.

Azaharuddin announced that vehicles to be used for e-hailing services must be lesser than five years from date of registration with RTD, with seating capacity for up to 10 passengers.

These vehicles must be sent for inspections at Puspakom upon reaching their third and fourth year. Taxi drivers too no longer need to send their vehicles for inspections every six months but annually after three years.

E-hailing drivers too are required to have a digital Driver’s Card issued by Spad after they have been certified fit and attended customer service training, in addition to possessing a valid driving licence and free from summonses and criminal record.

Malaysia made history with the passing of the Land Public Transport Act (Amendment) Bill 2017, as it was the first country to legalise e-hailing services. E-hailing operators are now obligated to obtain Intermediate Business Licence from Spad in order to operate legally.

The business scenario

Singapore based Grab operates private car, motorcycle, taxi and car-pooling services across seven countries with 1.1 million drivers, and claims a market share of 95 percent in third-party taxi-hailing and 71 percent in private vehicle hailing in Southeast Asia.

Asia has become the new frontline for U.S. tech companies seeking to grab their share of fast growing markets but the local users still determine which one to go for. Ride-hailing app Uber is one American company confronting local rival in the fight for passengers in Southeast Asia after Singapore's Grab secured $2 billion from Softbank and Didi Chuxing. Uber started offering services in Singapore in early 2013, and expanded to Malaysia later that year. For users already accustomed to the service, the experience was seamless. But for locals, especially in Malaysia, it suffered from three problems. First, it was noticeably more expensive than traditional taxi alternatives. And second, payment could be made via credit card only, despite the fact that consumers strongly preferred using cash. Finally, Uber like other car services in Malaysia suffered from perceptions that it was unsafe, especially for female riders.

Somehow in April 2016 Uber Technologies Inc. was forced  to sell its China operations to rival Didi Chuxing. The brief but spectacular battle between the two ride-hailing operator had cost Uber at least $2 billion. Uber, free of an expensive price war, appears to be able to focus its resources on other markets, including rapidly growing Southeast Asia. That's now going to be a lot harder because GrabTaxi Holdings Pte. Ltd., Southeast Asia's dominant ride-hailing company, announced it had raised $2 billion (with another $500 million on the way) to help it lock up the region. The company was already well ahead of Uber locally, largely due to a deft business plan that focused on meeting the needs of the Southeast Asian consumer, especially in payments. The fresh funds should widen that lead and call into question whether Uber's one-app-fits-all approach to the global ride-hailing business can work. The deal cements an alliance between SoftBank, Didi and Grab, which competes against Uber in markets from Malaysia to Thailand. The Singapore-based ride hailing company said it expects to close another $500 million from unspecified new and existing backers. That would take its valuation north of $6 billion, making it the most valuable startup in Southeast Asia.

On paper, at least, the 10 very different countries in Southeast Asia seems exactly like the kind of market in which a well-capitalized global technology company like Uber should prosper. The region is now the world's fourth largest internet market, with just over half of its  640 million citizens online. The markets are growing rapidly, fuelled by young, middle-class consumers eager to spend.

According to a study conducted by Google and Temasek, Singapore's sovereign wealth fund, the Southeast Asian ride-hailing market is expected to be worth $13.1 billion in 2025, up from $2.5 billion in 2015. Even better, every major Southeast Asian country is expected to have a $1 billion market of its own by then, with ride-hailing making up 15 percent of total travel expenditures in the region.

Uber started offering services in Singapore in early 2013, and expanded to Malaysia later that year. For users already accustomed to the service, the experience was seamless. But for locals, especially in Malaysia, it suffered from three problems. First, it was noticeably more expensive than traditional taxi alternatives. And second, payment could be made via credit card only, despite the fact that consumers strongly preferred using cash. Finally, Uber like other car services in Malaysia suffered from perceptions that it was unsafe, especially for female riders.

Having grown up in Malaysia, Grab's co-founders launched the company in 2012 in large part to solve the security problem. Among other safety related feature, the Grab app allows users to share their journey in real-time with others. The app also includes an emergency button that connects passengers with the nearest police department and, in the interest of protecting female drivers and passengers, the company recently introduced in-car CCTV cameras.

The company accepts cash or credit cards. That appeals to drivers as well as passengers, helping to expand the company's fleet. (Uber begun introducing cash payments as well in major Southeast Asian markets over the last couple years.) Recognizing that many of Southeast Asia's drivers are older and suspicious of technology, and that some can't afford a smartphone, the company has made active efforts to bridge the connectivity gap: The founders themselves have tutored drivers one-on-one at local coffee shops, while the company subsidizes the purchase of smartphones for poorer drivers.

There's no public data available on Southeast Asia's ride-hailing market, but Grab claims it enjoys a 95 percent market share in third-party taxi hailing, and a 71 percent share in private hailing. Indeed, within Southeast Asia, and especially Malaysia and Singapore, it's largely taken for granted that Grab has more cars available.

Grab isn't taking that commanding lead for granted. To further cement its advantage, it has moved into electronic payments. It bought an Indonesian company whose technology allows mobile phone users to pay cash for online credit and its latest round of funding is earmarked to expand GrabPay, an electronic payment system for which customers also buy credits. Grab has been upfront that it envisions transforming itself via GrabPay into a consumer company that offers financial services and shopping, as well as transportation.

It bodes well that at least one other local ride-hailing firm is attempting the same transformation, hoping to fuel its diversification through e-payments. For Uber, however, this is an uphill task in Southeast Asia. With little more to offer than a ride, it's in jeopardy of losing out to smaller companies that has taken advantage of digital technology.

The record financing follows Uber’s retreat from Russia and China, massive markets where Uber spent billions but ultimately giving way to well-financed and savvy local rivals. In Southeast Asia, it’s waging a costly war against not just Grab but also Go-Jek, a motorcycle e-hailing ride, which is holding its own on its home turf of Indonesia. The local players have thus far shown greater initiative in terms of launching services such as digital payments, said Ajay Sunder, vice president of digital transformation at Frost & Sullivan in Singapore.

Grab has been a lot more aggressive than Uber, making new acquisitions and launching new services in the region backed by solid financing. The Grab saga appears to be one of the largest investments in the region.

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A contribution to Society from the Chartered Institute of Logistics & Transport Malaysia, Sabah Section. Feedbacks can be addressed to ramliamir@cilt-m.com.my