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| How will New DDOT fees affect dockless? Who Knows. Image: Author |
During the Wednesday, November 7 D.C. Bicycle Advisory Council (BAC) meeting, the group discussed the proposed District Department of Transportation (DDOT) regulatory framework of rules regarding dockless bike sharing right-of-way permitting and related DDOT fees for potential operators.
According to the D.C. Register, the proposed rule-making would amend Title 24 of the D.C. transportation regulations to establish a public right-of-way occupancy permit program to manage the dockless vehicle operating companies and establish permit fees for dockless vehicle operating companies who operate in the public right-of-way. It appears that DDOT has posted the application procedure in anticipation of approval. Presumably, the new permit rules would apply to scooters but they would require a separate permit. You should look at the proposed rule yourself and submit comments - your opinion is as good as anyone else.
So what are the impacts of DDOT's permit fees? Can dockless operators afford them?
Who knows.
Given the available information from dockless operators, interviews, and DDOT’s proposed rules, we can extrapolate the minimum cost imposed by the District’s fees and estimate how many bikes are needed to cover the costs of these rules.
Again, this is just a math exercise and shouldn’t necessarily become a policy. More importantly, dockless corporations have been somewhat vague regarding costs and revenue so the results of this post may not reflect real world conditions. The goal of this post is to present a starting point for discussion. As our conclusions and projections may be wildly incorrect, we invite a critical review of the findings.
It's a long post, if you'd like to cut to the chase...
About the Dockless Industry
Dockless companies are not small businesses struggling to bring bikes to the masses. Analysts estimated that Ofo has raised more than $1.2 billion from hedge funds and large corporations. Mobike reportedly attracted $900 million from similar sources. While both of these operations have enormous investments and millions of bikes globally, they appear to be failing to make a profit.Most dockless companies appear willing to accept public rights-of-way fees as the price of doing business. Others seemed concerned that high fees, or fees of any type, and limits on the numbers of bikes in public space make it impossible for them to operate. Nevertheless, according to DDOT since the pilot began in September of 2017, users have taken more than 940,000 trips on dockless bikes and scooters.
During the meeting, BAC representatives stated that one reason for permit fees is to price the cost of using public space. Another reason discussed is that permit fees provide a mechanism to manage bike operators so that they are accountable not only to its customers but to residents of the District. While most operators probably would rather not pay a fee, they do not seem to mind as long as they can reach a specific number of bikes on the streets. Each operator has a different calculus regarding that number, which we’ll call the “break even” point.
As the bike sharing companies have not openly shared their break even point, which would be the number of bikes necessary for operators to make a profit, it’s difficult to determine if the the dockless bike limits or the right-of-way fees inhibit the development of a comprehensive dockless bike network. That said, this analysis will make assumptions so that those interested in dockless bikes can ask reasonable questions and make reasonable decisions.
BAC Concerns Regarding Permit Fees
Another related perspective was that if the District wanted to add additional transportation options to provide as car alternatives, that the District should reduce or eliminate these fees. Operators would probably place those fees on users, disproportionately affecting the poor and communities that traditionally underserved. While we will not address this issue directly, it's an important question and the result of this analysis may make answering it a little easier.
DDOT Proposed Permit Fee Structure
The DDOT regulations have occur under two phases: before January 1, 2019 and after. As we are near the end of 2018 at the time of this posting, let’s look at the regulations effective after January 1. The regulations contain certain requirements as well as fees.The requirements state the the operator must have a Basic Business License, with a cost the varies depending on the type of business. As there appears to be no license for a dockless bike share operator, we will use the fee for a Horse-Drawn Carriage License. That two-year fee is $60.
The fee schedule within the DDOT permit rules are as follows:
- An application fee of fifty dollars ($50) per permit;
- A technology fee of twenty-five dollars ($25) per permit;
- A fee of two hundred and fifty dollars ($250) for the initial permit to operate in the public right-of-way occupancy permit;
- A fee of one hundred dollars ($100) for each annual renewal of the permit to operate in the public right-of-way;
- According to the month during which the dockless sharing vehicle will enter into operation in the District, a per vehicle fee. We'll explain the details of this later.
- A ten thousand dollar ($10,000) refundable bond or other security ... (if a) dockless operating company fails to remove from the public right-of-way vehicles that are unsafe, unpermitted, or abandoned, or if the District of Columbia must remove, relocate, impound, or store dockless vehicles due to improper parking, safety hazards, or any other violation of these regulations or the terms and conditions of the Public Right-of-Way Occupancy Permit.
Not stated in the regulations, the cap will increase to a minimum of 600 bikes as of January 1, 2019 with operators able increase that number by 25 percent each quarter if they are in good standing. For the sake of this analysis, at least initially, let’s use the 600 cap. If every bike were available the total baseline cost for the fleet would be $36,000.
(600 bikes) x ($60 in January)
Let’s assume that operators will operate the entire fleet and not reduce capacity during traditionally colder months. Also, this fee appears to apply only to bikes in service, not the entire bike fleet, which could include reserve bikes.
The total estimated cost of government fees associated with operating a 600-vehicle dockless bike share company for the first month would be around $46,455.
Seattle approved a new $250,000 annual fee for dockless bikeshare companies that want to operate in the city. However, Seattle has a much higher total dockless bike cap of 20,000. Seattle’s highest estimated costs will be creating designated parking areas for shared bikes; $400,000 to construct 150-200 bike parking zones on sidewalks and streets throughout the city. The annual fee would cover those costs.
Streetsblog reports that Dallas, TX has proposed a system of fees on the bikes, which would introduce incentives to limit the number of them in circulation and raise $1.8 million for the city annually. According to Wired, Austin, TX is currently using a pilot to evaluate bike and scooter sharing and charges $100. Santa Monica, CA charges $20,000 for each dockless operator, plus $130 per each device on the street, and a $1 per device per day for parking in public space. Los Angeles' bike program will use a similar revenue generation method. Portland, OR charges a 25-cent per trip fee.
As JUMP bikes is the sole dockless bike operator in the District as of this posting, let’s use the fees it charges to its customers. JUMP charges a flat fee of $2 for the first 30 minutes and $0.07 for each additional minute. We don’t have average ride duration statistics, but let’s assume that most users ride for an hour or less and the median number of minutes between those who end before 30 minutes and an hour would be 45 minutes or an average user charge of $3.05 - average revenue per trip.
Let’s conservatively assume that each bike is used at least twice each day. The projected per day revenue per bike would total $6.10.
With a daily projected average of $6.10, let’s conservatively assume that each bike is available for public use at least 325 days of the year. This assumption is arbitrary but provides 40 days a year for bike maintenance, for when bikes are simply not used, or for when bikes are otherwise unavailable to the public for revenue service. After a year, the estimated average revenue collected for each bike per year is about $1,983.
Dockless operators would likely have a number of reserve bikes in its fleet to ensure that at least 600 bikes, or the number needed to reach revenue goals for a particular period, were always available. What operators actual do will obviously vary from this estimate. Also, the per ride revenue may be more or less than what we've assumed.
So with an estimated 600 bikes available for at least 325 days a year, the total gross projected revenue for a dockless bike operator that has a user fee similar to JUMP would be approximately $1,189,500.
Again, we have a lot of assumptions regarding how dockless operators work or how much they could collect from each bike, we could be totally wrong.
When we first looked at this data, we thought that it was a matter of multiplying this number for each subsequent year, with a few adjustments.
It's actually much, much more complicated.
As the number of bikes increases so do the fees. However, that growth occurs certain months of the year, with each month having a lower per bike fee as the year progresses. The rate of growth is potentially 25 percent every three months. If the operator complies with the provisions of the permit, which includes the removal of bikes improperly located in public space and are located in specific areas of he District each morning, DDOT may increase the number of bikes allowed with the operator paying the per-vehicle fee when targets are reached.
The first year, assuming the operators starts with 600 bikes and was in good standing, growth would looks like this:
As shown, at the beginning of the first year, the operator must pay $36,000 for the first 600 bikes. By the end of the first year, the operator would have paid an additional $12,000 for the additional 450 bikes added to revenue service or a total of $48,000 paid that year for 1,050 bikes. The regulations aren't clear regarding when the fees are paid, but for the sake of this document, let's assume that payment is due quarterly.
What does the per-vehicle fee look like over time and how many bikes is that? The table below shows the number of bikes allowed, the fee increase, and the cumulative total amount in fees paid over the next 5 years.
To be clear, the cumulative fee is the amount paid over time, not the fee in that year. As we increase the number of dockless bikes, the revenue exponentially increases. At 1,050 bikes and using our JUMP bikes revenue scheme, gross operator revenue increases to $2,081,625. Now, $2 million seems like a lot, but it probably doesn't cover much in the way of operating costs.
The District Compared to Other Jurisdictions
Dockless bike permit fees nationwide vary greatly as cities try to manage bike expansion with controls. Under the District’s pilot program, monthly fees were $2,000 a month with assorted annual or one-time permit fees and a cap of 400 bikes per operator.Seattle approved a new $250,000 annual fee for dockless bikeshare companies that want to operate in the city. However, Seattle has a much higher total dockless bike cap of 20,000. Seattle’s highest estimated costs will be creating designated parking areas for shared bikes; $400,000 to construct 150-200 bike parking zones on sidewalks and streets throughout the city. The annual fee would cover those costs.
Streetsblog reports that Dallas, TX has proposed a system of fees on the bikes, which would introduce incentives to limit the number of them in circulation and raise $1.8 million for the city annually. According to Wired, Austin, TX is currently using a pilot to evaluate bike and scooter sharing and charges $100. Santa Monica, CA charges $20,000 for each dockless operator, plus $130 per each device on the street, and a $1 per device per day for parking in public space. Los Angeles' bike program will use a similar revenue generation method. Portland, OR charges a 25-cent per trip fee.
Dockless Operator Revenue
Dockless bikeshare companies don't typically discuss their business plans. I would presume that most plans assume that costs in the first few years are high as they include start up costs and fees but as assets are acquired, the company will soon make a profit.As JUMP bikes is the sole dockless bike operator in the District as of this posting, let’s use the fees it charges to its customers. JUMP charges a flat fee of $2 for the first 30 minutes and $0.07 for each additional minute. We don’t have average ride duration statistics, but let’s assume that most users ride for an hour or less and the median number of minutes between those who end before 30 minutes and an hour would be 45 minutes or an average user charge of $3.05 - average revenue per trip.
($2 - 30-minute ride)+(($0.07 (cost per minute over the first 30) x 15 minutes - (average additional ride time)))
Let’s conservatively assume that each bike is used at least twice each day. The projected per day revenue per bike would total $6.10.
($3.05 - Average gross revenue per use) x (2 likely number of uses per day, per bike)
With a daily projected average of $6.10, let’s conservatively assume that each bike is available for public use at least 325 days of the year. This assumption is arbitrary but provides 40 days a year for bike maintenance, for when bikes are simply not used, or for when bikes are otherwise unavailable to the public for revenue service. After a year, the estimated average revenue collected for each bike per year is about $1,983.
($6.10 of bike revenue per day) x (325 - average number of days bike is available for revenue service))
Dockless operators would likely have a number of reserve bikes in its fleet to ensure that at least 600 bikes, or the number needed to reach revenue goals for a particular period, were always available. What operators actual do will obviously vary from this estimate. Also, the per ride revenue may be more or less than what we've assumed.
So with an estimated 600 bikes available for at least 325 days a year, the total gross projected revenue for a dockless bike operator that has a user fee similar to JUMP would be approximately $1,189,500.
(600 - total number of bikes available for revenue service) x ($1,982.5 - average revenue per bike per year
Again, we have a lot of assumptions regarding how dockless operators work or how much they could collect from each bike, we could be totally wrong.
Operator Revenue vs. DDOT Permit Fees
If the question is, "are DDOT fees too high?" To recover DDOT permit fees, an operator could do so with as few as 6 bikes, actually (5.424968474).
($11,895.00 - the yearly estimated revenue from 6 bikes) x ($10,755 - permit fee cost)
When we first looked at this data, we thought that it was a matter of multiplying this number for each subsequent year, with a few adjustments.
It's actually much, much more complicated.
As the number of bikes increases so do the fees. However, that growth occurs certain months of the year, with each month having a lower per bike fee as the year progresses. The rate of growth is potentially 25 percent every three months. If the operator complies with the provisions of the permit, which includes the removal of bikes improperly located in public space and are located in specific areas of he District each morning, DDOT may increase the number of bikes allowed with the operator paying the per-vehicle fee when targets are reached.
The first year, assuming the operators starts with 600 bikes and was in good standing, growth would looks like this:
As shown, at the beginning of the first year, the operator must pay $36,000 for the first 600 bikes. By the end of the first year, the operator would have paid an additional $12,000 for the additional 450 bikes added to revenue service or a total of $48,000 paid that year for 1,050 bikes. The regulations aren't clear regarding when the fees are paid, but for the sake of this document, let's assume that payment is due quarterly.
What does the per-vehicle fee look like over time and how many bikes is that? The table below shows the number of bikes allowed, the fee increase, and the cumulative total amount in fees paid over the next 5 years.
To be clear, the cumulative fee is the amount paid over time, not the fee in that year. As we increase the number of dockless bikes, the revenue exponentially increases. At 1,050 bikes and using our JUMP bikes revenue scheme, gross operator revenue increases to $2,081,625. Now, $2 million seems like a lot, but it probably doesn't cover much in the way of operating costs.
What's Break Even? Revenue vs. Operating Costs and DDOT Permit Fees
We have no idea. Let's not let that stop us.Searching the interwebs, we found data from B-Cycle, Denver's non-profit bike sharing system. As B-Cycle is more like Capital Bikeshare, a comparison with Dockless is less certain but we can glean some information.
As of 2016, B-Cycle maintained a fleet of 737 bikes across 89 stations. The number of stations aren't relevant for this discussion, but they do It had operational expenses totaling $2.01 million. This amount reflects payroll, rent, insurance, transportation, fringe benefits, marketing, depreciation, etc.
Separately, the nonprofit had capital equipment costs that total $3.8 million and includes bikes, spot equipment, and all of the items needed to maintain the fleet and hold related events. The largest component of capital costs are the docking stations, which totaled nearly $3 million. Adding these costs, the total would be about $5.82 million.
For the sake of this discussion, let’s presume that the total salary costs for a dockless operator are similar to the B-Cycle's 2016 costs with an inflationary factor added - a total of $2.5 million. As mentioned, JUMP-style bikes according to reports costs $1,000. Based on Denver's costs, let's assume all other long-term equipment costs, like repair stations, vehicles, etc. that are not docking stations (as those aren't necessary) mimic B-Cycle, with an inflation factor, totals $250,000.
Other operational costs - rent, storage, vehicles, adverting, computers, office equipment, etc. could total totals $750,000, with the largest portion of that being rent, say, 10,000 square feet at a current market rate of around $55.00 a square foot in the District. We separated long-term equipment costs from ordinary costs because certain items are likely to be purchased once and then replaced as needed. This could include contractual staff who would also rebalance bikes.
(I acknowledge that these amounts could be tied to some ratio related to operational scale, I have no idea what that ratio would be. For the sake of this analysis, let's keep them fixed).
The table below shows the DDOT fees and dockless revenue over a 4 year period with our estimated JUMP-style usage fees and operational costs:
At the beginning of the first year, revenue is low at about $1.2 million against expenditures of about $4.94 million, a net deficit of $3.75 million. This is a large number and probably greater than reality but it does give us a good indication of how difficult it would be for operators to make a profit with a bike cap of 600 or less.
At the end of year 3, we project that a dockless operator could see its first profit of about $1.5 million. According to the data, with almost 3,300 hundred bikes on District streets, total revenue could reach about $6.5 million with operating costs, including District fees, totaling about $4.9 million by the end of the year.
Given the DDOT quarterly constraints, we estimate that at the beginning of the first quarter of that year a dockless company could turn a modest profit of about $1,300 with as few as 2,138 bikes.
Net Profit = (((Per Bike yearly Revenue) * (Number of Bikes in revenue service)) - ((Total Fees) + (Total Operating Expenditures)))
Summary
If you decided to jump to the chase, here's your payoff.
- The DDOT permit fees alone are not likely not a burden to dockless operators.
- The limit of the number of bikes allowed is probably the the most burdensome factor.
- Assuming an operator similar to JUMP bikes charged similar rates and bikes, DDOT fees could be recovered in a single year with as few as six (6) bikes.
- Depending on several factors and assumptions, an operator could possibly recoup start-up costs, depending on population, density, geography and other variables, with as few as 2,138 bikes and a net profit of $1,350 in less than three (3) years.
- If DDOT allows, dockless bike density could grow exponentially but over several months.
A few caveats. Conclusions are for illustrative and entertainment purposes only. The first year operational would presumably be the most expensive year as operators would purchase bikes, space to house them, people to repair and market them, space to house the people, and other operational requirements.
Naturally, certain costs would decline in subsequent years as operators would not purchase a fleet of bikes each year but simple replace those lost, for example. Operators would likely amortize start up cost over years so a one year recovery period may not be completely realistic. Like other dockless companies have, District operators may use contracted employees, who may work in unsafe conditions or with low pay to reduce operational costs.
If the question is are permit fees costly, the short answer is no. The DDOT proposed fee structure could net hundreds of thousands of dollars over time if companies were allowed to add thousands of bikes. While somewhat more complicated than other jurisdictions, compared to Seattle, Dallas, and cities in California, the District fees appear to be among the least costly nationally. The true issue that limits an operator's success is likely determining an attractive and reasonable level of profit without saturating the market with bikes.
The effective elimination of the 400/600 bike cap will potentially allow for thousands of bikes but do so in a manageable way - hopefully partnered with bike infrastructure investment. In a subsequent post, we may examine permit fees and While the process may take a few years, operators while likely recover much of that investment and begin to make windfall profits.
Again, we do not know what the actual revenue or costs are for operators. If the numbers hold, operators could make windfall profits that could cover these fees; or perhaps create or fund community benefit programs that meet the needs of the poor or those areas that are poorly served.
The effective elimination of the 400/600 bike cap will potentially allow for thousands of bikes but do so in a manageable way - hopefully partnered with bike infrastructure investment. In a subsequent post, we may examine permit fees and While the process may take a few years, operators while likely recover much of that investment and begin to make windfall profits.
Again, we do not know what the actual revenue or costs are for operators. If the numbers hold, operators could make windfall profits that could cover these fees; or perhaps create or fund community benefit programs that meet the needs of the poor or those areas that are poorly served.
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