Rising oil prices have led to taxi fare hikes – will S’pore’s EV transition help stabilise it?

Following a recent announcement by ComfortDelGro that taxi fares were to be raised, all other taxi companies in Singapore followed suit and raised taxi fares as well.

The reasons cited for the fare hike were rising oil prices, inflation, and a need to defray higher operating expenses.

ComfortDelGro is the largest player in the local taxi market, making up about 60 per cent of all taxis in Singapore. Its fare hike will be a 20 cents increase in the flag down fare, as well as a two cents increase in distance fare.

This increase is estimated to be around eight per cent, and taxi companies have asked consumers to be understanding since the last cab fare hike was more than a decade ago.

Currently, Singapore is in the midst of transitioning its vehicles, at present mostly Internal Combustion Engine (ICE) vehicles to electric vehicles (EVs). It aims to phase out ICE vehicles by 2040.

Given that higher oil costs were cited as a reason for the fare hike and EVs are reliant on electricity instead of petrol to run, can we expect to see less fare hikes in the future?

Is oil price a major factor?

At present, oil prices are actually lower than what they were 10 years ago.

In fact, for most of the last 10 years, oil prices have been decreasing, and it is only during the last few years that oil prices have risen. However, current oil prices are not yet at the level that they were in 2012.

On top of that, the current rise in oil prices comes following several events.

The first of which is the 2020 oil price war between Russia and Saudi Arabia. During OPEC negotiations, Russia refused to follow the quota that Saudi Arabia proposed, and in response, Saudi Arabia ramped up production of crude oil, driving up supply and reducing oil prices sharply. In fact, the price drop was so sharp that it was reduced by more than 50 per cent.

This also occurred in the midst of the ongoing Covid-19 pandemic, in which businesses were already hard-hit and reduced demand for oil.

While the world gradually recovers from the pandemic, and an agreement was reached between Russia and Saudi Arabia, prices began rising again and oil prices are now back to 2014 levels, though it is still slightly lower than the oil prices in 2012.

So if the rise in oil prices are simply one part of a longer trend of oil price fluctuations, what else can explain the need for a cab fare hike?

Inflation, a common enemy as old as money

If we look at inflation instead of oil prices, a much more reasonable picture emerges. Inflation has mostly been positive over the past 10 years, and as taxi companies have noted, the last fare hike was more than 10 years ago.

A fare hike is therefore somewhat reasonable. Inflation affects everyone, and that includes taxi companies and its drivers. The cumulative inflation since 2012 has been around 10 per cent, so the cab fare hike is actually kept rather in line with inflation.

Given the mostly stagnant prices of taxi services, this means that real incomes of taxi companies and taxi drivers have actually decreased over the past 10 years, and the fare hike is intended to restore the previous level of real income.

As such, it seems that inflationary pressure is mostly to blame for the cab fare hike.

The future is electric, but will that make a difference?

Let us now turn our attention to EVs.

Given that EVs do not run on petrol, can we therefore expect more stable cab fares? Not necessarily.

For one, combatting inflation seems to be the main goal of the current cab fare hike. Going electric will indeed reduce the impact of unpredictable oil prices,  but it does not deal with inflation.

Furthermore, while the recent fare hike has been the first in more than 10 years, it is not necessarily true that taxi fares have remained the same since the last fare hike.

Surge pricing was introduced several years back, following the policies of ride-hailing apps such as Grab. Surge pricing means that when demand for taxi services are high, the prices of these services will also increase — this could theoretically increase the incomes of taxi drivers and taxi companies.

Such innovations in pricing strategy are also difficult to predict, and therefore, taxi fares may not be as stable as we think.

Price stability may be an illusion that we choose to believe in, and future increases in taxi fares are not guaranteed to only follow inflation. It seems that the transition to EVs may not actually help as well.

Out of the pan and into the fire? 

The rise of EVs will indeed help to reduce the possibility of rising oil prices resulting in a taxi fare hike, but neither petrol nor electricity is free.

For Singapore, electricity is mostly generated through natural gas, which sees much less fluctuations than oil. Over the past 25 years, natural gas prices have remained mostly the same, with neither an upward nor downward trend.

In contrast, the price of oil has seen very significant fluctuations, but this also means that there might be a solution.

As Singapore continues its effort to develop sustainable technologies, renewable energy sources might be found and methods for harvesting such renewables might be improved upon.

These new technologies may bring down the cost of producing energy, and we may therefore expect that increases in the cost of energy no longer matter so much in the cost of taxi fares. In fact, some renewables are no longer more expensive than fossil fuels, but several problems still need to be addressed.

Many renewables such as solar and wind are unable to produce energy on demand, so in the short term, fossil fuels are required to deal with demand surges.

Ultimately, EV adoption — especially after completion — may not necessarily bring consumers price stability at least in the short run.

The key culprit seems to be inflation, which no amount of technological development will resolve. The problem is economic, not technical, so at the end of the day, consumers should understand and expect that there will likely be no end to the conflict between producers and consumers.

Instead, we are all fighting against inflation and the inevitable rise in prices.

Featured Image Credit: Taxi Singapore