Commercial transportation: A shifting, not shrinking, market

 

Uber has no shortage of big ideas: self-driving cars, free-wheeling 18-wheelers, and most recently, a flying-car concept. But the most immediate disruption that needs to be assessed, according to Larry Kalior, founder and CEO of Transportation Insurance Brokers, is how traditional limousine and taxi fleets are responding to ride-sharing services such as Uber and Lyft.

Limousines

“The limousine space is quickly dwindling because of the ride sharing businesses, both Uber and Lyft,” Kalior advised. “As a result, those companies have shrunk in size or gone out of business, and that’s a huge market shift.”

Kalior emphasized that “shift” is the operative word here. Consider Uber Black and Lyft Premier, the high-end ride-sharing options for each company. These services require the use of luxury vehicles, a commercial license and commercial transportation insurance, which is really no different than a limousine – with one notable exception. Traditional limousines would have averaged, “about 30,000 miles per year on each vehicle,” whereas an Uber Black vehicle will push 80,000 miles, according to Kalior.

“If you do the math, it’s actually no different than a Taxi cab,” Kalior said. As a result, insurers will actually charge much higher rates for Uber Black than they would for a limousine fleet. Already, these pop-up businesses based around premium ride sharing are paying higher premiums. On top of that, and where limousine services have the longer-term upper hand, is the life of the vehicle. At 80,000 miles a year, these luxury cars are run into the ground much more quickly.

More importantly, the real edge that Uber and Lyft have over the traditional luxury transportation market is the application. At what point do limousine services start competing in local markets by leveraging similar technology? According to Kalior, some taxi fleets are already doing just that.

Taxis 

“In some markets, taxis can respond more quickly than Uber.”

Kalior said that he’s already seen promising responses from some cab companies in their attempts to more effectively compete with Uber. He noted an example of one company that has developed its own application. In its local market, the company can actually respond more quickly than Uber. If other taxi fleets begin to explore new technology, such as the development of mobile applications, they may actually be able to offer a consistently superior customer experience.

What’s more, Gizmodo’s Michael Nunez stated that Uber is “losing money faster than any tech company ever.”

In fact, Nunez believes that the only way for Uber to grow its profit margins is to get rid of drivers altogether. Predictions for how soon this will be possible vary, with starry-eyed innovators saying we’ll see millions of driverless cars by 2020. Meanwhile, skeptics contend that a combination of faults in the technology and state- and city-based regulations will keep them off the road in large numbers for many more years to come, which could be a problem for Uber.

It’s also worth noting that not all state and local governments have legislation that ride-sharing companies find favorable. For example, after Austin, Texas, legislators mandated fingerprint-based background checks for ride-sharing drivers, Uber and Lyft packed up and left. In cities and states where Uber isn’t required to adhere to the same laws as other commercial transportation companies, more contention may lurk around the bend.

Last but not least, there has already been controversy based on Uber’s current insurance model, in which the driver is only insured while the app is on. The rules vary between states, and with a few exceptions (notably California), most only require ride-sharing services to insure drivers that have a passenger in the car.

The problem here is that if an Uber driver gets into an accident on his or her way to a customer in certain states, that driver will have to make a claim with a personal insurer. When the insurer finds out the car was being used for commercial purposes, the claim will probably be denied. This issue has come to a head in several states, and in the long run, it may cause more problems for ride-sharing companies.

On the surface, the momentum certainly appears to be in Uber and Lytf’s favor – and there’s no question that ride-sharing has shaken up the market. Nevertheless, if Nunez and Kalior are correct, then Uber and Lyft have just as many hurdles to overcome before they can emerge the victors.

For now, we’ll have to accept that this is a disrupted market in flux, and what happens next remains to be seen.