Overpriced Tuk Tuks Are Overpriced

yes.

Tuk tuks, even metre tuks, are ridiculously overpriced. Just do the math. A metre tuk costs Rs. 30 a kilometer. Your average car covers the distance in about ten. Regular tuk tuks will fleece you for even higher amounts.

Tuk tuk fares, like a lot of similar services, have not reached their optimum pricing. They are disproportionately high in comparison to income levels and costs of alternatives. The key figure would be something more than Rs. 10 but way less than Rs. 30. Just enough to incentivise a would-be driver to leave his car at home and take a tuk, as well as incentivise a would be bus traveler to fork a little extra for comfort. Profits will increase as more and more people are attracted to tuk tuks.

Tuk tuk pricing is a fascinating topic. Tuk tuk stands appear to take an almost cartel-like approach to charging fare. ‘Stands’ are wherever you see a collection of tuk tuks parked on a regular basis. Members of a cartel will enforce high prices and will then use their monopoly on the stand to block any new tuk tuks from starting business there. This has resulted in artificially high prices.

The advent of metre tuks have reduced prices, but even they appear to have priced their fare not based on actual market conditions but based on exactly how much they would need to undercut non-metered tuk tuk pricing to grab their market share.

Another factor that determines tuk tuk pricing: location location location. Outside Majestic City the tuk tuks cost you at least 50 percent more than anywhere else. A wise strategy in this case is to move away from MC and hail a tuk already going in the direction you’re heading in. If you stopped it in slow moving traffic and start bargaining, the driver will have no choice but to meet your price or risk the wrath of a thousand horns.

Most tuk tuks quote prices that incorporate potential bargaining loss. So they generally always expect to be bargained down. Tuk tuks in more rural areas are cheaper than those in Colombo i’ve noticed. Maybe a reaction to the lower income levels of rural citizens as opposed to Colombians?

Tuk tuk costs involve petrol, wear and tear and owner fees. Your average tuk probably does about 25kms per liter. This makes the petrol cost per kilometer something like Rs 4. Wear and tear and user fees can be (very) generously calculated to be Rs 10 per km, with this decreasing the further you go. But lay out the math to a tuk tuk driver and you’ll likely be accused of being a know it all, and threatened with violence.

I know because that happened to me once when i went from Pettah to Panchikawatte. The driver demanded more that what we agreed would be the rate. I was having a bad day and was in no mood to be fleeced, so we disagreed loudly. Unfortunately he didn’t appreciate my math skills. But luckily i had a menacing gear lever in my hand which i waved threateningly. And he went off grumbling.

Most tuk drivers are amicable fellows. They’re out to make living and therefore do what everyone else in the system does; capitalize. What they don’t realize is that low prices can be good for them as well as the customer, and can bring them more revenue in the long term. I think maybe a regulatory authority making taxi meters compulsory and fixing the rate can help, also solving transport issues in cities in the process.

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29 comments
  1. Great article! I’d never thought of meter tuks as being expensive as they are SO much more affordable than regular tuks. But now that you point it out, I guess Rs.30/= per km still is pretty high when you do the math… I highly doubt we’ll see price drops anytime soon since there seems to be an “industry standard” at the moment and everyone’s making good money.

    That being said, all it takes is one meter service to start offering lower rates to kick-start a chain-reaction. Although that would mean initially lowering overall profits for everyone and I don’t know if that’s palatable to most meter tuk services at the moment.

    • Whacko said:

      Thanks. reducing prices might trigger a price war a la telecom industry and also, any meter tuk tuk service trying to cut prices might have a problem getting tuk tuk drivers to agree!

  2. Gehan said:

    Hear hear! Finally the economics of tuk-tuk’s has been explained! It’s about time; the rates really are exhorbitant, especially if you’re not in a meter tuk. As for potential bargaining loss, sometimes these guys take it to extremes. I once saw a guy get talked down from Rs. 600 to Rs. 350. Ridiculous.

    • Whacko said:

      haha.. yeah man that happens all too often. I suppose meter tuks are good, they at least impose some fixed pricing and thereby fixed expectations. So you know what you’re in for when you find yourself stuck at bamba at 12mn with no way to get home

  3. N said:

    you forgot to include cost of financing.

    • Whacko said:

      Well ‘owner fees’ generally cover the cost of financing. That’s the fixed rate owners take out of daily earnings

      • N said:

        Hmm…ok..that calculation is a bit unclear. Care to elaborate? As far as I know a new tuk costs around 4 lakhs, Rs.8,000 per month financing cost (correct me if I’m wrong)…works out to about 8km run before the driver pays that off per day assuming the chap runs 365 days a year. Just a bit lost as to how you extrapolated that to per km.

    • Whacko said:

      Well the pricing was a unrefined top down calculation, definitely will benefit from some quant research. But say monthly finance is 10,000. Translates to 350 a day. Assuming a tuk tuk runs 50km this comes to rs.7. but with lower prices volumes will increase which means the fixed costs of financing will come down per km.

  4. Now if the government could intervene and set the max price at Rs. 20 per litre… and get all three-wheelers on the meter. All we need now is to convince Kumara Welgama- minister of transport to bring it up in parliament!

    • Whacko said:

      lol i wish a blog post would be enough to convince him, but seriously, the ministry should be doing research into things like this. Especially since we are beginning to have some major urban transport probs in Colombo

  5. gear lever? man I wish I could’ve seen that 😀

    • Whacko said:

      Haha, it was ugly. But not half as ugly as when a three wheel driver forced me and a friend a to pay extra after dropping us off, by the sheer power of his steely gaze. we gave in like a couple of little girls

  6. John said:

    This is how it usually works out for me when taking a three wheeler from office to home in the night. It’s about a 14km distance.

    Hail a guy off the street – Prices start from 1000 bucks but can be negotiated down to about 600.

    Get a meter taxi – Prices range from 460 to 550 depending on whether it’s past 10PM (+15% after 10PM)

    Call my regular guy – 400 bucks flat rate anywhere within Colombo city.

    The worst offenders are in the city for those short distances. Try to get a 3wheel from house of fashion to kollupitiya, they charge about 200 bucks. But prices outside of the city are fairly reasonable. I’ve even been charged 20 bucks for a ride, unheard of in a city. The usual price to run to the nearest town from home is about 120 bucks. That’s about 4km travelling and waiting around for 15mins.

    Most of the late night travelers usually have a go to guy or taxi service that they utilize. The perks usually range from low flat rates to not running the meter when they are waiting around.

    • Whacko said:

      Yeah prices outside are much less. They also charge much less of you happen to catch them on the way back from a hire. Also a good strategy in Colombo, always take a tuk tuk that is moving, not one that is parked! Having a go to guy is something common no? probably your type of loyalty deals are easier on the pocket for you and provides the driver with a steady source of income. Something the meter tuk tuk industry could look at? Loyalty schemes!

  7. pp said:

    the meter tuks also have to pay a daily fee to the meter tuk companies. 50 rupees, from what i’ve heard. over a month, that’s a fair chuck of change when you couple it with the cost of finance and the living costs of the drivers, esp when they are in urban areas like colombo.

    i agree that the regular tuks are overpriced and i avoid taking them every chance i get, but the meter tuks are a welcome service in colombo imo, for those who don’t own a car, can’t afford cabs and don’t want to take the bus.

  8. pp said:

    “A metre tuk costs Rs. 30 a kilometer. Your average car covers the distance in about ten.”

    that logic is bit flawed to me. i drive a maruti 800, one of the cheapest cars around and your figure is about right. but that 10 rupees doesn’t cover the cost of the finance, insurance and spare parts. Rs 30 a km for a meter tuk covers all of that no, the cost of petrol, wear and tear, wages etc.

    • Whacko said:

      No you’re right. Tuk tuks definitely have additional costs. I was looking at it from the POV of a consumer, which still should have factored in those costs. But even then, 30 would be a tad high, but a good reason for that could be because most of our income levels are disproportionately low to allow ‘luxury’ good like taxi travel. But reduced cost will again mean more people taking the tuk. That means reduced idle time and more running. This might increase variable running costs but will bring down fixed costs. going by the assumption that there is huge demand for lower priced tuk tuks

  9. Chavie said:

    Awesome article! 😀 Never do take tuks myself, but on the rare occasions that I have been forced to, I’ve invariably been ripped off. Must carry a gear lever next time around. 😉

    • Whacko said:

      you do have an umbrella, just reinforce that with steel piping and you’re good to go!

  10. Well.. my car a 1800cc engine does 9-10km per litre in colombo. That is (even on 95 petrol) only 15 per km. If i want to run it as a taxi, I can still match something closer to Rs. 30 per km rate with little profit. So obviously tri-shaws can give a better rate for their clients.

    Yet, I think Meter taxis have brought a lot of sanity to tri shaw exhorbitant rates. I am sure non-meter taxies charge 50+ per km. The way forward is we should always order a meter taxi and avoid non-metred taxis wherever possible.

    Let the demand change the suppliers.

    • Whacko said:

      absolutely right, if demand patterns change supply would obviously follow. But conversely maybe there is still enough demand for tuk tuks to charge what they do. Mainly probably because not everyone can afford a vehicle, or a vehicle isn’t convenient to use, and also because public transport is very inefficient. So tuk tuks become a necessary evil, even at exorbitant prices.

  11. maf said:

    excellent stuff. I actually think the Rs 30/- per km is fairly reasonable. Incidentally what is the bus pricing per km? I did a similar exercise for calculating what it would cost to move 50 kg bags of cement between 2 locations about 10 years ago for different vehicle types and the spreadsheet would calculate what the market price should be. if you are interested in developing an app or want the spreadsheet mail me.m

    • Whacko said:

      Hey Maf, nice to see you back on the blog! curious to see that spreadsheet actually so will do. I think there is a heavy disparity between the cost of providing tuk tuk transport and the price some consumers are willing to pay. In tuk tuks for instance the sheer lack of alternatives like efficient, comfy public transport and high congestion mean that tuk tuks have high demand. But only higher income earniners take tuk tuks on a regular basis, meaning tuks are skimming the market. Maybe if more tuk tuks are introduced this will change, but this will probably pose a lot of other problems.

  12. a rose by any other name said:

    Isn’t calling three wheelers overpriced like saying the cost of sex with prostitutes is overpriced when compared to a spouse?

    There is nothing else in the price bracket for transport, so three wheelers charge whatever the market will bear, like good little capitalists. They are sandwiched between bus transport (much cheaper per km, no routing on demand, no summoning on demand, shared passenger space) and premium cab services such as Kangaroo (more expensive per km compared to three wheelers, on demand routing, on demand summons, individual passenger space)*.

    all three of those options require ZERO capital outlay on your part. All you need is the price of the fare.

    Any other transport higher up the value chain requires higher capital expense, ranging from a motorbike (low) to a private helicopter (rather high) or a private jet (much much higher) and setting aside more money for running expenses and depreciation in addition to fuel costs.

    Figuring out other examples of apparent price distortions that really aren’t is left as an exercise to the reader.
    *Extra credit: rental cars and nano cabs fit neatly into this hierarchy.

    • Whacko said:

      Yes that’s the complete demand side of it. Three wheelers proably charge the maximum that their customers will bear. But the cartel effect destroys competition somewhat, and better alternatives must and will bring the price down. One alternative of providing pricing certainty is to implement meters.

  13. Don’t agree with this at all mate. What’s the standard for measuring the ‘right’ price? . I think you are under calculating the cost, The cost of the whole

    thing is determined by something like,

    Cost of Petrol for Distance + The Cost of petrol where he wants to go next/cost of re-parking + Determined cost of Waiting without a hire (or moving behind

    the line in the case of a stand) + insurance against uncertainty of location, (you said police park, but police park where?) + Opportunity cost (of getting

    a higher fare offer by someone else) + running costs/payments + Cost of aqquiring stand spot + Cost of aqquiring the actual tuk tuk

    So if we go by your generous Rs. 10 user fees (for spot +Tuk tuk) and assumes they have to return to the place they took you, that’s 2x (10+4)=28 + rest of

    the stuff. AND then you got to make a profit to earn a living. I suspect user fees are lower, and the rest of the price is driven by the desire to make a

    profit and the rest of the market conditions. I also suspect that price of getting the next hire (waiting in line, etc.) is much higher than you imagine.

    Meter tuks negate this by having constant stream of highers by phone, the stand guys have to wait in line.

    If Tuk tuk business was this lucrative you’d see great upward mobility from the tuk tuk guys and become tuk owners and soon be on some other business, you

    just dont see that. So I think Tuk tuk prices are more reasonable than most people think. The tuk tuk guy up my road is still driving the same tuk tuk, and

    the same type of cloths. He’s not doing all that well.

    Yes everyone hates paying more, and tuk tuk guys do sound almost always unreasonable and you bargain most of the time, but they have their own battles. In my

    opinion tuk tuks are the one mode of transport in Sri Lanka that actually works — you can almost certainly get one when you need it. And that kind of

    service has a price. Rail doesn’t do that, and buses certainly don’t do that, especially outside colombo and everywhere at odd hours.

    What absolutely must be avoided is something like fixed pricing as suggested in the thread. You only need to look at a city like Delhi to see that this

    doesn’t work. Tuk guys there actually refuse to take you to places because their business variables doesn’t add up. and most of them don’t go by meter

    anyway. At least that was the case 3 years back. A friend of mine has done a documentary on this if anyone cares to take a look

    If there’s any room regulation, I think something like standardizing 3-wheeler parking spots might work, this reduces cost of re-parking, as someone who goes

    from wellatte to dehiwala can park at dehiwala instead of coming all the way back and breaks cartel influence. Although this will be tough to implement. and

    only should be done on trial and error basis.

    As for improving public transport, yes a metro will be great, but more cost effective would be to get rid of the fixed pricing in buses. Say for example any

    owner with more than 5 buses is allowed to create a bus company with their own pricing rules. Yes the pricing of buses would go up, but it would increase

    availability and comfort. Eventually there would be bus companies recognizable by brand (as yellow line or red line or something) with their own schedules

    and a degree of accountability, and suddenly that space between paying 10 bucks to travel from mount lavinia to Bamba on a bus to paying 400 on a tuk can be

    bridged.

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