Ride-Pooling  as an Urban Vision for the Future

Urban traffic problems responsible for macroeconomic losses

The automotive nation Germany is currently in the midst of a transformation. Bans on diesel vehicles are being put into effect, new mobility service providers are entering the market, and manufacturers are mounting an offensive for electric vehicles, all of which amount to a great deal of movement in a market that occupies a special position in Germany beyond its 800,000 jobs (Source: VDA). At the same time, the subject of transport has become one of the most urgent issues within the urban sphere. The influx into cities has continued without interruption - between 2010 and 2016, the total population in the 66 large urban districts in Germany increased by 5.9% or approx. 1.35 million inhabitants (Source: Welt.de). Rarely are local authorities able to adapt their infrastructure accordingly, thus exacerbating the already stressful traffic situation - in Berlin, for example, every driver is stuck in traffic jams for 6.4 days per year. In Germany alone, the overall economic loss due to traffic congestion has been estimated at € 5.1 billion (source: INRIX Global Traffic Scorecard, February 2019). For this reason, urban representatives are in search of intelligent traffic concepts that not only allow residents to get from A to B as quickly as possible, but also have a favorable effect on CO2 emissions.

The Mobility Market Today 

Bans on vehicles typically represent the harshest way of forcing change and are correspondingly unpopular - both from a political and an economic point of view. As the expansion of infrastructures usually requires considerable investments, cities are increasingly looking for ways to maximize the efficiency of the ones already in place. As a result, new mobility concepts, in which the average number of passengers per vehicle is increased, have been coming to the fore. Often in this context one speaks of so-called ride-sharing services. However, a more sophisticated analysis of the mobility market indicates that this terminology is not always used correctly.

As a basic principle, mobility solutions can be divided into so-called 'ride sharing' and 'ride selling' services. The key differentiating factor here is the question of whether a trip takes place in the absence of corresponding demand and whether the intention is to make a profit. Digitalization has played a key role in advancing modern mobility concepts. It is only through the constant availability via smartphones that consumers are capable of using or requesting mobility solutions anytime and anywhere. Apps provide entry points to automatically coordinate trips. In line with the successful model from the software world, this is referred to as 'mobility as a service'.

Ride sharing offers include the classic carpooling options, which are primarily dominated here in Germany by providers such as blablacar. Strictly speaking, however, the solutions frequently discussed today by Uber and others fall under the category of ride-selling offers. These, in turn, can be divided into various clusters as shown in Figure 3.

Ride-Pooling as Component of an Urban Solution Strategy

‘Mobility as a service’ offers aim to persuade consumers to do without their own cars over the medium to long term. One feature is the use of pooling services, which combine similar passenger routes - with small detours - in order to offer a lower fare. This offers cities the potential to significantly increase the number of kilometers per passenger travelled on the roads while reducing the number of cars required. Ultimately, it uses the existing infrastructure in a more efficient manner. Since mid-April 2019, the city of Hamburg has been testing the effects of pooling services on the mobility usage of its residents in cooperation with MOIA, the new ride pooling service of the VW Group (Source: Hamburg.de). Pooling services can also be used as shuttle services for local public transport. The focus is on areas with inadequate connections to underground and suburban trains. The concept - long known as shared taxis in sparsely populated rural areas - is currently being tested by Deutsche Bahn and its subsidiary IOKI in Hamburg. If providers then also employ a fleet of electric cars, a positive effect for cities from an environmental perspective will also become apparent.

For cities and ride pooling providers, however, their success depends on the vehicle occupancy rate. If trips cannot be combined, there is no reduction in urban traffic, and it becomes increasingly difficult to cover operating costs. Therefore, it is necessary to identify passengers correctly for a joint journey and, from the consumer's perspective, to transport them without loss of comfort, which is measured here in terms of the time required for a route. This decision is made using an algorithm that takes a variety of factors into account. Depending on the departure and arrival points, the traffic situation, but also the weather, trips are ultimately pooled in the best feasible way. Furthermore, the supply of trips has to be optimally balanced with current demand. This is because every pooling car that spends too much time on the road reduces the overall load factor. The trend here is towards self-developed, complex forecasting models. Nowadays, the computing capacities at our disposal make it possible to implement self-learning forecast models based on machine learning – and mostly cloud-based - approaches.

The Future of Ride Pooling

From an economic point of view, ‘mobility as a service’ solutions will play an increasingly vital role. In Germany alone, the booking volume of ride hailing and ride pooling offers has been estimated at € 722 million per year by 2023.

While there are no comparable figures yet available for ride-pooling providers, our analyses indicate that solutions with an average number of passengers of 3-4 or more per tour, pooling solutions can generate a positive contribution margin (depending on the type of vehicle used). However, this fairly high vehicle occupancy rate can only be achieved once the service has been sufficiently well received within the urban framework and vehicle availability has been planned according to forecasts. IOKI reports an average load factor of 1.74 passengers per trip for its vehicles in the Hamburg test area. (Source: electrive.net)

Looking ahead, the true potential of mobility solutions becomes clear. If providers are successful in reducing driver fees and personnel costs, the attractiveness of the business model will increase. As such, autonomous vehicles are the key to long-term success. Yet the path to achieve this is still quite a long way off. Currently, vehicles with assistance systems for Level 3 automation are being launched on the market. Not only is the implementation of Level 5 automation by automobile manufacturers not yet in sight for the near future, but the nationwide infrastructure needed for it does not exist. The introduction of autonomous vehicles depends in part on two types of communication: in addition to the necessity of enabling communication via a mobile network (e.g. connection to central cloud services), autonomous vehicles themselves must be able to communicate with the road infrastructure.

Capabilities and Obligations with the Introduction of New Mobility Solutions in Urban Areas

Owing to the (permanent) connection with the (LTE or 5G) mobile network, new possibilities open up to equip vehicles for Level 5 automation. It is true that vehicles with their own cameras and sensors are already able to drive autonomously. However, the connection to a network makes it possible to control complex road traffic situations from the cloud and significantly increase driving comfort (see also “How Autonomous Driving Forms a New Infrastructure Market”).  From an urban vantage point, it is therefore necessary to ensure the best possible mobile phone coverage along traffic routes. This includes, in particular, simplified approval procedures for additional antenna locations and the extension of fiber optic lines. As part of a cooperation, the city of Dresden has shown how the German radio tower can gain easier access to municipal buildings to set up new antenna sites that can be used by all market participants (Source: Golem).

In addition to the connection to a mobile radio network, communication between the vehicle and the infrastructure (vehicle-to-infrastructure) is also crucial. To this end, cities must provide a digital ecosystem in which vehicles can communicate with urban traffic management systems. If, for example, traffic lights are able to indicate when they turn green, vehicles can automatically adjust their speed according to the traffic situation. This enhances the flow of traffic and in the long run has a positive impact on the city's CO2 balance. Also vital for urban V2I communication is what takes place before the actual communication - the processing of information in complex situations. This includes, in particular, intersections and situations involving a large number of other traffic participants (including cyclists and pedestrians). This is because the information about the situational environment is processed using an application layer that represents the actual intelligence in V2I communication. In order to promote the development of such applications, we have identified three major starting points:

• Cities should establish their own test areas: The interactions among automobile manufacturers, application developers and integrators can most easily be tested in a controlled but true-to-life environment.

• Cities should invest in upgrading their transport systems: State-of-the-art infrastructure applications are only as good as their ability to be incorporated into the (existing) traffic management system.

• A swift agreement about the V2I communication standard among all participants would be welcome: At the higher - European - level, there is currently still considerable uncertainty about which technical standard should be employed for V2I communication. In addition to WLAN (802.11p), it is also possible to use C-V2X (LTE or 5G NR based). Even the German automobile manufacturers are in disagreement on this issue, as shown by the current discussion, including that held in the press. Up to now, no clear winner of the future standard is foreseeable, even if WLAN has a lead over C-V2X according to the current drafts of an EU directive. Such uncertainties ultimately impede the expansion of V2I communication. Other countries, above all China and the USA, have acted more decisively in this regard.

When Will the Future Begin?

The vision is clear: self-driving vehicles have the potential to mostly replace private transport over the long term. In this context, ride pooling can play a significant role in the mobility of the future. For in order to revolutionize the urban traffic of tomorrow, we need to use our transport infrastructure as efficiently as possible. Yet the basic prerequisites to transform such a vision into reality are still lacking. Investors are currently placing their bets: which provider can acquire enough experience with its commitment in the sector of 'mobility as a service' and establish great market relevance in order to have a competitive advantage when Level 5 automation is introduced? Even though this is a race with an unclear outcome at present, it is to be welcomed that cities have been highly active in this respect and are currently experimenting with various concepts. It is also clear that no one mobility service can resolve all urban traffic challenges. Rather, this is about identifying the right solution modules and developing the necessary ecosystem and infrastructure in a timely manner. A number of cities have demonstrated that the future for them has already begun now - although it will probably be at least a decade before we see the first autonomous vehicles with Level 5 automation in regular operation out on the streets. 

Should you also be interested in learning more about the possibilities and market potential of recent technologies within the context of modern mobility solutions, please do not hesitate to contact us.