Costlier Grab rides? Expect this trend to continue: Opinion
Source: Straits Times
Article Date: 09 Jan 2025
New legislation provides CPF safety net for drivers, but it’s the passengers who may have to bear the extra cost.
I recently joined the popular local podcast The Daily Ketchup as a guest to discuss, among other things, the issue of costs of platform services many of us use on a daily basis: ride hailing and food delivery.
In 2025, getting a ride in Singapore will be more expensive. Grab, Gojek, Tada and CDG Zig had announced that they would be increasing their prices from Jan 1, 2025. One key driver of this shift is Singapore’s upcoming Platform Workers Act. Momentum Works expects the Act to add at least $493 million in Central Provident Fund (CPF) costs for ride-hailing and food delivery platforms over five years; and the platforms are likely going to pass these costs on to consumers.
The additional costs to ride-hailing
Let’s break down how the Platform Workers Act will exactly impact the economics of your typical ride-hailing trip by using an example.
Assume that an on-demand ride costs you $20, and the platform charges 20 per cent commission. This means the platform operator will get $4 in net revenue, while the driver takes home $16.
By 2029, when the Platform Workers Act is fully implemented, additional costs such as CPF contributions ($1.36 per ride) and insurance (20 cents per ride) will add approximately $1.60 per ride to the industry’s cost structure.
While the Government has introduced a temporary support scheme from 2025 to 2029 to help offset drivers’ CPF contributions during the transition, drivers’ take-home pay will inevitably decrease as part of their income is allocated to CPF savings. At the same time, the industry’s cost structure will rise due to these additional requirements.
Although drivers must adjust to a lower take-home pay, the bigger question remains: Who will absorb the increased cost to the industry?
The question is important because, among an average of 630,000 rides that took place in the city every day in October 2024, some 562,000 or 89 per cent were done through ride-hailing.
It is worthwhile, then, to take a look at the current state of the ride-hailing industry – from the point of view of both drivers and commuters – and see how the changes will affect it.
An efficient ride-hailing system
The three co-hosts of the podcast all shared the same perspective: Whenever they travel to other developed countries, Japan, Europe or the US, the cost of a taxi or private-hire car ride is always much more expensive compared with Singapore. “Are we too spoiled? ” one asked during the podcast.
It is an interesting topic and many around me have strong opinions on it. Regulations, market competition and, of course, urban topography, all have a role to play in this.
In most markets, the taxi industry is not exactly a free market where price is determined by supply and demand. People in Singapore should be familiar with this constant debate on whether taxi/ride-hailing should be considered a form of public transport.
However, things become more interesting when you compare the net income – that is, earnings after expenses such as platform commissions, vehicle rent and fuel – of taxi and ride-hailing drivers in different developed markets.
Drivers in Singapore typically actually earn very competitive net income compared with their peers in New York (before tips), London and Paris, cities with comparable GDP per capita to Singapore.
In fact, local taxi drivers actually earn more than their counterparts in Tokyo, despite many of our perceptions about Tokyo’s expensive rides. Which means, after all the episodic frustrations many of us feel, Singapore is doing a pretty efficient job in managing the ride-hailing ecosystem.
No wonder a friend, who runs a large chain of bubble tea joints in Singapore, told me recently about a big challenge for his expansion: franchisees do not earn much more compared with driving for Grab, which also offers flexible hours and the option of no upfront capital investment. So why should they bother becoming a franchisee?
While ride-hailing drivers can earn a decent income, there is one caveat. Until now they did not have social security, which meant that they could not afford to take rest or leave their work. But change is afoot and it could alter the dynamics of the ride-hailing sector.
Pressure on platforms
Ride-hailing platforms like Grab differ fundamentally from traditional taxi companies. Taxi firms have long operated within regulated frameworks with fixed fare structures and predictable cost bases. They typically own or lease their vehicles, employ drivers, and spread costs such as insurance, maintenance, and benefits across a stable fleet. They often incorporate costs like driver benefits into pricing and receive government subsidies to ensure reliability.
In contrast, ride-hailing platforms are asset-light, serving as intermediaries without owning cars or directly employing drivers. This model allows flexibility and scalability and also shifts vehicle and maintenance costs to independent drivers. But this makes the platforms heavily reliant on their gig workforce.
When ride-hailing first started back in 2013, consumers in Singapore enjoyed hefty promotions and also the luxury of having many more drivers available to ferry them around. Ride-hailing platforms and their investors have relied on a combination of subsidies and promotional discounts to keep rides cheap for consumers. This strategy allowed them to rapidly scale their operations and fend off competition.
Traditional taxis have been in retreat. In December 2016, there were more than 27,000 taxis in Singapore; that number was reduced to about 13,000 in October 2024. And as mentioned above, almost 90 per cent of the daily point-to-point trips in Singapore are done through ride-hailing.
But this era of low fares could not have lasted forever and the prices have gradually increased over the years. Now you often hear people in Singapore complaining about the high cost of rides. One must bear in mind that companies like Grab and Gojek operate on very thin margins, and are structured to minimise upfront costs while maximising scalability.
Ride-hailing platforms, which gained an edge through dynamic pricing and regulatory bypasses, now face the challenge of maintaining competitiveness as regulations, like the Platform Workers Act in Singapore, aim to level the playing field.
Who will absorb the costs?
Back to the question raised above – who will absorb the additional costs?
It would defeat the purpose of the legislation for the drivers to bear this additional cost. Their take-home pay reduces, but they get additional safety net in CPF.
It then becomes a question of whether the consumer or the platform will bear the cost. Using the same example mentioned earlier (of $1.60 additional cost over a $20 ride), there will either be an 8 per cent fare increase (from $20 to $21.60) to the consumer, or the platform will see a 40 per cent reduction in net revenue (from $4 to $2.40).
Platforms rely on a large scale of orders at thin margins to be viable – beyond that the society will vote with their feet, and below that they will run an operational loss. With investors demanding clearer paths to sustained profitability, passing additional costs to consumers becomes the most viable option.
So the additional costs are unlikely to be absorbed by the platforms for a simple reason: their financials cannot sustain it. A $4 net revenue in the above example, after payment, technology, marketing, overhead and other costs, will translate into very thin margins. Cutting that by almost half will likely make the platforms’ economics unsustainable.
While the Platform Workers Act will improve the safety net for drivers, it fundamentally disrupts the asset-light nature of the ride-hailing model.
The industry will have to tread the fine line between raising prices enough to stay sustainable, but not so much as to chase away passengers. Additionally, rising fares could spur innovation in other areas of mobility. From electric vehicles to autonomous ride-sharing solutions, companies may explore new models to offset costs and attract consumers. Governments, too, could play a role by incentivising sustainable transportation options or subsidising emerging technologies.
As we head into 2025, the cost of a ride may become a litmus test for how we are balancing convenience and cost of living in our daily lives.
As my younger peers mentioned in the aforementioned podcast, if I am already paying $20 for a ride-hailing option after a concert at midnight, I might be willing to pay a bit more for the convenience – instead of hunting for other ways to get home.
Jianggan Li is the founder and CEO of Momentum Works, a Singapore-headquartered venture outfit with a global emerging-market focus.
Source: Straits Times © SPH Media Limited. Permission required for reproduction.
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