Understanding the transport industry in Guyana Part 2

Varying specializations

Last week, the process of this writer trying to understand the transport industry in Guyana began. It was evident from last week’s discussion that the industry is a very complex one with different modes of transportation and varying specializations in each mode. The initial focus is on road transportation which was seen to have three components namely, private, for-hire and cargo services. While each has its own substructure or specialization, it was felt that it was better to approach the discussion from the for-hire market perspective and to look at the hire-car market. The article this week therefore continues that focus.

Restricted markets

Unlike the minibus operators, the passenger service by hire-cars is not confined to a particular route. There are several minibus routes and regulation constricts minibus operators to a particular route. Each route depicts a geographic starting and ending point. A minibus authorized to use the number 44 route, for example, is not permitted to ply the number 42 route and vice versa. This segmentation of the market means that competition among minibuses takes place within several restricted markets. The passenger service provided by hire-cars does not face similar restrictions. Any restraints are voluntary. Hire-cars or taxis can provide service to any part of the country accessible by car and to which a driver is willing to go. The market for this latter type of passenger vehicle is not restricted and is wide open. The open market brings both benefits and challenges for the hire-car or taxi. The discussion of the benefits and challenges requires some explanation of the environment in which the service operates.

Place and time utility

The reward for hire-car or taxi drivers could be understood from the perspective of the market for passenger transportation services.   The usefulness of transportation is that it provides its users with place and time utility. Place utility means taking a passenger from a location where he or she does not want to be to one where he or she wants to be. Place utility could be found at the home, the workplace, the beach, the church, the club, the creek, the store, the clinic, the hospital or any location to which a person must be or is desirous of being present. Place utility is often temporary which implies that consumers are often on the move. Except for those who want to go on a joyride, place utility drives a person to use transportation.

As place utility drives demand, time utility increases satisfaction. Time utility occurs when a passenger gets a taxi when he or she wants it. The expectation of the passenger is that a taxi or hire-car must be available at the time that he or she has the need for it. The desire for time utility is often reflected in a decision by a passenger to go with the first available taxi or hire-car he or she encounters. In some instances, passengers wait for a particular taxi driver or insist on using a particular taxi service. The assumption here is that the passenger is satisfied with the balance of place and time utility that he or she enjoys. In addition to place and time utility, the taxi carries with it the element of control for the passenger. The passenger can direct the driver to go wherever place utility can be achieved.

Pay per drop

Demand for passenger transport is measured in passenger-miles. On several orders, a passenger could end up going to multiple locations, thereby covering a given amount of passenger-miles and giving the same taxi operator multiple fares from those orders. On the other hand, a taxi operator can cover the same amount of miles in one trip. Evidently, the demand attributes for the passenger-mile varies from passenger to passenger. In Guyana, passengers pay per drop. But even using the drop as a unit of measure assumes mileage or distance is factored into pricing with the use of the concept of the short drop. People move from the front road to the back of the village, a short drop, and the price is lower than that of drops of longer distances. The difference in price between the short drop and the long drop reflects the use of passenger-miles as a measure of demand.

The amount of passenger-miles covered in any given year is not a measurement that is kept in any central repository.   To get a sense of the minimum passenger-miles travelled in the country in one year, this writer decided to use the labour force as reported by the Bank of Guyana and assume that people travel an average of six miles per day in a return trip for 261 working days. The labour force captures those who are working and those who might still be looking for work. They too would need to use some form of transportation. That yields total passenger-miles of 429 million. This figure takes account of private cars, hire-cars and minibuses and assigns passenger-miles to each in proportion to the number of such vehicles registered for passenger purposes. The allocation is as follows. Private cars make up 75 per cent of the mileage, hire-cars make up 14 per cent and minibuses make up 11 per cent.

This allocation does not take account of the fact that hire-cars and minibuses make more return trips than private cars that might sit around the office compound all day. To allocate the passenger-miles on a more realistic basis, it would be necessary to use the number of return trips by each type of service as weights. That would be difficult to achieve without the cooperation of the vehicle drivers or owners. Admittedly, it fails to take account of workers who ride motorcycles and other means of transport. This lacuna is compensated for by the failure to account for those persons who use transport for other purposes than work.

Conservative estimates place the ‘for-hire’ car and minibus market at between $13 to $15 billion per year. The combined passenger-miles of hire-cars and minibuses are 107 million passenger-miles. It assumes that the cars and minibuses work between 261 and 300 days per year. It is estimated that the cars will cover 56 per cent of the mileage and minibuses will cover 44 per cent. In that context, the hire-car has a market of between $7 to $8 billion with which to play.

Unfair competition

While the market should be available to hire-cars or taxis only, there is glaring evidence that this was not the case.   The hire-cars and taxis suffer from the additional risk of unfair competition. The unfair competition comes from the owners of private cars. Some private-car owners use their vehicles in the hire-car market and take away market share from the legitimate providers of the service. The illegal action by private car owners helps to depress demand and price for those complying with government regulation. As a consequence, the price for hire car services may not reflect the true level of demand for the industry.   Herein, issues of competition, business strategy and enforcement of regulation become critical as they could make or break the persons who invest in this part of the market.

Revenue collection problem

This development creates a major problem for revenue collection. The ‘for-hire’ portion of the passenger-service market is a significant component of the self-employed market. These business persons are deemed to be among those delinquent self-employed taxpayers. They face unfair competition from unregistered taxi operators. Their income and livelihood are threatened and no one seems interested in enforcing the laws to protect these entrepreneurs. At current growth rates, the number of private cars on the road will double within four to five years. Such business persons, being aware of the continued risk to their livelihood, might believe that they are entitled to cheat on their taxes since they suffer revenue leakage while public officials turn a blind eye to the unfair competition that they face.

It should also be of concern to passengers and insurance companies. Passengers who use private cars that pose as taxis or hire-cars put themselves at risk. In the event of an accident, passengers have no form of compensation to look forward to unlike in the case hire-cars or taxis which must have insurance to cover passengers. Insurance companies should lament the failure of public officials to enforce the law.

‘In-house’ services

The risk of revenue loss for hire-cars or taxis is compounded by the use of ‘in-house’ services by private businesses and government agencies. As noted in last week’s article, the ‘in-house’ services undertaken by government or private businesses affect the ‘for-hire’ market in so far as public and private suppliers of the service increase or decrease their demand for it. The distribution of the share between ‘in-house’ and ‘for-hire’ services is not known since this type of statistic is not kept. Notwithstanding the limitations, hire-car operators must be concerned about the business and operational strategies of private businesses and the government. Their behaviour increases or decreases market demand and influence the opportunities in the hire-car market.

(The next article will consider the minibus and the cargo-service markets)