March 21, 2013

Getting a fare deal: Why Toronto’s taxi industry is failing, and what to do about it

Taxis cruise by, slow down and honk as they pass shivering transit riders waiting for a jam-packed streetcar, but no one hails them.

If taxis were cheaper, would some people jump in?

Yes they would, according to a consulting firm the city hired to delve into Toronto’s taxi problems and advise city councillors about how many cabs should be on our streets.

“Most cities tend to treat these things separately—they’ll look at taxi numbers, they’ll look at fares—and it’s a mistake,” said James Cooper, head of Taxi Research Partners. “Your city has taken a couple of steps forward by realizing that these two are connected.”

Cooper will issue his report to the city in the next week or two, he said. It will be a large part of the city’s taxi industry review, the first in 15 years.

City staffers have consulted with drivers, licence owners, agents, brokers and passengers. According to the consultation reports, there is some support in the industry to lower fares to help fill empty backseats.

Drivers, overwhelmingly, said there are too many taxis on the street and not enough customers. Drivers also told the city they haven’t benefited when fares have gone up in the past because other players in the industry have responded by upping their fees.

Toronto’s current fares are $4.25 upon entry and $0.25 for every 0.143 km and every 29 seconds of waiting time. The fares went up 13 per cent in 2010 due to the HST. The city raised the entry price by a dollar in 2008, due to rising gas prices.

According to Cooper, a decrease of 50 cents or a dollar in the $4.25 initial fare, known as flag or the drop, would result in a large increase of demand.

“If you reduce the fare by a small amount, the increase in passengers will offset any loss from the fare itself,” he said.

Some drivers, like industry veteran Gerry Manley, disagree. Manley, who has been a taxi owner-operator for 40 years and managed a taxi brokerage, believes the link between the meter price and the demand for taxis is “a myth” and reducing fares would make shift drivers who are already on the edge of poverty destitute.

“The average driver in the city of Toronto works out of a fleet garage,” he said. “By the time he pays his shift prices, his fuel and his cash-in fees, on an average for a 12-hour shift, he’s going home with between $65 and $95 for 12 hours.”

“If you’re going to lower the fare, it isn’t going to attract the business that you think it’s going to attract and you’re going to make him more destitute than he already is.” Manley said.

There are already licensed cabbies on welfare and more would join them, he said.

Instead, Manley would like fewer cabs on the street, by phasing out the new Ambassador-class licences the city has issued over the past 15 years. To lower prices, the city should ask cab fares to be exempt from HST, he said.

Broken industry?

There are 4,849 licensed taxis in Toronto, making an estimated 60,000 trips a day, grossing an estimated $1.5 million daily, according to the city. If indeed drivers are barely scraping by, where is all the money going?

There are 3,451 standard taxicabs in Toronto and 1,313 Ambassador cabs. Drivers with Ambassador licences must own and operate their own taxis and are not allowed to rent out their cab or sell their licence.

However, about 80 per cent of standard licence holders never drive a cab, but lease the plate to a driver for a monthly fee, currently between $1,600 to $2,000 a month. The agent who arranges that lease will take a cut of $100 to $600.

The standard licences can be sold, and currently go for between $300,000 and $400,000 each. Owner-operators like Manley consider their plate their retirement plan.

Other owners of standard licences include investors with no other connection to the taxi industry, estates, numbered companies and networks of companies that own many plates.

The complex system puts middlemen—and a lot of fees—between the cab licence and the cab driver. For example, the driver of a cab may have rented a shift from another driver, who leased the licence, through an agent from the plate owner. The shift driver is paying the brokerage (such as Beck, Diamond, etc.) $85-$100 per day for access to a dispatch system, as well as his insurance, gas, traffic fines and a percentage of electronic payments processed.

In other cases, agents run garages for plate holders, buying and maintaining the cars, and renting them out 24/7 on a shift basis.

Want to know the full path a Toronto taxi takes before it gets to you? It’s complicated. Click here to view our breakdown of all the middlemen between you and a cab.

The iTaxiworkers Association, which represents almost 1,000 drivers, is proposing a major overhaul of the system that will “cut out the middlemen” by eliminating the role of agents and forcing all standard licence holders who do not drive their cabs to sell their plates to drivers within two years. Plate holders would be allowed to take on a secondary driver to rent the cab when they’re not working.

“There is no need to have the agents,” said association president Sajid Mughal.

At a recent city Taxi Industry Review consultation session, the drivers’ comments about agents were so hostile that agent Haile Okbe took out an ad in Taxi News, claiming the calls to abolish his profession were a human rights violation.

“You can say rights of drivers who lease taxicab plates must be protected and respected and agents should have less power or should stop excessive payments, but don’t demand to abolish any group,” he told Metro.

As an agent, he provides a necessary service to owners, Okbe said. He said he keeps the licence current, finds a driver to lease it to, collects the payment and completes the necessary paperwork, without the licence owner having to worry about anything.

Okbe said some parts of the system are “broken” and he’d like to see the bylaws changed so they reflect the way the industry actually works. For example, the bylaws say the owner of the plate must also legally own the vehicle, which forces the driver to sign over the vehicle he paid for to the plate owner for the duration of the lease.

The owner is also legally responsible for vehicle inspection and insurance, but that actually falls to the driver instead, said Okbe.

“The bylaw says the owner is responsible for maintenance of the cabs, the brakes the safety, but practically it’s the opposite. It has allowed the drivers to drive the taxi without the owners even seeing the vehicle,” he said.

Okbe said he’d like to see the industry survive and be sustainable for everyone. In order to do that, he also thinks fares need to be lower.

“On Queen Street you’ll see tons of people waiting for the streetcar and 10 taxis going eastbound and westbound, mostly empty,” he said. “Had the taxi been a fair price, customers would take them, but it’s expensive, they cannot afford it, so they have to wait for the slow-moving streetcar.”

The Ambassador dilemma

The most contentious issue in the taxi industry is Ambassador plates. After the last review of the taxi industry, the city introduced the Ambassador plates to promote “owner-operator” cabs and avoid the leasing and selling of plates.

Ambassador drivers, including many who belong to iTaxiworkers, are now calling for the city to convert their licences into standard licences, which would allow them to lease the plate, sell it, or rent it out for shifts they are not working.

“We want one city, one standard. We do not want different kinds of licences,” said Mughal.

iTaxidrivers argues that Ambassador drivers have no job security, because if they are injured and can’t drive they can’t earn money by renting out their licence to another driver.

Most standard plate holders disagree. If Ambassador plates were made into standard plates, the market value of plates would fall. If they were allowed to take on a second driver their taxis would likely be operating for 24 hours instead of 12, flooding the streets with cabs.

Drivers like Manley, who bought his plate for $21,000 in the late ‘70s, argue that the Ambassador drivers would get an unfair windfall from the city—a plate now worth more than $300,000—for next to nothing.

“They say they’re entitled to have those Ambassador plates turned into standard plates, no they’re not. That slaps the face of somebody like me that’s been driving 40 years in the city, but never got anything from the city,” he said.

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