It’s Not That Easy to Breach the Economic Moat of Comfortdelgro Corporation Ltd After All

Ride-hailing mobile apps such as Uber and Grab have been aggressively competing against traditional taxi service providers all over the world.

Earlier this month, Grab had launched a new service with the aim of taking a shot at a problem many Singaporeans and Malaysians are likely to be familiar with – cross-border transportation between Singapore and Johor.

The two links between Singapore and Johor – the Causeway and Second Link – are two of the busiest immigration checkpoints in the world. On average, the two checkpoints clear about 400,000 crossings daily. Due to the high traffic flow and the need for security checks, travelling across the checkpoints can be a real problem. These issues prompted Grab to start a carpooling service to help match drivers with passengers.

But, shortly after the launch, Grab was informed by the Land Transport Authority (LTA) in Singapore that such a paid service would not be compliant with the regulations of both countries.

According to current rules in Singapore, a Malaysia-registered vehicle would require a public service vehicle licence if it wants to operate a paid carpooling service in Singapore. Likewise for Malaysia, which requires a Singapore-registered vehicle to obtain a public service vehicle licence in order to operate in the country.

So, as it turns out, Grab might still have a long way to go before it can legally address this market.

This means that existing taxi service providers such as Comfortdelgro Corporation Ltd (SGX: C52), which has the licence to run cross-border transport services, still has an effective economic moat surrounding this segment of its business due to regulations.

Although ride-hailing mobile app companies have seen some success in penetrating large swathes of traditional taxi operators’ business-turf, Grab’s example with its carpooling service to shuttle passengers between Singapore and Malaysia show that there is still much to be done before they can truly overcome the transport industry’s regulatory hurdles.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn't own shares in any companies mentioned.