Indonesia to Regulate Ride-Hailing Rates Threatens Grab, Go-Jek Expansion
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The government is preparing to launch regulations fixing the rates drivers and riders for ride-hailing services such as Grab and Go-Jek receive, two officials said this week, creating potential obstacles for the companies’ expansion. The regulations would meet drivers’ demands for more oversight and higher rates but there are concerns that the rising costs to the companies could stifle their development as they battle to dominate the ride-hailing market in Southeast Asia’s biggest economy.
Singapore-based Grab and homegrown Go-Jek have been locked in price wars in Indonesia, part of a wider fight to bring banking, e-commerce, ride-hailing, food-delivery and other services to every corner of Southeast Asia.
However, since 2018, motorcycle taxi drivers working for Grab and Go-Jek in Jakarta have held protest rallies calling for higher fares and better conditions.
The Ministry of Transportation plans to implement minimum and maximum tariffs for car and motorbike ride-hailing that will be “higher than Go-Jek and Grab’s current rates” and impose limits on promotional price cuts, said Budi Setyadi, director general of land transportation at the ministry.
“This is for the safety and protection of drivers,” he said.
Ahmad Yani, public transportation director at the ministry, said dependency on incentive-driven payments and low fixed rates per kilometer created a safety risk as it led to drivers overworking.
He said Grab paid Rp 1,200 (8 US cents) per kilometer with a focus on bonuses, while Go-Jek’s rate was Rp 1,400 per kilometer.
The officials said fixed fare ranges for motorbikes were still being finalized but would be implemented from March.
Fixed rates for ride-hailing cars will start in June and be set at between Rp 3,500 and Rp 6,000 per kilometer on the islands of Java, Sumatra and Bali.
The drivers were pushing for increases to a standard fare of Rp 3,000 to Rp 4,000 per kilometer.
New Rules
The firms said they welcomed the new rules, though they had not seen details of the motorbike regulations.”Grab believes the government will develop the best regulatory framework and hopes that all stakeholders will be included in the process,” said Tri Sukma Anreianno, the company’s head of public affairs .
“This is for the safety and protection of drivers,”
A Go-Jek spokesman said: “We support the government’s spirit to encourage our driver partners … and hope the regulation will have a positive impact on the sustainability of drivers’ income … and fair business competition.”
However, both transportation officials said the companies are worried about the pending regulation since they have spent heavily on driver subsidies to slash their customer rates and build their businesses.
“Grab and Go-Jek have told me they would prefer there was no regulation,” Ahmad said. “Due to the competition between them … they are scared what could happen if they don’t keep up with each other.”
The Supreme Court blocked a previous attempt in 2017 by the transportation ministry to fix ride-hailing rates after drivers sued, saying the rules favored the taxi firms.
Both ministry officials said the new regulations met anti-competition standards and followed extensive discussions with driver syndicates.
Grab and Go-Jek drivers welcomed the prospect of standard fares.
“I have been working for Grab since 2015. Before, I could earn Rp 300,000 to Rp 400,000 per day. Now, I can only get Rp 150,000,” said Hermansyah, a Grab motorcycle driver partner.
Another driver, who had worked for both companies, said neither provided much protection, leading drivers to bear operational costs. He asked not to be identified since he had a role in organizing protests.
The fixed rates will be a challenge to a business model that has depended on cheap passenger prices for growth and could undermine innovation.
“Cheap fares has been the firms’ main way to attract customers,” said Yayat Suprityatna, urban and transportation observer at Trisakti University in Jakarta.
Questions & Answers
Q.What concerns do the officials have regarding the current incentive-driven payment model for ride-hailing drivers?
What concerns do the officials have regarding the current incentive-driven payment model for ride-hailing drivers?
Officials are concerned that dependency on incentive-driven payments and low fixed rates per kilometre creates a safety risk. This model reportedly leads drivers to overwork, potentially compromising safety for themselves and their passengers.
Q.When are the new fixed rates for motorbike and car ride-hailing services expected to be introduced?
When are the new fixed rates for motorbike and car ride-hailing services expected to be introduced?
The fixed fare ranges for motorbikes are still being finalised but are set to be implemented from March. Fixed rates for ride-hailing cars will begin in June, covering Java, Sumatra, and Bali.
Q.How have Grab and Go-Jek responded publicly and privately to the proposed regulations?
How have Grab and Go-Jek responded publicly and privately to the proposed regulations?
Publicly, both firms welcomed the new rules, expressing support for the government's regulatory framework and driver income sustainability. However, officials noted the companies privately expressed worries about the pending regulation, preferring no intervention due to competition.
Q.What impact could these new fixed rates have on the business model of Grab and Go-Jek?
What impact could these new fixed rates have on the business model of Grab and Go-Jek?
The fixed rates present a challenge to a business model reliant on cheap passenger prices for growth. An urban observer stated that cheap fares have been the firms' primary method to attract customers, suggesting the new rules could undermine this strategy and innovation.
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