Sunday, December 19, 2010

Yellow Cab Has Declared War On Its Drivers - Part 1

AAA Full Transportation, aka Yellow Cab, has decided to wage war on its hard working cab drivers in its endless quest to squeeze every dime it can from them, and control their working habits as though they were employees, even though they are independent contractors.

It can do this because of the lack of any regulatory oversight of taxi transportation in Tucson, or for that matter, in the state of Arizona. Other than Weights and Measures which insures accuracy of taxi meters and that vehicles carry the necessary insurance, and ADOT which issues "taxi" plates, there is no oversight of pricing, driver standards, vehicle equipment and safety standards, or driver drug and alcohol screening. No special license is required to be a cab driver, and unlike most large cities, no limit on the number of cabs any company can field in the city or state exists.

Almost all cab drivers in Tucson are independent contractors, not employees of the cab companies. In essence, cab companies are glorified car rental companies. The driver pays a flat rate for the car for a 12 hour, 24 hour, or weekly period. The cab company does not generally take a slice of any fare. Since this is the case, drivers can choose what hours to work, what parts of town they wish to service, what dispatched calls they wish to accept or reject. Some drivers show up, lease (rent) their cars, take calls from dispatch, sometimes pick up a "hail" or "flag" off the street, and then go home, happy with whatever they made that day. Others drivers have seized the opportunity that their status as independent contractors have given them - they have made an effort to establish real businesses as transportation providers - they have built a client list ("personals"), they've developed a strategy, some advertise and have web sites to attain new customers, and some are even incorporated. Drivers in this latter category generally derive more of their income from their own customers than from taking calls from Yellow Cab. While the cab company provides for insurance and maintenance of the vehicle, the driver is responsible for fuel, paying income taxes, and his own health insurance.

Yellow Cab, in the meantime, has built a strategy in the last few years of providing managed transportation services particularly for the state of Arizona for AHCCCS (Medicaid). AHCCCS through their member providers arranges for transportation to and from medical appointments. Yellow Cab not only provides transportation, but in the case of APIPA, provides call center services. This amounts to several thousand rides per day in the Tucson area. These are known as "voucher" rides, as the passenger does not pay the driver, but rather the driver collects the fare from Yellow Cab.

Yellow Cab utilizes a computerized GPS dispatch system. With the system that had been used for the last 7 or 8 years, a call is entered into the system, then the system locates an available cab closest to the customer, and offers that driver the call. In the past, the driver was presented with a street name, a block number, and the type of call - cash, credit card, or voucher. The driver makes an assessment as to whether he should accept the call or not depending on a number of factors - distance to the call, traffic, prior knowledge of the address, future appointments he has with other passengers that he has to keep, and the type of call. If the driver accepts the call, he receives the call details - specific address, passenger name, phone number, special notes and instructions, and if a voucher, the reimbursement rate. If the driver rejects the call, he gets back into the queue for another call.

Knowing the type of call is important to the driver. Some drivers will take any call, others will only take cash. Many drivers will not take voucher calls, as these pay at a rate less than the "meter" rate - in other words, Yellow Cab drivers collect $2.00 per mile for cash calls, plus the $2.50 flag, and $28.00 for waiting time (time while waiting at stop lights, for customers making purchases in convenience stores, or anything else that prevents the driver from actually having the vehicle in motion). Vouchers, on the other hand, are paid at a flat rate per mile ($1.30 per mile), and do not include any allowance for waiting or delays. A cash call going 5 miles might pay a driver $13 to $15 before tips, while a voucher will only pay $8.50 (Yellow Cab pays $8.50 for any ride up to 6 miles, then at 7 miles, pays the mileage times $1.30 - 7 miles = $9.10, 8 miles = $10.40, etc.).

Most experienced drivers know that if they want to make the most money in the shortest period of time, they need to avoid taking vouchers. On a good day, a driver taking only cash calls will make another 30 to 40 percent more than one taking vouchers. Most drivers, however, are willing to take some vouchers during the day, because cash calls are not always available.

Over the past few years, both meter rates and voucher rates have remained fairly level or have actually decreased. In the past five years, the meter rate has gone from $1.60 per mile to $2.00 per mile, while voucher rates have fluctuated from $1.20 to briefly $1.50 per mile. In the meantime, gas has risen from $1.89 per gallon to $2.69 per gallon, Yellow Cab’s lease rates have gone from $475 per week to $588, and the recession has severely impacted call volumes, with fewer people taking cabs, while Yellow Cab has increased the number of cabs in their fleet by 25%. Additionally, given no government restrictions on the number of cabs in the city, a plethora of smaller independent cab companies have started up in the last couple of years, and the other two large cab companies - Discount and VIP - have also increased their fleet sizes. For any driver, this means competing for a piece of a much smaller pie.
Let’s do the math. If you are Yellow Cab driver, you are going to work during a good week 38- 42 hours just to pay Yellow Cab - this to cover your $588 weekly lease, and the gas expense just to generate the $588. This is a breakeven point of approximately $690. Then you’ll have to work another 40 hours to make money for yourself - $300 to $400. That’s right - most cab drivers work the equivalent of two full time jobs to provide for themselves and possibly a family.

Yellow Cab makes a tremendous amount of money on vouchers, and does everything they can to protect the profits they realize. Hence, while drivers' costs have increased, Yellow Cab has reduced the reimbursement rate to drivers. Drivers bear the brunt of the risk and cost for servicing vouchers. First, drivers bear the fuel cost. Second, if the ride is a no show (a previous cancellation made was not entered into the dispatch system, the passenger forgot about their appointment, or decides not to go when the driver arrives), the driver has an opportunity cost, receives nothing for his effort, while we suspect that Yellow Cab collects a no show fee from AHCCCS (the same is true for some special services, like providing car seats - in order for the driver to be able to service a voucher requiring a car seat, he has to purchase his own car seat, while we believe that Yellow Cab charges for sending a car seat equipped car but does not share that fee with the driver).Third, the average voucher takes 30 to 40 minutes to service - generally 10-15 minutes to get to and load the customer, another 15 to 20 minutes to get the destination, all for $8.50. The average driver needs to gross $23 to $25 per hour in order to make a decent wage - that's not going to happen doing $8.50 vouchers all day long.

It might sound like most drivers would avoid vouchers like the plague, but that is not the case. At some times, like towards the end of the month, cash calls get a little sparse, but generally there are voucher calls every day. Some drivers with a lot of personals will fill in with vouchers as the destination is always known when the call is accepted - if a driver accepted a voucher that would make him run late for his personal, it was easy enough to call the dispatcher and ask to be taken off the call - not easy to do when you get to the cash call and find out they are going to a distant medical appointment or the airport and are already running late.

Why is all this detail about vouchers so important? Because it is at the crux of the relationship between Yellow Cab and the drivers. Since Yellow Cab derives so much profit from vouchers (more than from leasing cabs), nothing would make them more happier than a fleet of drivers that serviced voucher calls all day long. The dispatch system that had been in place was prioritized to offer voucher calls first to drivers, then cash. Drivers have long suspected that during days where vouchers calls were backed up and running late, cash calls were not being entered into the system for dispatch (or entered in so late that once drivers got to cash calls to find out that passengers cancelled or left they would become frustrated and more willing to take vouchers). Over the past few months, Yellow Cab has made it clear to drivers that they are not interested in cash business, since they don't share in the revenue. No effort is made at attaining new cash business, and it's apparent from reviews on web sites such as Yelp and that cash customers are not important from the time calls are taken to the time they are dispatched, and even when complaints are filed, they are almost never followed up on.

Within the past few weeks, Yellow Cab has rolled out a new dispatch system which is designed to completely hide information about the call being offered to the driver until he accepts it. The only information given to the driver in the offer is the zone in which the call is (the city is divided into zones that are 2.5 miles long on each side) and how far the call is from the driver. No street or block number, no clue as to whether it is a cash call or voucher. If you are in the middle of the zone in which the call is, you have no idea in which direction you might be headed - only if you are on the edge of the zone will you have a clue as which direction you might be headed. The system will offer the driver calls up to 6 miles away - during the night, that might be alright, given the lack of traffic, but during the day that's almost never a good thing. If you are willing to accept vouchers (each driver has a profile which tells the dispatch system what kind of calls he's willing to accept), getting a voucher six miles away and worth only $8.50 will burn up an hour's time.

There additional factors that a driver considers when offered a call besides the type of call:

    do I want to travel in that direction?
    do I have a future commitment that might be impacted by the offered call?
    am I familiar with the address being offered, hence is it someone that I don’t want to pick up (there could be a number of reasons for this - the passenger has been troublesome in the past, the driver might be familiar with his payment record, his expected route of travel might conflict with the driver’s schedule, etc.)
    is there a safety issue? do I want to go into that neighborhood, apartment building or convenience store at night? (while the old system offered only the street and block number (coded to indicated if it was an even or odd address) one could ascertain if that address being offered was a certain house, apartment building or business (i.e. the block 5301 E Grant is the odd side of Grant, and there’s only one thing there - TMC))
With the new system, the driver is given almost no information to make any of the above decisions.

To be continued...