How can the ride hailing industry overcome the dilemma of low price competition?, Drivers struggle to make money, with a record high order volume for ride hailing services

The ride hailing industry is once again experiencing a wave of decline. Recently, a specialized team for collaborative supervision of new forms of transportation in Shanghai, composed of multiple departments, conducted joint talks with 18 compliant ride hailing platform companies in Shanghai, as well as Didi Chuxing and Gaode ride hailing platforms. At the interview, it was revealed that by the end of this year, 80% of Shanghai's ride hailing vehicles must comply with regulations, and Didi will clear 25000 non compliant vehicles in the city.

Shanghai is not an exception. Prior to this, Ningbo, Shenzhen, Wuhan, Hangzhou and other places have also conducted interviews and supervision on local top ride hailing platforms, requiring standardized ride hailing prices and operational management.

Experts say that this round of withdrawal is related to the increase in the number of ride hailing services in the past six months and the price war on platforms. From the perspective of urban governance, the surge in the number of ride hailing services directly affects the quality of urban transportation, and the number of ride hailing accidents in Shanghai has shown an upward trend. At a deeper level, the intensification of conflicts between drivers and platforms may be the fundamental reason for regulatory intervention.

In 2014, Uber entered China, and the ride hailing market experienced an explosive expansion and localization reshuffle. This year is also known as the "first year of ride hailing". After nearly 10 years, the ride hailing industry has not yet achieved the expected "certainty", and the industry is still undergoing transformation. Unlike previous "price wars" and "retreat trends", the new feature exhibited this time is that the total order volume has increased, but drivers have earned less.

"The worst year of the market"

At 7 o'clock in the morning, ride hailing driver Xiao Ge walked out of the house, carrying his large kettle and preparing to depart. Sitting firmly in the car, Xiaoge first glanced at the messages in the car enthusiast group, then opened the car owner's order taking software and skillfully cancelled the setting of "picking up airport and train station orders", starting the day's order taking.

The reason why Xiaoge doesn't go to the airport or train station is not because it's too far, but because places with high traffic such as airports, train stations, and Disney are the easiest places for online ride hailing to be checked. According to Xiaoge, it has been some time since the traffic management department strengthened the investigation and punishment of non compliant ride hailing drivers before relevant parties in Shanghai interviewed ride hailing platforms. "Now the transportation management is very strict, and if caught, fines will be imposed. Drivers with 'single certificates' will be fined 200 to 2000 yuan, and those without' double certificates' will be fined 30 to 10000 yuan. This makes drivers with 'single certificates' like Xiaoge nervous.".

The "double license" in Xiaogekou refers to two kinds of certificates that drivers must possess to engage in online car hailing service, namely, Road Transport Business License and Online Taxi Reservation Driver Qualification Certificate, referred to as "car license" and "person license", and the latter requires the driver to be a registered residence in Shanghai. At present, a large number of ride hailing drivers in Shanghai only hold a "vehicle certificate", which is a "document" driver. However, according to industry insiders, less than 20% of "dual certificate" drivers may hold a "vehicle certificate".

Xiaoge is one of the "documentary" drivers. His home is in Shaanxi. In 2018, he came to Shanghai to start a ride hailing service for six years because he heard from his fellow townspeople that he earns over ten thousand yuan per month from driving a ride hailing service in a big city. This year is the worst year for him since he started his ride hailing service.

The reason for the difference is that I can't make any money anymore. Xiaoge said that even before "Shangshang" started searching for online ride hailing services, he had already felt a decline in income. "When things were better in the past, the daily turnover could be 1500 yuan, but recently it has decreased significantly, only 700-800 yuan per day.".

With a sharp drop in income and stricter regulation, Xiaoge plans to quit after completing the summer in August. His anxiety to some extent reflects the current predicament of Shanghai's "documentary" drivers.

Is it better to have a compliant "dual certificate" driver? The answer may also be negative.

Master Shi is a veteran taxi driver in Shanghai who has been working for more than 20 years. He started taking ride hailing services online in 2012. Since the beginning of this year, he has also felt an income crisis with complete dual certificates. Although "dual certificate" drivers have no risk of violation, the cost of using the vehicle is higher than "single certificate" drivers and unlicensed drivers. According to Master Shi, purchasing insurance for new energy private cars now costs about 4000 yuan. If you need to apply for a "car certificate", the insurance cost will exceed 10000 yuan, and the vehicle also has mandatory scrapping regulations for years and kilometers.

Mr. Shi, who is getting older, can only run for eleven or twelve hours a day. Due to a decrease in income, most of the friends who came out of the taxi company with him back then are now not working. In his eyes, although he chose to drive ride hailing services because of his high income, the myth of earning over ten thousand yuan per month has long passed.

According to Master Shi's calculations, drivers who are currently employed and own a car can earn around 10000 yuan per month by working 15 to 18 hours a day; If renting a car, the monthly income for the same intensity is around 7000 to 8000 yuan, which is still under the condition of not violating regulations or being caught. "Now when I see others posting on the internet and earning thousands of yuan a day, I don't envy them at all because we know it's all about risking our lives."

Double certificates for ride hailing drivers, Xinhua News Agency

Why did you earn less?

The common feeling among passengers in recent months is that ride hailing services have become cheaper, which is also a direct reason for the decrease in income for ride hailing drivers.

Why has the unit price decreased? When asked in a timely manner, the drivers' first reaction was that "there were too many people rushing in". The threshold for the ride hailing industry is low, and there was a halo of high salaries. Since the second half of last year, the number of ride hailing services in China has skyrocketed. There is no specific registration data for ride hailing services in Shanghai. Previously, Wu Xuecheng, Deputy Director of the Passenger Transport Department of the Shanghai Road Transport Bureau, stated that the current daily demand for ride hailing services in Shanghai is around 2 million units, and the supply of around 100000 vehicles is relatively scientific, including ride hailing services and traditional taxis.

According to information released by the largest ride hailing platform in China, Didi, currently has 140000 monthly active ride hailing vehicles registered in Shanghai. On this platform alone, the number has exceeded 100000. Based on the online ride hailing order data released by the Shanghai Municipal Transportation Commission, Didi's market share in the first quarter of 2023 was about 64%, indicating that the current online ride hailing market in Shanghai is clearly oversupplied.

But the increase in the number of ride hailing services is not the only reason for lowering the average passenger price. During the interview, several drivers stated that their daily order intake has not decreased significantly compared to before, still around 20 orders. Passengers also reported to reporters that, based on their physical perception, they did not feel that taking a taxi to pick up orders was faster.

In fact, in the past three months, the number of national ride hailing orders has been continuously increasing. The latest data shows that the national order volume for ride hailing services in July exceeded 800 million for the first time this year, which is also the highest order volume since the Ministry of Transport first released national data in October 2020.

Due to the recovery of summer travel and consumption, the supply and demand tension in the ride hailing industry has been alleviated. Drivers say the key reason for the lackluster income may be the "price war" between platforms.

In fact, low price competition has never disappeared in the development of the ride hailing industry for more than a decade. In the early stages of "burning money" and "occupying land" on various platforms, passengers could get low-priced cars and drivers could also receive subsidies. Some drivers told reporters that at that time, the platform's subsidies could even exceed the unit price, and the monthly income could easily reach tens of thousands by running eight hours a day.

But this year is different. The platform offers discounted prices, no longer just for financing to burn money, but for compressing the profit margins of drivers. After the decline in customer profit, many drivers choose to drive longer hours a day to make up for the price difference in order to achieve the same level of revenue as in the past.

Lao Zhang belongs to this type of driver, who achieved a reputation close to perfect by driving around day and night. In order to receive a monthly reward of over 3000 yuan from the leasing company, I haven't taken a day off for three months. He usually starts work after 6 o'clock and ends work at 12 o'clock, a total of 18 hours of work time. Although tired, I dare not stop to make a living.

For the fixed price model on the platform, many drivers, including him, suffer a lot. Although consumers enjoy low prices, they are prone to facing discounts when it comes to ride services. For example, when taking a discounted ride hailing service, a driver may propose to pay extra for turning on the air conditioning, or there may be a dispute between the driver and passengers over whether to drive a few hundred meters into the community at a fixed price.

Who instigated a price war?

So, who triggered this round of price war? Online ride hailing analyst Rube believes that the main reason is the competition between small and medium-sized platforms under the aggregation model.

This will talk about the three development models of current ride hailing services - pure self operated travel platforms, self operated+aggregated travel platforms, and pure aggregated travel platforms.

In recent years, the proportion of aggregation mode has continued to rise. It was first founded by Gaode Taxi in 21017, and later connected to Dida Chuxing, and cooperated with Shouqi Taxi to develop online ride hailing services. In 2019, after Meituan Taxi launched the aggregation mode, navigation platforms such as Didi Chuxing and Gaode Map also launched the aggregation mode. In 2022, Huawei's aggregated taxi platform Petal Chuxing was launched, and WeChat also began internal testing of Tencent Chuxing. This year, Meituan's ride hailing business has been adjusted, abandoning self operated taxis and fully shifting to an aggregation model.

"With the attributes of traffic ports, aggregation platforms have attracted many small and medium-sized ride hailing companies with fewer users to settle in, providing them with a soil for survival and competition." Ruble told reporters that as of July 2023, there were 322 ride hailing platform companies in China that have obtained operating licenses, while in October 2020, this number was 207.

Industry insiders have pointed out that although aggregation platforms cannot directly intervene in transportation capacity, they can rank service providers based on estimated itinerary prices. Platforms with lower prices are more likely to appear in prominent positions. For small and medium-sized platforms, the most direct way to get a share of the market surrounded by strong players is to offer a good price, which is a low price.

The strong also have concerns about survival. Take Didi as an example, its financial pressure is still evident. Although ride hailing services have achieved profitability before the epidemic, overall, the company is still in a loss making state. And after a long period of silence, Didi lost nearly 20% of its market share.

Meanwhile, the market share of aggregation platforms continues to rise. Data shows that since the beginning of this year, the order volume of aggregation platforms has increased from 146 million in January to 232 million, accounting for 28.26%, up from 25.35%.

In addition to the competition among all parties, there is also a major background that cannot be ignored, which is the change in the consumption level of residents. "China is currently facing economic uncertainty challenges, including pressure from shrinking demand, supply shocks, and weakened expectations." Chen Bing, Vice Dean and Professor of the Law School of Nankai University, pointed out that this poses a challenge to the confidence and investment expectations of market entities, and directly affects the consumption confidence and ability of consumers. "In order to stimulate consumption and tap into consumption potential, ride hailing platforms lower prices by adjusting drivers' pricing rules, stimulating consumers to choose ride hailing services from the demand side."

Although price reduction can serve as a strategy to regulate supply and demand, if it evolves into a "war", drivers will be "very injured". "The initial low price model was designed to allocate idle transportation capacity while increasing driver income," Ruble told reporters. During periods of low passenger demand every day, such as between 2pm and 4pm, by lowering prices, passengers' taxi behavior was triggered, allowing the car to run.

However, as platforms have been involved in the price war, "Buy It Now" and "Preferential Orders" have emerged one after another, accounting for an increasing proportion of orders, and this model has gradually changed. Some drivers even complained that "without a Buy It Now, the system will not be a separate order".

In 2018, Shanghai cracked down on illegal ride hailing services, photographed by our reporter Li Lei

The industry is entering a strong regulatory cycle

As the conflict between drivers and platforms intensifies, the industry is entering a strong regulatory cycle.

Firstly, it is important to regulate the people involved in distributing the cake, and many cities have already taken action. Starting from May 16th, Changsha City will suspend the acceptance of new online ride hailing transportation certificates. Those that have already been accepted will be processed according to normal procedures. Prior to this, multiple cities such as Dongguan, Sanya, Wenzhou, Jinan, and Suining have successively issued saturation warnings for ride hailing services, reminding local ride hailing services that the daily average number of orders received is less than 10.

On July 22nd, in response to the oversupply of the ride hailing market, a significant decrease in driver orders, and a serious decline in revenue, Shanghai announced a two-step suspension of accepting ride hailing transportation certificate related services.

At a recent interview with ride hailing platforms, the Shanghai Road Transport Bureau revealed that by the end of this year, 80% of Shanghai's ride hailing vehicles must comply with regulations, but did not mention the requirement for personal identification. The relevant person in charge of Didi platform admitted on site that there are about 76000 certified vehicles on the platform in Shanghai. Since July, more than 4000 non compliant vehicles have been cleared, with plans to clear 25000 vehicles by the end of September.

Local governments have also responded to price wars. The Hangzhou Municipal Administration for Market Regulation has responded to citizens that it plans to hold a price policy warning meeting in mid August and will order ride hailing companies to ban prices such as "fixed price" and "discounted price". The local transportation bureau in Wuhan has issued a notice to all platform companies that they must implement clear pricing requirements, and shall not use methods such as "fixed price," "special offer," and "high subsidy" to promote low prices or disrupt market order through unfair pricing behavior.

The Shanghai Road Transport Bureau also stated that some platforms have engaged in commission payments approaching the upper limit of 30% and are suspected of infringing on the rights and interests of drivers. "We have ordered the relevant platforms to make corrections. If the marketing methods launched by the platform involve drivers' rights, opinions from drivers, industry associations, etc. need to be sought in advance."

The sharp sword of regulating the industry has been revealed. This series of actions inevitably reminds people of the "retreat wave" experienced by the ride hailing industry in 2018. At that time, industry platforms and practitioners also experienced severe pain, but the safety and urban traffic issues of ride hailing services have indeed been improved, and the qualification review of ride hailing services has been further standardized.

In fact, every industry has a cyclical development and will go through a spiral of progress. With the end of the summer consumption peak season and the upcoming industry off-season, people in the midst of more than 300 platforms are watching whether competition will return to order.