Last week, Grab announced that it would be acquiring 100% ownership of Trans-cab, Singapore’s 3rd largest licensed taxi operator. The acquisition, undertaken by Grab subsidiary Grab Rentals, includes Trans-cab’s taxi and car rental business (with a current combined fleet of >2500 vehicles), maintenance workshop, and fuel pump operations.
Our thoughts:
1. Supply shortage since the post-Covid reopening has been a major issue in Singapore – we mentioned that in our comments on Grab’s Q4/FY 2022 results. Government stats show that the number of licensed private hire drivers have reduced from 56,362 in December 2020 to 48,309 in December 2022; during the same period taxi fleet size has reduced from 15,678 to 14,084;
2. With more demand for trips and lower supply, consumers have been hit with higher prices as a result. While Grab has taken active measures (such as relaunching pooling) to address this, with the continuous recovery of tourism, retail, logistics and other sectors (read: F1 and Taylor Swift), driver supply remains challenging;
3. With the acquisition of a taxi licence and 2,500 vehicles, Grab should be able to alleviate the structural supply issue in the market. Taxi drivers drive full time, and Grab will be able to integrate its booking system into the in-vehicle display unit. This will ensure that some elderly drivers (who are uncomfortable operating smartphones) can still take booking jobs;
4. That is what the largest taxi operator in Singapore – ComfortDelGro Group (CDG) – has been doing. Its fleet of 8,800 taxis has reduced significantly from more than 16,000 six years ago – but these are reliable supply, i.e. vehicles operated by full time drivers with a required daily mileage on the road. With almost exclusive access to this supply plus the private cars added in recent years, CDG’s own ride hailing app Zig is not an insignificant competitor to Grab in Singapore;
5. Which means, even without mentioning GoJek and TADA in the market, the concerns that some have raised about Grab creating a monopoly is not warranted. Singapore’s regulations also forbids ride hailing platforms to require exclusivity on its drivers. By the way, while Zig has the locked-in supply, it still lags behind Grab in technology (e.g. the map often does not contain the Points of Interest you are searching for);
6. In a way, we can draw parallels between Grab owning some reliable supply to ecommerce platforms Shopee/Lazada building its own logistics (as we elaborated in the recent Ecommerce in Southeast Asia 2023 report). Such in-house capabilities ensure reliable base supply while third parties take care of the elastic demand;
7. Trans-cab itself has been a formidable insurgent in the taxi business in Singapore, with its fleet once surpassing 5,000. Founder Teo Kiang Ang and General Manager Jasmine Tan really built a lot of operational efficiency and camaraderie with drivers to break through the dominance of CDG taxis. This experience, plus the maintenance and fueling facilities, will probably be a leverage for Grab to attract other drivers, and improve operational efficiency (thus profitability). Besides, Trans-cab itself has been profitable for years;
8. Will Grab make similar moves in other markets? We think unlikely – Singapore caps the number of vehicles allowed on the road, which is probably a key reason why Grab decided to go hands-on and own a taxi fleet. In other markets in Southeast Asia, the supply-demand dynamics can be quite different, which means leading ride-hailing players like Grab and Gojek need to take different approaches;
9. This is a piece of the localisation puzzle operating in Southeast Asia’s fascinating but very fragmented markets.
