The hobby economist – How Taxi Stockholm really works

If you’re anything like me (which you probably are since you got here), you’re constantly interested in how stuff works and why it works the way it does.

Taxi systems interest me, they work very differently in different countries (everyone drives their own car, 100% on provision, big firms with drivers on commission, government run etc) and I think you can tell based on the kind of service you get.

I’m also interested in the general supply and demand problem of planning taxis.

Therefore, the other day, going home from Arlanda airport, I took the chance to get the skinny on how Taxi Stockholm really works, who takes the financial risk, how much they make, how they match supply with demand etc. Pretty intesting I think.

THE SYSTEM:
There are three basic parts to Taxi Stockholm:

- Drivers:
Unlike what most people think, the drivers usually do not own the cars they drive, more often, 2-3 drivers, are scheduled on a car that is owned by what in Swedish is called an “åkare”, loosely translated as a “garage owner” or “car owner”

- Car/garage owners:
These guys usually own several cars, they take a fairly small amount of the money that their drivers charge the customer, so this is really a scale business, where the money is in having many cars making money simultaneously (almost no drivers actually own their own cars since the revenue from owning a single car is not worth the hassle according to the drivers I asked). The car/garage owner makes sure his cars are scheduled and rolling 24/7. There is a central digital board system hosted by Taxi Stockholm that handles supply and demand between drivers and car owners, where drivers can click the hours that they want to drive a car. Usually a driver always drives the same car. But the car/garage owner doesn’t have anything to do with supplying actual customers to his drivers, this is the job of the dispatch.

- The dispatch:
Taxi Stockholm dispatch is obviously what supplies the actual customers to the drivers. Interestingly, Taxi Stockholm is not a share holder’s company (an AB in Swedish) but what is called an “ekonomisk förening” losely (and lossy) translated to a financial partnership, a cooperative owned jointly by all car/garage owners (about 950 across about 1600 cars).

The dispatch is obviously the whole value of being a part of Taxi Stockholm vs driving on your own since they connect demand for taxis with supply of taxis and apart from waiting outside night clubs at closing hour or Arlanda airport (more on that below), it is very hard to predict where this demand will be.

However, while many people think that the taxis are centrally controlled by the dispatch and told where to go in order to spread out and follow demand, it is actually much more bottom up and controlled by the drivers. All cars have a computer that shows three columns and a bunch of rows. Each row is a zone (e.g. Östermalm, Södermalm or Kungsholmen) and the three columns shows:
1. The taxis in this zone right now.
2. How many outstanding reservations this zone has right now.
3. How many pre-orders this zone has coming up.

Based on this demand info, drivers try to match supply themselves by going to the zone they think will be the best bet. When they enter a zone, they log in and get a queue number based on how many cars came there before them. There are a lot of different strategies out there (kind of like fishing in the words of the driver himself) based on avoiding drunk people, dangerous areas, getting long rides (to Arlanda) vs short ones, predicting demand ahead of time etc.

THE MONEY:
So what does the money look like?

While I couldn’t get all the numbers, I got a few. Out of what the customer is charged the division looks roughly like the following:

- VAT 6%
- Driver 35% (about 26% net), i.e. 100% performance based salary, no fixed part.
- Car owner ?% (unknown, but the drivers say it is a pretty tough business, let’s assume maybe 35% as well, which needs to cover the vehicle cost before income tax)
- Taxi Stockholm dispatch staff and orgnaization cost ?% (maybe 24% then)

On a good weekday 12 hour shift, a driver makes about 3000 SEK
On a good weekend 12 hour shift, a driver makes about 6000 SEK
On a good month a driver makes about 30 000 SEK gross/20 000 SEK net (which implies working at least 6 nights a week and probably several full weekends)

Some observations: The incentives to drive illegal cabs are really high as you can charge customers roughly the same per minute/mile but make almost four times as much net per minute/mile. On the other hand, you have no dispatch to feed you business, which means you can really only do this successfully around night clubs at closing time where demand is obvious (most hotels and airports have pretty effectively gotten rid of illegal drivers). The lack of a supply/demand function to make them competitive thus means that illegal cabs aren’t really a big problem for the taxi industry financially.

THE CARS:
Actually, Arlanda airport has a bigger impact on the type of car that a car owner buys than the general car economy like repairs cost of fuel etc.

Arlanda airport is obviously a very big supplier of customers and they have a taxi system that very strongly incentivize environmentally friendly cars over others. Basically, when drivers arrive at the airport (or have dropped customers off) they have to queue at a site a bit away from the airport instead of driving up to a gate. There, they get a queue number based on the environmental points their car has. A car can get up to 100 points (the passat is apparently the top scoring car at something like 85 points). If you have a low score you can be sitting at the queue site for many hours and might as well not bother (i.e. drive back to Stockholm empty to find new business).

That’s it, I hope you learned something you didn’t already know…

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Gustav

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02

01 2011

16 Comments Add Yours ↓

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  1. 1

    Driving back empty to Stockholm does not sound very environmental friendly though … :/

    • Gustav #
      2

      @Andreas Öman, very true!

  2. 3

    To be part of Taxi Stockholm dispatch also requires a monthly fee which is, to be diplomatic, huge!

    • Gustav #
      4

      @Taxi Driver, interesting, could you elaborate please? How big is the fee? Since the dispatch is owned by the car owners it doesn’t seem to make sense that they would overcharge themselves right? Is that fee on top of shared revenue from driving, or instead of shared revenue?

  3. 5

    Although i have been living in Stockholm for the past 2 years, i can’t say i know how the taxi system works. Your post was very informative and to the points. Thanks!

  4. Tomas Chatzopoulos #
    6

    Let’s just be clear on one thing. The bottom up demand system zis far from optimal. If there is no cars in your “zone” the dispatcher will not be able to get one for your. That kind of removes the purpose of one… In helsinki where i used to live the taxi system is even more akward compared to sthlm. Also hard to come by at some times.

    • Gustav #
      7

      @Tomas Chatzopoulos Exactly, that is the obvious drawback of the bottom up demand system and why I find it interesting. I asked the driver how often it happened that drivers ignored demand. He said it wasn’t too common (money talks I guess) but that drivers did avoid the suburbs on weekend nights and logged in to the posher areas to pick up “rich well behaved kids instead” as he put it…

  5. K #
    8

    The revenue per month would be pretty low for an illegal car – you can have the car making money only 4 hours per day as opposed to say 16-24 for a legitimate taxi (it’s not purely a consequence of no dispatch matching supply and demand – perceived difference in quality of service means illegal cabs are only for the drunk and the desperate).

    Even during that time you will have a lower occupancy than say a Taxi Stockholm car, as:

    - The Stockholm car will have at least a small chance to get matched with a new customer after dropping off the customer, while the illegal taxi will have to drive back from the residential areas empty.

    - More importantly, the illegal taxi will only be considered in two situations:
    a) If there are no legitimate taxis available – typically only the case at extreme peak hours, or
    b) Medborgarplatsen (price-sensitive drunks, availability of parking means you have the opportunity to negotiate price in advance)

    Under a) you have considerably fewer fares per night even during your limited time window for doing business, under b) you make considerably less money per fare reducing the advantage of not having to pay a dispatch fee.

    Finally I would argue that the driver of an illegal taxi would either need to own the car himself or compensate the owner of the car, so he’s really only getting out of paying the Taxi Stockholm membership fee.

    Conclusion – I’m not quitting my day job to drive illegal taxis. It may be a good way to make a maximum of SEK 4-500 per night before costs IF
    - you have a car standing around and
    - some time to kill on a Friday night, but that’s about it.

    • Gustav #
      9

      @K Fully agree with this. As a full time job, it is really poor. As a way to spend you Friday and Saturday night, making extra cash with a car you owned anyway, It probably matches many other activities in SEK/h (if you disregards the risks).

  6. Fredrik #
    10

    It is not only the dispatch that makes it worth the fee, but also the trademark itself. A lot of people wouldn’t use other companies than “the big 3″ in Stockholm. Which leaves Taxi I Stockholm, Taxi Södermalm and so on to tourists who hasn’t heard of the Stockholm taxi situation with “friåkare” and their prices.

  7. Andres #
    11

    Cool post, great to read about things you use all the time but don’t know much about.

    What’s the licensing situation like? In a lot of cities just getting a license for a car is like being able to print money and they can go for 10s if not 100s of thousands of dollars and dictates a lot of the market.

    Also, are cab prices set by the city/state?

    • Gustav #
      12

      Thanks Andres, I actually don’t know the licensing situation, I didn’t get the impression that it was very difficult though. Will have to ask next time! Maybe someone reading this knows?

  8. 13

    Great post Gustav. Very interesting looking at different Taxi markets. They all have their challenges & quirks for sure.

    RG

  9. 14

    Intressant post! Var inne lite och tänkte kring det här när jag skrev http://blog.warstrom.se/2011/01/taxikondomerna.html

    Vad finns det för andra möjligheter tror du?

  10. Patrick #
    15

    I would say that about 80 to 90 percent of all car owners drive themselves and usally during daytime. In Taxi Stockholm we have 1538 cars and about 900 something “åkare” so as you can understand most åkare have only one car. We have 5-6 “åkare” with more than 10 cars and one has 40 and one with 27 cars.
    The commision to the drivers is 36% plus 13% vacation salary and on top of that we have somthing called Fora wich is the “tjänstepension” extra pension saving paid by the empoyer about 3-4 percent. Taxi Stockholm is the only taxicompany that has “kollectivavtal” and this agreement is garanteeing the driver a minimum salary of 17500 sek for 40 hour of work per week. Every carowner has to comply with this if they wish to remain in Taxi Stockholm.
    The sum paid by the carowner to Taxi Stockholm every month is 8100 SEK + 2.85% of what the car makes every month + 25% vat(moms).
    Every car makes 4-8% profit before tax if there is a low level of damages to the car. If you or your driver causes or is considered to be casusing an accident you have to pay about 9000 sek + 25%vat to the isurance company. You pay 965 sek for insurance every month. So with these expences you relly have to be driving yourself to make money and you take a huge risk if you employ the wrong person.

    • Gustav #
      16

      @Patrik Thanks for the great comment! Really awesome info and detail.


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