The “New” Economics of DRT

Roger Teal

DemandTrans Solutions, Inc.

Conventional Approach to Organizing &

Delivering DRT Challenged by “New” Models

• Common approach in USA since late 1970’s is use of

dedicated vehicles (DVs) in separate DRT fleet

• General public DRT typically can achieve mediocre

or better cost-effectiveness using this approach

• May be ONLY feasible approach in some/many small cities

• But VERY poor cost-effectiveness for DRT services

for disabled (ADA paratransit) using this approach

• Much better economic performance seen with other

models—TNCs, taxi-based services, FlexDenmark

• Conventional approach is becoming a liability

Multiple Recent Developments Point to

Importance & Feasibility of New Approaches

• TNCs—actual realization of lower cost service models

• Simple cost per passenger comparisons between TNC-delivered

services and DRT services illustrate potential TNC advantage

• FlexDenmark example—a successful operational

reality for extensive use of non-dedicated vehicles

• Recognition that contemporary technology makes new

approaches feasible, less of a daunting challenge

• Recent examples—OCTA, Montreal, DART—show

viability of new approaches for special needs DRT

• 88% of Montreal ADA-like service delivered via taxis—

9000 trips/day, $65 million annual program

The Non-Economics of “Classic” DRT

• Original concepts of DRT largely ignored economics

and practicalities of service production

• Focus was on service productivity, not production

costs—cost-effectiveness flowed from productivity

• MIT original studies largely silent on WHO would

provide DRT service and HOW it would be provided

• Key notion in MIT studies—quickly move vehicles in

and out of active service, match supply with demand

• NO sense of how real-life transportation providers

would actually do this—important oversight

“It’s All About the Demand Density, Stupid”

• Demand density—trips per square mile per hour

• DRT delivered by defined fleet premised on

moderate to high demand densities

• MIT classic studies BEGAN at 10 trips/SM/Hr

• Real life DRT services rarely exceed 5 trips/SM/Hr

• Achieving service productivity of >4 trips/VSH

nearly impossible at low demand density

• Taxi services can operate at 2.5-3.0 trips/VSH

• Do the math about relative cost per delivered trip

History of DRT in USA Largely Explains

Current Service Organization Model

• Pioneering concepts were service organization

neutral, but implicitly favored fleet of DRT vehicles

• Early experiments actually used dedicated vehicles

• Service organizers wanted maximum control over factors of

production, and focus on technology reinforced that emphasis

• Taxi industry uninterested or suspicious or opposed to DRT

• One company organized and dominated early market

for contracted DRT operations, used DV approach

• Taxi relevance reduced by industry changes in 1980s

• When DRT transitioned to ADA-dominant services,

simple adoption of existing DV operating paradigm

Adoption of Conventional DRT Service

Model for ADA Paratransit a Major Mistake

• Demand densities too low

• Typically less than 1.5 trips/sq.mi./hr (often less than 1.0)

• 3 to 5 trips/sq.mi./hr typical for productive GP DRT service

• Trips too long

• 6 to 10 miles avg. length, 3 miles or less for GP DRT

• Dwell times too high and too variable

• Due to WC trips and many passengers with mobility aids

• High cancellation rates—compromises scheduling

• Due to 24-48 hour advance booking requirements

• Inevitable result: poor productivity—1.3-2.2 pass/VSH

ADA Paratransit has been Severely

Compromised by Conventional Approach

• Large ADA paratransit services using DV-centric

approach have AWFUL economic performance

• Major cost issue for many large transit agencies

• YET …. Service models based on non-dedicated

vehicles (NDVs) have gained little traction in USA

• PTOs have resisted such approaches until recently

• PTO’s non-innovative, DV-based operations a simple model

• Concerns—some legitimate—about relying on taxi

companies for NDVs as linchpin of alternative approaches

• Brokered models historically seen as risky, albeit more

recent interest in such approaches

DRT in Sweden—Different Service Model

• Not established until latter part of 1980’s

• Built on the taxi industry—DRT = shared ride taxi

• Some use of DVs, but mostly limited, driven by

accessible vehicle needs

• Not enough internal DRT systems or funds to

support stand alone DRT industry such as in USA

• National government funding of programs implicitly

encouraged consistent local authority approaches

• SUTI standards developed in 1990’s explicitly

designed to facilitate taxi-based delivery of DRT

Highly Successful Early USA Experience with

Taxi-Based Model—El Cajon Express

• Very large public DRT operation started in mid-1970’s

by El Cajon, city of 65,000 people near San Diego

• Essentially community-wide shared ride taxi service

• “Integrated fleet”, no DVs, all service provided via 20+

taxi vehicles operated by Yellow Cab of San Diego

• Highly capable taxi operator, all manual technology

• Taxi company only charged El Cajon a fee per mile

when DRT passengers in taxi vehicle

• Service productivities of 5.5 to 6 passengers per VSH,

600 trips/day, low cost per passenger trip

Why Didn’t the Taxi-Based Model

Take-Off in the USA?

• El Cajon Express a product of circumstances that

were not generalizable or that changed

• Few taxi companies had capability to manually

manage shared ride service with a large fleet

• Suitable and affordable technology not available

• USA taxi industry by 1980 was rapidly abandoning

business model based on commissioned drivers

• Insufficient control over lease drivers to make shared

ride operations viable

• Many taxi companies not interested in DRT service

Recent USA NDV Developments:

The ALC Saga

•American Logistics Corporation (ALC) had success in

USA market circa 2010-2012 with a brokerage approach

•ALC developed its own technology platform, including

driver application on Blackberry, had call center in Utah

• Initially successful in generating business, but eventually

ran into serious obstacles

•Key flaw in approach was exclusive reliance on NDVs

• Didn’t own or control its own DV operations

• Major difficulty attracting sufficient supply of quality DV service

• Inconsistent quality in service delivery stopped ALC dead

in tracks and temporarily derailed its possibilities

Requirements for a Viable New Service Model

• Operational and technical feasibility re current models

• Demonstration of economic superiority—at least in

many definable circumstances

• Scalability

• Works with most sizes of DRT systems

• Can be routinely implemented across different DRT systems

• Early adopters will be attracted to new approach by

economic & service advantages

• Non-complex path to implementation for later

adopters—”boxed” solutions available

Asset Utilization Advantages

of NDV-Centric Approaches

• Sharing of assets used for DRT with other public or

privately paid services of the transportation provider

• Some or most deadhead miles and hours do not

need to be compensated for by DRT service

• Can move vehicles in and out of service to match

capacity to demand levels, avoid unproductive uses

• Basic principle—pay only for capacity needed

• Predicated upon service provider having other

transportation services which will generate revenues

Service Organization Advantages

of NDV-Centric Approaches

• Any service with large temporal variations in demand will benefit by precise matching of capacity to demand

• Enables sufficient peak service to be deployed without paying for unnecessary, under-utilized service during lower demand periods

• Avoid expenditures merely for service availability

• First mile last mile services can be more precisely tailored, can use DVs during peak commuting periods and NDVs during off-peak with low-moderate demand

• Enables many service providers to be utilized, creating competitive pressures to maintain cost levels

TNCs REALLY Change the

Economics of the DRT Game

•TNCs have devised a SUPER low cost model for NDVs

•TNCs can produce service at much lower costs than taxi companies• One important reason--drivers allocate only portion of vehicle

capital costs to TNC service (probably 20-50%)

•Result: TNC prices to customers are 30-50% LESS than taxi fares for comparable trips

•TNC prices tend to be $1-1.20 mile plus $.12 - $.15 per minute plus $1 pickup fee and possibly regulatory fee

•Cost of typical 3 mile trip is approximately $6 to $7

•For DRT distance trips—2 to 3 miles—user price is often minimum TNC price of approximately $6

TNC Driver Compensation

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$15 $20 $25 $30

Net

Ho

url

y Ea

rnin

gs

Gross Hourly Earnings

Driver Net Hourly Earnings vs. Gross Hourly Income

Naïve Net Income

Direct Cost Net Income

Fully Allocated Net Income

All Costs Net Income

TNC Costs vs. DV-Based DRT Cost

Cost Component TNC DRT Contractor

Total Driver Compensation $15-25 per hour $15-20 per hour

Vehicle Operating Cost N/A $6+ per hour

Vehicle Maintenance Cost N/A $3+ per hour

Vehicle Capital Cost N/A $10,000+ per vehicle

per year

Service Operations

Administration Cost

$5-8 per hour $15+ per hour

Total Cost $20-33 per hour $45-55 per hour

Impacts of the New Economics

on Public Sector Perspectives

•Denver RTD’s Call-N-Ride delivers $6-7 cost per trip

(all day) service in only a handful of zones

•Can achieve this level of cost-effectiveness during

peak periods in additional service zones,

•But a number of zones have higher cost service than

would be case if provided by TNCs

•Public officials are beginning to question DRT

services that are more expensive than TNC trips—

despite latter usually NOT being shared ride

Comparison of Costs of Different Methods

of Producing & Delivering GP DRT

0.00

5.00

10.00

15.00

20.00

25.00

2 3 4 5 6 7 8 9 10

Co

st

pe

r T

rip

Service Productivity

Cost per Passenger Trip for DRT Providers3 Mile Avg. Passenger Trip

TNC

Taxi

DRT DV

Importance of Technology Platforms

•Technology platforms are essential for the new NDV-

focused service management approach to truly work

•FlexDenmark is the gold standard for a technology

platform that can schedule and transmit trips to

NDVs on mass scale with many sources of supply

•Has organized the market via its platform, its

processes, and use of SUTI-based data standards

•TNC technology platforms are increasingly open and

applicable, API’s available, payment restrictions still

a major issue

Technology Challenges in Utilizing NDVs

and Diversity of Suppliers

•New types of planning & scheduling algorithms needed• Determine “optimal” mix of DVs and NDVs

• Select providers for specific trips

•Appropriate allocation of deadhead time/miles in cost and payment structures very important for inducing NDV provider participation at “right” cost

•Federal government has just funded project to develop DRT transactional data specifications• But full industry utilization is not assured

•Likely to be substantial development of technology approaches over next 2 years—not necessarily by DRT industry software leaders—if model widely adopted

Impacts on DRT Providers

•Private DRT contractors need to quickly diversify

•Must develop market organization and service

management capabilities similar to FlexDenmark

•“Flex-fleet” approaches will be necessary

• Engage second tier of NDV service providers to augment

DV services

• May need to create TNC-like entities to do this themselves

• NDV-based services may be majority of what is provided

•Technology platforms they own or control will be

necessary, may need to compete with SW vendors

•Facing potentially significant challenges

Impacts on PTO’s

•PTO’s need to engage service organizers/managers,

allow then to determine how service is provided

•FlexDenmark demonstrates what is possible

•In USA context, important that service managers are

also able to source good quality DV provider(s)

•PTO’s need to re-focus on service & cost outcomes,

rather than direct control of DRT operations, if they

want improved cost-effectiveness

•Few PTO’s have competency to perform like a

FlexDenmark, they need to hire such organizations

Impacts on TNC’s

•The wild cards in the deck!

•Have become increasingly interested in government

supported services—public transit, NEMT, HST

•TNCs will need to modify certain business practices

and augment technology platforms if they want to

become major provider of gov’t supported DRT

•OCTA and new MBTA initiative will be revealing in

how these partnerships may work

•Multi-billion dollar opportunity, but not clear how far

TNCs willing to go to accommodate public sector

Questions?

Roger Teal

DemandTrans Solutions

847-256-8866

roger.teal@demandtrans.com

www.demandtrans.com