Whither the taxi in a withering Japan?

by Philip Brasor and Masako Tsubuku

At the moment, Tokyo is the only city in Japan where people can use the Internet car hire service Uber, which relies on nominally freelance drivers to pick up fares through messages sent via a smartphone app. Though this could change at any time, Uber’s special qualities have already been appropriated to a limited extent by regular taxi companies in Tokyo thanks to the central government, thus diluting some of Uber’s appeal. The transportation ministry has always closely regulated the taxi industry, and in recent years has been trying to come up with ways that will not only improve service for consumers, but help taxi companies profit in a changing business environment.

The ministry’s latest idea is to shorten the hatsunori, meaning the initial ride segment. Presently, taxis in Tokyo charge ¥730 for the first 2 kilometers and then ¥90 for each additional 280 meters. In order to gain more business from riders who might need a taxi for shorter distances, due to advanced age or because they are carrying something heavy or are with children, the hatsunori will be changed to a little more than 1 km, and the fare for that distance or less will be set at ¥410. The last time the hatsunori was changed was 1936, when ¥0.3 would get you 2 km. The last time the hatsunori fare was increased was April 2014.

The new fare could commence next April. Right now the ministry is soliciting taxi companies who agree to the fare change. If at least 70 percent of the taxi companies that serve a given area agree to the new fare system, then every taxi that serves that area will have permission to use the new fares. In detail, it will be ¥410 for the first 1.059 km, and then an additional ¥80 for every 235.25 meters. This summer, however, the ministry will test the new fares in Tokyo, though, according to the Asahi Shimbun, some companies have already started.

Not everyone is excited about the change, especially drivers, since they think it might backfire. Though very short journeys will be cheaper, longer journeys will be more expensive, meaning more people will think twice before calling a taxi: “Do I really need one?” Moreover, the next consumption tax hike is scheduled to go into effect next April, meaning that the hatsunori will automatically be increased by another ¥20. Drivers, who earn commissions in addition to salaries, aren’t convinced that the new service will increase the number of fares, and, in any case, at those prices they would have to get a lot of short fares to equal one decent long fare.

But while taxis are regulated by the transportation ministry, individual companies have managed to adapt to dwindling ridership by coming up with their own means of indirectly increasing fares. For instance, in crowded urban areas where traffic congestion is common, meters in some taxis charge for time as well as distance. When the speed of the vehicle drops below 10 km/hour, the meter changes to a system that charges for time regardless of the distance traveled, usually ¥90 for every 110 seconds.

Also, when a rider calls for a taxi, a surcharge is added, so there is already a fare on the meter when the taxi arrives to pick up the passenger. Many taxi companies in rural areas have expanded on this idea by allowing drivers to charge the passenger for the distance between the place where he or she received the call and the passenger’s location. Some simply tack an additional hatsunori fare onto the total fare when they get the call from the dispatcher. Ideally, a dispatcher should locate the cab closest to the passenger’s location, but it doesn’t necessarily mean the fare will be cheaper. In that regard Uber is better for the rider since he can choose the driver based on location he sees on his app.

Taxi revenues have been dropping steadily in recent years mainly due to demographic changes, and while the hatsunori change might boost fares a bit, the main problem is moment-to-moment supply and demand. Vehicle numbers in Japan are not limited the way they often are in other countries. Tokyo has more than 50,000 cabs, or more than three times as many as New York City (but only half as many as Mexico City). That means at any given time there are either too many or too few, since demand can change drastically depending on time of day, weather and other changeable factors.

And while other forms of public transportation are subsidized by the central and local governments, taxis are not. They are just regulated by the government. This means that private companies that serve rural areas tend to keep costs down by maintaining fewer vehicles. Rural populations are aging more rapidly than those in the cities, which means there could be more demand for taxis from people who cannot or should not drive any longer. Some local governments are considering subsidizing car services in order to guarantee vehicles at any time of the day or night.

As mentioned above, many companies, taking a hint from Uber, have developed their own apps so as to make the transaction efficient and thus more appealing to riders. Just System, a market research company, conducted a survey in the Tokyo metropolitan area of 530 men and women between the ages of 20 and 50. About 20 percent said they use apps to call taxis. In addition, more cabs are accepting transportation cards like Suica and Pasmo, or e-money systems like Line Pay.

Many years ago, the taxi business was completely open. Companies could put as many cabs as they wanted on the roads and charge whatever they wanted. They competed for fares.

Some people feel that such a system is the best way. At the very least, fares should be adjusted depending on the region, which is usually the case. What makes money in Tokyo is not necessarily going to make money in Hokkaido.

Yen for Living covers issues related to making, spending and saving money in Japan on the second and fourth Sundays of the month. For related online content, see blog.japantimes.co.jp/yen-for-living.