As Originally published by National Bus Trader, October 2015.
By: Ned Einstein
Tel: 212-766-1121
Email Mr. Einstein
Well, by now, the "Cat's Out of the Bag" about transportation network companies (TNCs). For this, we owe our thanks to National Bus Trader, Limo, Charter and Tours Magazine (especially) and the United Motorcoach Association. The August 15, 2015 issue of the UMA-sponsored Bus & Motorcoach News contained two articles about these previously-unfettered, robot-controlled beasts.
For those readers who may think this virus could not spread to the charter and tour sectors of our industry, think again. Just yesterday I received a call from an attorneys' paralegal about a "limo case." As it turned out, this "limo" was an 18-passenger minibus conversion with a spiffy, limo-like interior. Limo-World is not just about Lincoln Continentals. As they say, "This is not your grandfather's limousine." Instead, it is about a vast number of vehicles you may have seen on display at BusCon - another national conference motorcoach players need to start thinking about attending. For those of you old enough to remember the Mickey Mouse Club, sing along to the tune of "Mickey Mouse, and me" - with the new lyrics: "TNC, and me. TNC, and me." I could be wrong, but I seem to remember the next line ending with the word "merrily" or "happily." Will you feel merry or happy if you have to compete with a TNC? Answer this question after scanning the bullet points two paragraphs below.
When they invented or refined the three-branch-of-government model, Thomas Jefferson, Ben Franklin, Samuel Adams and a roomful of others apparently knew what they were doing. In a lower-court case in 1999 (Cayetano v. Bell Cab et. al), I blew the Independent Contractor model out of the water in California, but that was a mere lower court case. It meant virtually nothing. For a case to set a precedent, it must be ruled upon by a Circuit Court.
This feat was accomplished recently when the Seventh Circuit Court overruled of a state-of-Kansas Supreme Court ruling in favor of FedEx. As a result, in fear of losing at the Circuit Court level, FedEx agreed to pay $228 million to more than 2,000 FedEx drivers who were previously classified as "independent contractors." There is now no such thing as an independent contractor - at least not in the launching pad to Oz. Because this was a Federal court ruling, the next state's lower court that affirms the Independent Contractor model will likely be overruled by a Federal Court as well, in whatever Circuit it pops up. If the independent contractor model is not yet a corpse, nationwide, it is wasting away in a hospice.
What this means is that, even apart from a parallel state-of-California victory against Uber (spear-headed by this same tigress of a labor attorney, Shannon Liss-Riordan), whatever mode of transportation your competitors own and/or operate, they will no longer be able to "engage" drivers without most of the following amenities - at least not in Kansas and California:
At the same time, these Circuit Court reversals did not mandate that any TNC also provide any of these features:
Also, to compete with motorcoach services, TNCs will most likely be deploying body-on-chassis conversions weighing less than 26,000 pounds GVWR - for which their drivers need not possess a Commercial Driver's License (CDL). Do not even imagine something as outrageous as a pension.
Adding all the cost-savings even after all the "employee benefits" must now be paid, what percentage of combined capital and operating costs do you suspect the absence of any semblance of management, and less-costly vehicles, represents? More fundamentally: As a charter or tour operator, do you think you can compete with a company without these components? You may stand a better chance now that independent contractors appear to be gone or soon gone. There are still other issues, as noted.
The FedEx case was only the beginning. With 138,000 acres currently on fire, the State of California's judicial system just blasted away Uber. Thanks to the efforts, once again, of attorney Liss-Riordan, Uber operations were not only "suspended" in the State of California, but Uber was fined $7.3 million. Perhaps not much for a $5.9B billion venture capital investment. Not exactly unnoticeable in a state that contains a full eighth of our nation's population, along with 53 or so members of the House of Representatives. By this time, Uber's stock should have dipped like the dance last step of a hot Tango. Our impotent executive branches of government have stood motionless as their taxi and limousine industries were beaten senseless (see Part 5 of this series next month). While the limousine industry is doing far more talking than walking, they at least held their second "lobbying day" on Capitol Hill (see Part 6 of this series in December). Our judicial system seems to have delivered some serious blows to "TNC Nation." Our taxi and limousine cousins have done the heavy lifting. So we in the motorcoach industry owe them our thanks.
Alongside this victory, a similar case against Uber has begun in New York City. Where more than 10,000 Ubers were welcomed into the city, mostly this past year, without charging them the $1.1 million taxi medallion fee per vehicle. Realistically, the value of a NYC taxi medallion plummeted from this price (established at the previous year's "auction") to pretty much zero almost overnight - even though, for months, a crowd of suckers were thrilled to buy them "at a discount." As the song goes, "Who's Sorry Now?" Otherwise, about this lawsuit, representing the owners of more than 13,000 taxicabs (and possibly their drivers, directly or indirectly), one can say, as yet another song goes, "It's only just begun." I am betting heavily on our judicial system. So should you. Just the same, as yet another song goes, "Kiss today goodbye. And point me toward the Sorrow."
Even with these judicial victories, the battle with TNCs is not completely over - even if Uber will soon be unable to engage independent contractors. To Uber, this is just a temporary setback. According to Uber owner Travis Kalanick, "Uber will eventually replace the people who drive its cars with cars that drive themselves." Just what we need: More robots. One has to wonder: Will we soon also have driverless, 45-foot motorcoaches? If so, why not Godzilla?
In the meantime, without these savings from operating elements that tend to keep us somewhat safe, I highly doubt that Uber or any TNC could any longer cream off 20 percent of a driver's gross fare revenue simply because the vehicle was summoned by the "app" in each passenger's cell-phone. They may still give us a run for our money by skimming off less - and doing other things that robots are really good at. Keep in mind, the cost of controlling countless drivers almost exclusively through robots is negligible. Again, in Travis Kalanick's vision, only a temporary nuisance. Beyond Mr. Kalanick's dreams (and our nightmares), lie other issues.
Three things about TNCs should not go unnoticed:
We may not be whistling as we struggle to develop new skills in order to survive, much less prosper. If anything can be said about people everywhere and anywhere, usually only the underdogs relish change. This often includes rich newcomers. Otherwise, the traditionalists on top hate it. Change we must if our charter and tour operations must compete with far-more-digital, lower-cost services whose customers are marginally aware of all things safety, if aware of them at all. My relentless comments that "Safety Sells" over my 14 years' of National Bus Trader articles may have fallen mostly on deaf ears.
We all better listen now. Because, just as in the limousine business (compared to the taxi business), safety is the best thing we have. Safety will sell if you make the effort to sell it. That is what the National Limousine Association representatives were telling their Congressmen about during lobbying day this past June (see Part 6 of this series this December). Safety is a major component we need to focus on. Yesterday would not be too soon to start.
Luckily, motorcoach service is already pretty safe, and we should be proud of it. Then there are all those annoying, attention-getting catastrophic accidents. Particularly with no "shift-inversion" prohibitions in our version of the hours-of-service requirements, we somehow cannot seem to rid ourselves of the violators dragging us down. Getting rid of this small minority of scoundrels is a big first step we have not yet taken. It is the biggest of step we can take. We would be foolish to face the TNC invasion by leap-frogging it.
Then there are all those "tricks." Like providing demand-responsive service, I would not exactly call them new tricks. Nearly 15 years ago, conducting a site visit on a National Academy of Science-funded project examining coordination, I found a three-county paratransit system in the Florida panhandle making connections with motorcoaches operating along the I-10 corridor with a five-minute on-time "window." Pretty astonishing performance. Yet every gram of this operation lay in the analog world. No mobile data terminals. No navigators. No scheduling software. Certainly no "apps." Just intelligent, live dispatchers with two-way radios and a serious burst of creativity and virtuosity. In truth, robots have astonishing virtuosity. Creativity is the one thing that robots do not have at all.
There is more to these tricks than meets the eye. In my paratransit study for USDOT noted above, I found sparsely-populated rural Tulsa, Oklahoma providing almost eight times as many passenger trips per hour as densely-populated Boston, Massachusetts. (To understand how and why, read the essay titled "Principles of Paratransit System Design" via a link on the Home Page of my Web site - transalt.com.) To condense the implications of this reality into three sentences, scheduling software can optimize chaos better than most live Earthlings can - just as chess software beat Garry Kasparov more than four decades ago.
For anyone unfamiliar with championship-level chess, chess masters memorize tens of thousands of championship games, and the moment their opponents fall into the position of a former loser, the master simply replicates the former winner's (or mentor's) moves - completely from memory. There is not much actual thinking at the highest levels of chess - just like there is no genuine thinking in robots. This is how we beat the robots, see? As any really good paratransit scheduler knows - and as I actually helped prove this in a project in Edmonton, Alberta in 2004 - no software can schedule more efficiently than a live Earthling good at it.
Scheduling is only a tactic. The strategy is known as system design. Have you heard of this? To compete with the TNCs, we better become familiar with it pretty quickly. Just like the motorcoach operators in the Florida panhandle did.
"Thin Your Density!" "TYD!" "TYD!" Coming to get you! If you do not hear the chants, you should feel the tremors as your ridership begins to thin out, passenger by passenger, or perhaps charter by charter. We may continue electing government officials with hearing impairments, indifferent to the needs of hard-working Americans, or an agenda you should be very worried about from the NYC taxi debacle. As still another song goes, "Do you Dream the Twilight Hours Away, as you Come to the End of the Day?" Or do you accept the challenge by using the unique gift of genuine intelligence you were born with? If you do not, your operation is likely to suffer the same fate as Kasparov
It is an old cliché that the best thing that can happen to an old man is to die in his sleep. If we do not morph our motorcoach businesses into a form that can operate creatively, and if we do not fully explore and embrace basic principles of system design, our operations will not die in their sleep. They will die a slow, painful death. I suspect that all of us - motorcoach owners, other industry insiders and passengers alike - are much better off accepting the challenge than succumbing to this needless fate.
Ned Einstein is the President of Transportation Alternatives, a passenger transportation and automotive consortium engaged in consulting and forensic accident investigation and analysis (more than 600 cases). Specializes in elderly, disabled, schoolchildren. Mr. Einstein has been qualified as an Expert Witness in accident analysis, testimony and mediation in vehicle and pedestrian accidents involving transit, paratransit, schoolbus, motorcoach, special education, non-emergency medical transportation, taxi, shuttle, child transport systems and services...
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