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The coming disruption in transportation

LiveMint logoLiveMint 16-05-2017 Ajit Ranade

“A developed country is not a place where the poor can afford cars, but rather, where the rich use public transport.” This quote comes from the former mayor of Bogotá, Enrique Peñalosa. In its pithy way, it captures many deep truisms. Public transport has huge environmental and economic benefits, but it is widely used only when the network is complex and widespread, and the system reliability is very high. For this to happen, large upfront investments, which serve multiple generations, are needed.

Most of the infrastructure needs public funding, which in turn requires deep fiscal pockets, a large base of taxation and long-term debt and bond markets. These latter things are the characteristics of “developed financial markets”, if not of a developed economy itself. It is thus one thing to say that the rich should use more public transport, but it is quite another for the economy to reach that stage for the rich to alter their behaviour. And beware of falling prey to the fallacy of converse logic. “If only the rich made some sacrifice, and gave up their cars and used public transport, we could become a developed economy!” Such faulty logic is not unheard of. So, it is not surprising that fiscally strapped developing economies find it harder to build public transport in their ever-congested cities.

Of course, the option of public versus private transport is not a binary separation. There is an in-between category increasingly filled by a phenomenon called “transport as a service” (TaaS): a paradigm where people are using a hybrid combination of public and private transport, combined with the sharing economy, cashless payments with swipe cards and the GPS-enabled smartphone. When public provision fails, or is inadequate, the market often fills the gap. Call it the “uberization” of transport. But it’s more than just hailing a taxi. In cities like London, Paris, Sydney and elsewhere, you can buy a single card and use a combination of buses, trains and ferries seamlessly with it. In some cities, you also have sharing of publicly provided bicycles or free hop-on-hop-off shuttle services.

Uberization will soon also usher in the use of driverless autonomous vehicles, owned not by private individuals or cities, but by fleet owners and large companies. A recent report, “Rethinking Transportation 2020-2030” (goo.gl/wCgz3r) envisages huge and historic disruption in transportation in the coming decade. As regulatory approvals for electric autonomous vehicles are put in place, the report says that 95% of passenger miles in the US will be driven by on-demand autonomous electric vehicles. Ownership of conventional non-electric cars will drop, and the aggregate miles driven by these cars will be less than 5%. Car utilization will, however, rise by more than 10 times.

The report further says that demand for new vehicles will plummet by 70%, and the hardest hit in the value chain will be car dealers, maintenance and insurance companies. By 2030, 6 trillion passenger miles in the US will be delivered at one- fourth the cost of 2020. The electric vehicle boom means demand for oil will drop from 100 to 70 million barrels a day, and oil prices will remain stuck at low levels, making a lot of the shale oil fields redundant stranded assets. The value in car manufacturing will reside not in conventional manufacturing or assembly, but in operating systems and TaaS platforms.

The uberization phenomenon is spreading fast in Indian cities, and is already extending to logistics and trucking. Of course, it has run into a predictable conflict with taxi unions and conventional operators, but that is temporary and public usage is in any case increasing. As taxi aggregators like Uber and Ola tie up with companies, this has the potential of reducing costs substantially because of the TaaS model. Car ownership will eventually decline (as it has started doing in the US) after peaking in the short term. Ironically, in the near future, as more Uber and Ola entrepreneurs take the plunge, car sales are increasing. India will also soon roll out an ambitious national policy for electric vehicles. Imagine your office lot filled with electric vehicles getting their batteries charged with noontime solar power in the open-sky parking lot!

A few years ago, a Columbia University research paper titled Transforming Personal Mobility examined the impact of uberization on New York City, which combined Internet, self-driving vehicles, shared vehicles, special design and advanced propulsion systems. It concluded that such a system is capable of supplying TaaS at a radically lower cost, with lower congestion, much higher safety, reduced emission, higher energy efficiency and improved land use. For instance, in this system, just a fleet of 9,000 autonomous vehicles can replace all the taxis of the city, with an average waiting time of 36 seconds. Due to reduced demand for cars, there’s less demand for parking, hence space, freeing up real estate for housing; less insurance; less financing; hence lower interest rates and costs, and so on. Lest this sounds utopian, please note that driverless vehicles are already on commercial runs in some parts of the world.

Not all, but many aspects of this future, are not too distant for India. A developed country then is one with a fully optimized and uberized TaaS system, containing a medley of buses and trains, and solar-powered battery-operated cars. Here’s another thought: “A developed country is not where the poor send their kids to expensive private schools, but where even the rich send their kids to municipal schools.” That’s for another column!

Ajit Ranade is chief economist at Aditya Birla Group.

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