Masaki Ito: The Future of Regional Transportation Opened Up by Ridesharing

2024/06/17

In April 2024, "Japanese-style ridesharing" finally began in Japan, a country that had long fended off the entry of Uber. This is a step that can be called a major revolution, both for the taxi industry, which has a strong image of vested interests, and for the Ministry of Land, Infrastructure, Transport and Tourism, which tends to make conservative decisions.

Ridesharing refers to passenger transport provided by ordinary drivers using their private vehicles through app-based matching. In Japan, it had not been permitted for over 10 years on the grounds that it constituted "unlicensed taxi services" (shiro-taku). The reason it has come to the table for discussion at this timing is likely because, while there was a rapid recovery in travel demand and an increase in inbound tourist demand after the COVID-19 pandemic, the supply of taxis, which decreased significantly during the pandemic, has not easily recovered. Recently, voices complaining that taxis cannot be called even when using apps have become louder, particularly in urban areas.

Currently, the shortage of taxi drivers is a serious problem common to various regions, but the background differs greatly by region. In large metropolitan areas, oversupply of taxis was seen as a problem before the pandemic. However, in depopulated areas and small-scale population areas, issues such as declining sales and poor treatment of drivers had been challenges since before the pandemic, leading to a series of business closures and withdrawals.

As of April 2024, Japanese-style ridesharing is being realized by applying Article 78, Item 3 of the Road Transportation Act, which covers "unavoidable cases to ensure public welfare." The Ministry of Land, Infrastructure, Transport and Tourism identifies taxi shortages through app data and permits the service while limiting the regions, time slots, and number of vehicles. While ordinary drivers use private vehicles for passenger transport, the business entity is restricted to taxi operators only. Taxi operators perform operational management, such as alcohol checks, to ensure safety. Initially, it is permitted only in areas like Tokyo, Kanagawa, Nagoya, and Kyoto, with plans to expand the coverage area in the future.

At the same time, the operation of Article 78, Item 2 was also revised, making ridesharing possible under the existing private-vehicle paid passenger transport system. This system is one where NPO corporations and other entities provide passenger services in "transportation blank areas" such as depopulated areas where buses and taxis have withdrawn. While the forms of operation and organization vary by region, there are many cases where local residents volunteer to drive their private cars to support elderly people with shopping or hospital visits.

With this revision, "temporal blanks" are now recognized as transportation blanks in addition to geographical ones. Furthermore, fares have been raised to up to 80% of taxi fares, making business-viable services possible. It also allows for implementation under the responsibility of local government heads if a consensus cannot be reached at regional public transportation meetings involving local transport operators. These changes have made it possible to implement ridesharing based on this system in a wider range of regions.

The author believes that through this series of institutional reforms, the taxi industry has completely shifted its course toward evolving into a business predicated on IT. Apps and their data are used not only for calling vehicles and processing payments but also for the roll-call of rideshare drivers and determining taxi shortages. While there are currently large regional differences in the penetration rate of dispatch apps, the introduction of apps will likely become essential even in rural and depopulated areas, triggered by ridesharing.

A benefit at that time is the ability to resolve taxi shortages by combining methods other than increasing the number of drivers. When most dispatch requests and payments are made via apps, it becomes easier to implement mechanisms that supply taxis more efficiently while involving changes in user behavior, such as taxi ride-sharing services (recently permitted) and dynamic pricing that changes fares according to demand.

The benefits of IT also lead to more sophisticated and efficient operational management. Operators who transport passengers or cargo for a fee are required to appoint a certain number of operation managers and ensure safety through managing driver working hours and conducting roll-calls before and after shifts. The introduction of IT equipment and AI will realize highly effective safety assurance. Furthermore, by making roll-calls remote and centralized—which currently must often be done in person—it will become easier to realize mobility services in rural and depopulated areas where securing operation managers is difficult.

Such transformations require significant capital investment, which is a heavy burden for small-scale taxi operators. Inevitably, cooperation and mergers among taxi operators will likely progress. In some cases, it is possible that industry reorganization centered on dispatch app companies will occur.

What the success of Uber showed was that smartphones have the power to fundamentally change taxis. While fending off those direct rough waves, technology has matured in Japan, including the development of domestic dispatch apps. With the introduction of this Japanese-style ridesharing as a catalyst, I hope the industry will move forward as one toward realizing services that can ensure a means of transportation throughout all of Japan.