Transportation Network Companies and Taxis

The Case of Seattle

Craig A. Leisy

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367210465
• eBook ISBN: 9780429560149
• Topic: Business
• Subtopic: Business General
• Index: Business

Transportation Network Companies and Taxis: The Case of Seattle is a modern economic case history and thorough analysis of the devastating impact of the transportation network company (TNC) industry (Uber and Lyft) on the taxicab industry in Seattle, Washington, beginning in 2014. The events that transpired and lessons learned are applicable to most large cities in North America, Europe and Australia.

As the regulator of the taxicab and TNC industries in Seattle during this period, the author offers a unique insider perspective. The book also provides internal operating statistics on the TNC industry, which are available here for the first time. Despite the spectacular growth of the TNC industry, growth rates have steadily declined and may fall to zero by 2019 or 2020, while the taxicab industry appears to have begun a modest recovery. This book offers a thorough explanation of how and why this decline has happened. It explains the taxicab industry, economic deregulation, competitive market failure, market disruption, price elasticity of demand and other concepts. There is also a wealth of data, computations and analysis for the specialized reader.

This book considers the past, present and future of the taxicab and TNC industries in Seattle, It is recommended for both the general reader and industry professionals.

1
Definitions and concepts

Summary

This book relates the economic history of the taxicab and rideshare industries in Seattle including the current environment of de facto deregulation resulting from a deliberate strategy of market disruption by the transportation network companies (TNCs). The failing taxicab services industry and its future prospects will be considered at length.

Most regular taxicab users believe that they know a lot about taxicabs but much of what they know is actually wrong. The public confusion might be attributed, at least in part, to the media, which generally does not understand even the basics about how the taxicab industry works and, therefore, often communicates misleading information when reporting on it, albeit unintentionally.

For example, the public usually believes that Yellow Cab is a franchise in each city. The Yellow Cab company trade name and color scheme is a well-known brand. In fact, the Yellow Cab companies are unrelated businesses except in a few isolated instances where one Yellow Cab has purchased another. Another example: the public normally believes that Yellow Cab owns its taxicabs and employs its drivers. In Seattle, Yellow Cab does not own a single taxicab or employ any drivers. All taxicab owners and drivers are self-employed, independent contractors who merely affiliate with Yellow Cab for dispatching. By contrast, in New York, all 13,000 taxicabs are required to use the same yellow color scheme and they are prohibited from accepting any dispatched trips.

Government, business and academic economists generally fail to appreciate that the taxicab industry has not proved amenable to routine economic analysis. Economic principles assume a “rational person” who behaves in such a manner as to maximize profits. This sort of analysis is not valid in the taxicab industry. Many taxicab drivers only work a shift until they earn a target income, e.g. $100 after expenses. They give up the opportunity to earn more income for more time off with their families. Full-time taxicab drivers typically work 12-hour shifts, 6 days per week. Some driver spouses work in jobs with medical insurance, but the drivers themselves are self-employed and have no traditional employer-provided benefits of any kind. Moreover, many married drivers share childcare duties while their spouses work. Taxicab drivers are self-employed, so they have the flexibility to stay at home with a sick child or start their shift late.

It is not possible for the public to truly understand taxicab industry deregulation and its ramifications without first learning how the taxicab industry is regulated and how it operates. This chapter will attempt to do that concisely. Terms will be defined (see also: Glossary), key concepts explained and enough historical context presented to provide necessary background to understand what is happening. Unfortunately, many elected officials form opinions – and even vote – on taxicab issues without an adequate foundation of knowledge. This is one of the primary reasons that the taxicab industry is facing its current existential crisis.

What is a taxicab?

Taxicabs are a form of for-hire, for-profit, privately owned, unsubsidized, demand-responsive, intra-city, exclusive-ride, curb-to-curb, motor vehicle transportation.

For-hire: The term for-hire refers to the fact that taxicabs provide transportation for compensation. The for-hire transportation market includes other types of services as well including for-hire (flat rate) vehicles, limousines and transportation network companies (e.g., Uber, Lyft).

For-profit: Taxicabs are operated for profit like any other small businesses. Total fare revenue must exceed total expenses for the individual taxicab business to be profitable. As we shall see, profits are minimal and, most recently, almost nonexistent.

Privately owned: Taxicab vehicles and taxicab medallions are both purchased by taxicab owners using their savings or funds borrowed from banks or finance companies. Owners form sole proprietorships, partnerships, limited liability companies or corporations. Taxicab medallion owner-drivers must meet minimum licensing requirements established by city ordinances and rules, e.g., criminal background checks, driving records, legal right to work in the U.S. (green card).

Unsubsidized: Unlike public transportation, such as transit buses and light rail, taxicab equipment costs and operating costs are not subsidized by government grants or local government budgets. In Seattle, the sole exception is equipment and operating expenses for 50 wheelchair accessible taxicabs that are subsidized by all taxicab passengers who pay a surcharge of $0.10 per trip.

Demand-responsive: Taxicabs provide transportation on demand in response to requests for immediate service. Taxicabs are dispatched around the clock, 7 days per week. Requests for service take various forms: phone requests, smartphone apps, walk-ups at taxi stands and hailing cruising taxicabs on the street.

Intra-city: The taxicab industry is a vital part of the transportation infrastructure within the city. Taxicabs connect all other modes of transportation: rail (Amtrak station, light rail, streetcars), water (ferries, water taxis, cruise ships), air (airports) and highway (transit buses, commuter buses, charter buses). To be sure, taxicabs also provide trips from cities to surrounding suburban or rural areas and to other cities. However, most taxicab trips originate and terminate within city limits.

Exclusive-ride: Taxicabs are hired by an individual, or a small group, for personal transportation to a single destination. Shared-ride service by unrelated individuals traveling to different destinations is not specifically prohibited but is exceedingly rare. Even with multiple passengers there is only one fare for the trip unlike airport shuttle van service where each passenger is charged. Typically, approximately half of taxicab trips transport a single passenger, approximately one-quarter carry two passengers and one-quarter carry three or more.

Curb-to-curb: Taxicab curb-to-curb service is important for passengers without access to motor vehicles for transporting persons with mobility limitations, the elderly and parents with infants or small children. Wheelchair accessible taxicabs (WAT)¹ have been specially modified to facilitate the loading and transport of persons seated in motorized wheelchairs. Families who don’t own, or can’t afford, a personal motor vehicle often hire taxicabs for travel to grocery stores, medical facilities, pharmacies and banks. City bus systems serve fixed bus routes with stops that are often not close enough for these errands.

Taxis have a number of characteristics which make them a valuable part of an overall transportation system. Foremost amongst these characteristics is their flexibility. Taxis are not subject to established schedules or established routes and, hence, provide a service which is unique in nature… since taxis are not required to make a number of stops or follow any pre-established route, they tend to have the shortest travel time between any two points within the city under many circumstances.²

Motor vehicle: Generally, more than 90% of taxicabs are sedans and the remainder are minivans or full-size vans. In the past few years, the Toyota Prius hybrid (mid-size) has largely replaced the Ford Crown Victoria gasoline sedan (large) as the standard taxicab vehicle because it offers much better fuel efficiency, e.g., 45 miles per gallon vs. 15 mpg. Wheelchair accessible taxicabs (WATs) are typically mini-vans that have been specially modified to lower the floor in the back to accommodate a rear-entry ramp with a gentle slope. Technical requirements for wheelchair accessible vehicles are specified in federal regulations that implement the Americans with Disabilities Act of 1990 (ADA 90).

Taxicabs are also called “taxis” and “cabs.” In some cities, taxicabs are referred to as “hacks” (e.g., Boston, New York).

Taxicab vehicle and equipment

Taxicabs are painted color schemes so that they are recognizable by the public waiting for a specific dispatched taxicab. Each licensed taxicab association (i.e., service company) has a distinctive trade name (e.g., Yellow Cab) and color scheme (exterior color(s) on the hood, roof, trunk, sides and ends) that have been approved by regulatory officials. Taxicabs have unique vehicle numbers on all four sides to facilitate passenger identification for service complaints. Each taxicab has an installed receipt-issuing taximeter, mobile data terminal (MDT) or tablet, GPS, top light, silent alarm and might have a security camera.

Receipt-issuing taximeter: Taxicabs are required to install an approved electronic taximeter that automatically prints a paper receipt when the taxicab reaches its destination. The paper receipt displays the taxicab vehicle number; taxicab association name and telephone number (for complaints); date and time of trip start and conclusion; distance traveled; and fare charged. The receipt is also often used to aid in the investigation of passenger complaints about overcharging.

Mobile data terminal (MDT) or tablet: This equipment is the taxicab in-car computer that communicates with the dispatch computer located at the taxicab association office. It relays data from the taximeter: dates and times, revenue trips, revenue miles (paid miles) and fare revenue. The taxicab association dispatch computer offers trips to the taxicab driver via the MDT or tablet. These trips are known as “bells” because a bell rings to notify the driver when a trip offer is received. The driver might accept the bell or refuse the trip. If the driver refuses, the driver might be put at the bottom of the queue for future trips in a dispatch zone or automatically de-authorized for all trips for a period of time. Recently, dispatch zones have been superseded by a closest car dispatch system similar to that used by transportation network companies (e.g., Uber, Lyft). The closest car system is tantamount to having one dispatch zone that extends out a pre-set diameter (e.g., 3 miles) from the location of the passenger requesting service.

GPS: Refers to a Global Positioning System that comprises a network of geosynchronous satellites with electron clocks that triangulate the position of a taxicab on the earth’s surface by measuring the time required for a signal to be received by each satellite. Taxicab GPS locations are used by the taxicab association dispatch computer to determine the closest car to minimize service response time. It can also be used to track a taxicab’s movements if a silent alarm is activated or to track movements for investigation of a service complaint.

Top light: A top light is illuminated when a taxicab is available for hire to enable pedestrians to hail cruising taxicabs. When the taximeter is activated the top light is automatically extinguished. Top lights might be a separate illuminated sign or part of a fore-and-aft taxi-top advertising mechanism. Previously, an emergency message, such as “Call 911,” was displayed on the back end of the taxi-top advertising mechanism and was illuminated by a foot switch (formerly used to activate headlight high beams).

Silent alarm: A silent alarm is manually triggered by the driver. Normally, the location of the silent alarm switch is concealed out of the line-of-sight of a potential assailant seated in the rear passenger seating area of the taxicab. The silent alarm is sent to the taxicab association dispatcher who follows a protocol to verify that it isn’t a false alarm. The dispatcher then contacts 911 and passes along the taxicab name and number, current GPS location, direction of travel and speed.

Security camera: There are security and safety cameras. Safety cameras monitor driving of the taxicab operator – forward-looking video recordings; interior video recordings of the driver; measures of g-forces when accelerating, braking or turning; and vehicle speed. Security cameras record images or video of the taxicab interior using an array of infrared LEDs (light-emitting diodes) to “illuminate” the interior so that images might be recorded even in conditions of near total darkness (most crimes occur at night). The images are stored in a “black box” hidden in the taxicab or are transmitted to the taxicab association. Security cameras have proven effective in reducing “planned crimes” like armed robbery but not crimes of opportunity or crimes by inebriated passengers such as assault. Surprisingly, security cameras have not substantially increased the police clearance rate of crimes against drivers.

Taximeters and how they work

Taxicabs equipped with taximeters have been operating in American cities since motor vehicles came into wide use or approximately the beginning of the twentieth century. Taximeters were originally mechanical devices but are now electronic devices. They compute fares for taxicab trips based on rates set by a company or by local government (i.e., city, county) pursuant to ordinances or rules. In the future, so-called virtual taximeters (GPS-based), used by Transportation Network Companies (TNC), are expected to replace conventional electronic taximeters. In August 2017, the California Division of Measurement Standards issued a California Type Evaluation Program (CTEP) Certificate of Approval to Lyft, Inc. and Uber USA, LLC.

These systems measure times down to the second and distances in increments of one hundredth of a mile.

After two years of testing in real world conditions across the state, CDFA certified the accuracy of the two systems. California is the first state to accept a measurement system for transportation network companies.³

Taximeters: Fare-computing devices mounted on the dashboard of a taxicab with a display visible to passengers in the rear seating area. A taximeter is a type of measuring device used in commerce, so it is subject to weights and measures laws enforced by state or local government regulatory officials. Taximeter manufacturers apply for a Certificate of Conformance (COC) attesting that the device meets the national t...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Preface
• Introduction
• 1 Definitions and concepts
• 2 Economic regulation (1912–1978)
• 3 Economic deregulation (1979–1983)
• 4 Deregulation: lessons learned
• 5 Economic reregulation (1984–1995)
• 6 Regulatory revision (1996–2010)
• 7 De facto economic deregulation (2011–present)
• 8 TNC vs. taxicabs
• 9 TNC industry growth (2013–present)
• 10 Pending issues
• 11 The future
• Appendices
• Glossary
• About the author
• Index