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The emperor’s 3 new suits

The below is the blog post posted by Duck & Hippo after the company lost the tender to a new start up water taxi company, Singapore River Explorer (SRE). SRE is a joint venture between Global Yellow Pages and Leisure Empire.

Was the river tender so credulously crafted that it may just be Emperor’s New Suit? DUCKtours has lost to GYP in the recent URA’s water taxi tender. Other than voicing our belief that as ex-boss of URA, GYP with Mr Mah as Chairman, should not be bidding for a URA tender, we also think we got blindsided by a poorly crafted tender. A poorly crafted tender will result in shifting of goalposts and thus compromised the tender integrity.

DUCKtours didn’t cry foul after losing the tender. We highlighted the failing of the tender specification in a letter to Mr Khaw on 22 Feb 2012. This is before tender bid prices were announced and before tender presentation took place. We are not alone; the other incumbent had also expressly highlighted ‘no business case’ for the 3 mandatory services in their bid.

We think the 3 mandatory specifications are credulously crafted, and may just be Emperor’s 3 New Suits. Meaning the services, existing in ‘belief’ and not in ‘substance’. To ascertain the presence of “substance” is easy, simply measure the number of commuter traffic when the services are rolled out.

Lets take a final look at the 3 mandatory specifications, before burying it here in this blog and like a time capsule to be revisited in end of Q1 2013.

Tender Mandatory Service #1: The $3 Service

Tender Requirement “…shall operate similarly to buses, where passengers are able to hop-on and off along a fixed route. The frequency of this service shall be at no more than 10-min interval during peak hours eg. 7 am to 9.30 am, 5.30 pm to 8 pm… fare shall not exceed $3/trip”.

100 pax cannot make a peak
This specification dictates $3 pricing, 7 am opening and at 10 min interval during peak hour. Together with the $4 Express Service, each operator will have 14 boats and 42 crews working from 7 am in the morning. Our market research projected only about 100 pax of commuters for the 2.5 hours of morning peak. 100 pax does not make a peak, and does not warrant the mobilization of 42 crews.

With the extensive water taxi service structure, the river operating expense will escalate to $8,600 a day. To break even, each operator will need a ridership of 1,500 pax (of $3 taxi). The water taxi market is simply not that big, thus the reason for us ‘quacking’ at these specifications.

$3 Service

$4 Express

Total

Boats deployed

7

7

          14
Jetties Manned

8

8

Total boat trips (2.5 hrs)

18

18

Total Seat Capacity

720

720

1,440

Pax Projection (peak)

100

0

100

Ave Stowage/trip

6

0

Crewing

$3 Service

$4 Express

Total

Boat captains

7

7

14

Boat deckhands

7

7

14

7 Jetties Crew Manning

14

na

14

Total Headcount

28

14

42


So who are these peak hour commuters?

The morning 7.00 am to 9.30 am peak hour water taxi is primary targeted at a privilege few staying at one of the 15 riverside condominiums at Havelock area. Averaging 3 per household, there are only about 15,000 riverside residents. The market segment here is small considering most affluent residents there drive to work and only a small few rely on public buses. The market gets even smaller as the water taxi services are relevant only for offices close to river jetties. We are not expecting much locals or heartlanders commuters for the morning to-work 2.5 peak hours.

Insufficient Market Research?
URA probably did not get the market segment and size right when they specify 10 min frequency from 7 am. They probably did not know that it could be 42 men ferrying just 100 pax of commuters.

It is not right to say, “Don’t try how we know?” In the real world, market size is first determined through thorough research work, and that in turn will drive service/product design/offering. It is rash to experiment on product rollout at private enterprises’ expense.

It is simplistic to assume 6 interested bidders means there’s verification of business case. We may all bid for different reasons. Point in view, GYP told it’s shareholders it bid for water taxi but it’s ‘not to get into water transportation business’.

Poor Value Proposition.
Deploying 42 men to ferry 100 pax from the luxury riverside condominiums is excessive. Any responsible employer will have problem waking up 42 men at 6 am for work at 7 am, only to serve a 100 (not 1,500) riverside residence at a fare of $3 each. Considering, the mean age of the boatmen is at 60 years old, they need help to be more productive, not laboriously plying the river for so few customers.

Questions.

  • Is the $3 service a case of being there, yet not there for the masses?
  • How can 100 pax be considered morning peak traffic (averaging 6 pax per 40-seater boat)?
  • Is $3 water taxi service relevant to thousands of heartlanders and local masses? Or is it just a mirage, where its good to have but not really relevant to the masses?
  • Do the planned water taxi services help the local masses by taking some load off the overcrowded public buses and MRT train?
  • Who will need the water taxi from 9.30 to 12.00 noon, when most local is at work?
  • From 12 to 2 pm, will the lunch crowd come on board if the travelling (plus waiting) time for a turn around river trip is 30 min or more?
  • Who will be taking the water taxi from 2 pm to 6 pm?
  • What should the water taxi’s frequency be? At hourly, half hourly, or every 15 min?- If it is half hourly or more will commuters wait, or it will be an Emperor New Suit?- If it is operated like a bus at 15 min frequency, would it be senseless or tenable to keep running it even if the boats are running close to empty?15 min or 30 min interval, both ways, are lose-lose situation?
  • Can the water taxi with no air-condition and travelling relatively slow (15 km/hr) be a ‘functional’ transport system for commuters rushing to work and home?
Our Opinion/Rating for $3 Service

Perceived ValueHigh
Real ValueLow
Riderships/day100 pax (7 am to 9.30 am),
100 pax (9.30 am to 10 pm).
Pain FactorVery High ($1 mil bitter pill of loses per year)
GoalpostProjected to moved within 12 months
Overall Design Rating10/100


Our Verdict : We think it is a Emperor $3 New Suit.

It will be 42 men slaving from 7 am ferrying 100 pax of affluent commuters, whom we think don’t really need the water services. This translates to 1 crew serving 1 commuter per hour, far from the cost effective 1 private charter bus driver serving 30 commuters per hour. At $3 for 100 pax, the value add per crew will be at a low of $2.72 per head per hour during morning peak. This goes contrary to our effort to improve the value add per crew when we want the old boatmen to have improved work life balance.

Overall Design Rating : 10/100. Pax projection: 200 pax/day (Breakeven Pax: 1500 pax/day)


Tender Mandatory Service #2: The $4 Service

Tender Requirement: “…shall operate as a point-to-point service similarly to premium buses, where passengers are able to board at certain designated points and drop off at designated stops. The frequency of this service shall be at no more than 15 min during peak hours eg. 7 am to 9.30 am, 5.30 pm to 8 pm…fare shall not exceed $4”

The Challenges
Unlike bus services on land, the river services are linear with 2 key pick up stops (where the riverside residence are) and 3 key drop-off points (where the offices are). There are no ERPs or Express Ways in the river. Running along the SAME route even skipping 2 stops, the $4 Express Service can only shave off about 3 min at best from an otherwise 30 min $3 service journey. At $4, we projected there would be no takers with such an improbable service advantage (saving of just 3 mins).

Flawed Specification
Being ‘kaypoh’, we highlighted to URA that it is flawed for river tender to specify a 15 min Express Services. To be truly expressed, it should be 10 min or it will look silly. “Would you like to take the $4 Express Services? It will get you to your destination 3 min faster, but you have to wait for another 5 min for the boat. Or you can take the $3 services now.

Childlike Specification – Nice But Impractical
Why bother to set up a $4 Express Service, to shave 3 min from a 30 min journey? URA believed there is a market for such a service to warrant it as 1 of the 3 mandatory tender specifications. Based on our 5 years of river experience, we projected just 1-2 takers for $4 Express service per day. If our projection holds true, does it means the appointed operators will ‘die-die’ have to continue to run this Express Service daily for 9 years as per tender specification even if the boats were running close to empty? URA says operators are expected to maintain tendered services. We think it is not tenable and 2 wrongs don’t make a right, the goalpost should to move within a year.

Our Opinion/Rating for $4 Express Service

Perceived ValueVery High
Real ValueNil
Riderships/day2 pax/day
Pain FactorVery High ($0.6 mil bitter pill of loses per year)
Goal PostMoved within 12 months
Overall Rating0/100


Our Verdict : We think it is a Emperor $4 New Suit.

Looks and sounds good, but in reality not workable. We foresee problem from onset of kick off. Expected rate of change: within 12 months depending on when URA will relent and allow the goalpost to shift.

Overall rating: 0/100. Pax projection: 2 pax/day.


Tender Mandatory Service #3: On Demand Service

Tender Requirement: “…there must be an on demand water taxi services similar to land taxi”.

Another Childlike Specification (Nice but impractical)?

For cost efficiency, most riverboats are built with about 40 seaters or more. We explained, but with no success, to URA’s planner that it is not economical to build and operate smaller boats given that each operator is only allowed 26 boats. With smaller boats, manpower is also a major cost concern. The commuters carried per captain has to be maximized so that they can be productive and have improved earnings.

We also explained it is not feasible for water taxi to handle the typical 1-2 pax land taxi type of booking. It is akin to dispatching a bus to ferry a single passenger from River Valley to Marina Bay Sands. Priced at $10 per private booking, the river operator will bleed; priced at $100 (base on cost recovery) there will be no takers.

We would rather be forthright and say it can’t fly at the onset, rather than ‘wayang’ and go along with an Emperor’s New Suit. Why force this low demand, impractical expensive service in the river when there are 30,000 taxis on land that can provide the service more cost effectively.

Our Opinion and Rating for On-Demand (OD) Service

Perceived ValueVery High
Real ValueNil
Riderships/day1 pax/day from 7 am to 10 pm
Pain FactorNil (no bitter pill, just an unexecutable service)
GoalpostMoved at the onset.
Overall Rating0/100


Our Verdict : It is an Emperor’s New Suit.

Look and sound good to have a booking system similar to land that comes with‘hotline, online and smartphone aps” booking. In reality, it will only exist on paper. It is not logical to pit 52 boats in the river against 30,000 taxi on land. Traveling time from Clark Quay to Boat Quay, by water taxi is about 25 min, by land taxi is about 11 min. Which is cheaper, faster, more comfortable, and have lesser waiting time?

Overall Rating: 0/100. Booking Projection: 1


Planning Lapses

In our humble opinion as a river operator and a proven marketing specialist, we think URA’s planner should have handled the river tender more competently. The key failing is a lack of adequate market research, which resulted in tender specifications being credulously crafted.

URA talks to everyone at the river but the 2 river operator incumbents. Surprisingly URA did not want any feedback from both river incumbents for insights into the river taxi business. Had URA tender committee seek all round inputs including both river operators, the tender would not have such lopsided specifications.

We think 2 of 3 mandatory tender specifications cannot ‘fly’ at the onset. Our projected take up rate for these 2 mandatory services are so low it can be counted on one hand, thus mocking the serious nature of a tender. The other service that is executable is over scoped/provided, with 42 people working to serve a projected 200 pax of commuters a day. This is way below the 1500 pax breakeven point.

Planning Methodology
URA planner should have set price only with an understanding of operating cost. It is unthinkable to do so otherwise, and this is a major oversight in planning.

In the commercial world, market size is first determined, and that in turn drives service/product offerings. It is rash to experiment on product rollout at the expense of private enterprises.

Summation
We foresee a case of “3 Emperor’s New Suits” where services are there in belief but not in substance. We foresee the poorly drawn tender spec will create a lose-lose situation for all when months into roll out, appointed river operators with crippling loses request URA for changes in pricing or services to stay solvent. By then, specs may change and goalposts may be moved. This will be unfair to all other bidders. It was for these reasons that we wrote to Mr Khaw to appeal for intervention at the early stage of tender.

Yes, we could be better off keeping our mouth shut on the 3 Emperor’s New Suit. But we took a risk and do what we think is right by dauntingly giving the authorities our feedback. URA/MND didn’t think much of our feedback and we irked the tender panelist in the process. We have no regret. It is the only right thing to do.

DUCK & HiPPO is not alone. The other incumbent Singapore River Cruise has also expressly highlighted ‘no business case’ for the 3 mandatory services in their bid. We are simple and forthright in our approach. We prefer a well crafted tender where services can be maintained consistently over the 9 years tenure fairly.

Jury will be out on Q1 2013.

None of the good people in URA/MND bother to meet or clarify with us prior to tender award. Will the goalpost be moved as per our projection? Will it be Emperor’s 3 New Suit? Is the $3 take up rate 200 pax/day? Is the $4 Express services lifting 2 pax/day? Is the On Demand Service offered from day one of roll out and how much is the service priced at? Will the goalpost be moved and services water down within 12 months? Mark your calendar and check out this blog. Right or wrong, the jury will be out in Q1 of 2013.

So was DUCKtours blindsided by Emperor’s 3 New Suit?

Even if we got it right… we still lost the tender.