Masaki Ito: The Future of Regional Transportation Opened by Ridesharing

In April 2024, "Japanese-style ridesharing" finally began in Japan, a country that had long fended off the entry of Uber. This is a step that can be called a major transformation, both for the taxi industry, which has a strong image of vested interests, and for the Ministry of Land, Infrastructure, Transport and Tourism, which tends to make conservative decisions.

Ridesharing is a system where ordinary drivers provide passenger transport using their private vehicles through app-based matching. In Japan, it had not been permitted for over 10 years, being classified as "Shirotaku" (illegal taxi service). The reason it came to the table for discussion at this timing is likely because, while there was a rapid recovery in travel demand and an increase in inbound tourist demand after the COVID-19 pandemic, the supply of taxis, which decreased significantly during the pandemic, has not easily recovered. Recently, voices complaining that taxis cannot be called even when using apps have become louder, particularly in urban areas.

Currently, the shortage of taxi drivers is a serious problem common to various regions, but the background varies greatly by region. In large metropolitan areas, an oversupply of taxis was seen as a problem before the pandemic. However, in depopulated areas and areas with small populations, issues such as declining sales and poor treatment of drivers had been challenges since before the pandemic, leading to a series of business closures and withdrawals by operators.

As of April 2024, Japanese-style ridesharing is being realized by applying Article 78, Item 3 of the Road Transportation Act, which covers "unavoidable cases to ensure public welfare." Under this system, the Ministry of Land, Infrastructure, Transport and Tourism identifies taxi shortages through app data and permits service after limiting the regions, time slots, and number of vehicles. While ordinary drivers use private cars for passenger transport, the business entity is limited to taxi operators, who perform operational management such as alcohol checks to ensure safety. Initially, it is permitted only in areas such as Tokyo, Kanagawa, Nagoya, and Kyoto, with plans to expand the coverage area in the future.

At the same time, the operation of Article 78, Item 2 was also revised, making ridesharing possible under the existing "Private Paid Passenger Transport" system. This system is one where NPO corporations and other entities provide passenger services in "transportation vacuum" areas, such as depopulated areas where buses and taxis have withdrawn. While the forms of operation and organization vary depending on the region, there are many cases where local residents volunteer to drive their private cars to support elderly people with shopping or hospital visits.

With this revision, the system now recognizes not only geographical transportation vacuums but also temporal ones. It also allows for business-viable services by raising fares to up to 80% of taxi rates and permits implementation under the responsibility of local government heads if a consensus cannot be reached at a regional public transportation council involving local transport operators. These changes have made it possible to implement ridesharing based on this system in a wider range of regions.

The author believes that through this series of institutional reforms, the taxi business has completely shifted its course toward becoming a business predicated on IT. Apps and their data are used not only for calling vehicles and processing payments but also for the roll-call of rideshare drivers and determining taxi shortages. While there are currently large regional differences in the penetration rate of dispatch apps, the introduction of apps will likely become essential even in rural and depopulated areas, triggered by ridesharing.

A benefit at that time is the ability to resolve taxi shortages by combining methods other than just increasing the number of drivers. When most dispatch requests and payments are made via apps, it becomes easier to implement mechanisms that supply taxis more efficiently while encouraging behavioral changes in users, such as taxi ride-sharing services (which were recently permitted) and dynamic pricing that changes fares according to demand.

The benefits of IT also lead to more sophisticated and efficient operational management. Operators who transport passengers or cargo for a fee are required to appoint a certain number of operation managers and ensure safety through management of driver working hours and roll-calls before and after shifts. The introduction of IT equipment and AI will realize highly effective safety assurance. Furthermore, by making roll-calls remote and centralized—which currently must often be conducted in person—it will become easier to realize mobility services in rural and depopulated areas where it is difficult to secure operation managers.

Such transformations require significant capital investment, which is a heavy burden for small-scale taxi operators. Inevitably, cooperation and mergers among taxi operators will likely progress. In some cases, it is possible that industry reorganization centered on dispatch app companies will occur.

What the success of Uber showed was that smartphones have the power to fundamentally change taxis. While fending off those direct rough waves, technology has matured in Japan, including the development of domestic dispatch apps. With the introduction of this Japanese-style ridesharing as a catalyst, I hope the industry will move forward as one toward realizing services that can ensure a means of transportation throughout all of Japan.