From the start of next year, it will be illegal to operate the special “sherut” (service) taxis in Israel. By law, at the end of 2016, all the licenses given out by the Transportation Ministry to operate these special routes all over the country will expire, without any legal way to renew them, if the law is not changed by the end of December.
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Sherut taxis are large vans or minibuses that follow specific routes, usually coinciding with major urban and intercity bus lines. They may operate on the Sabbath, holidays and late at night when the regular bus service stops. They run more frequently than buses, and can be faster once they fill up and because they are smaller and have fewer problems with traffic. They can travel narrow and crowded streets, and can pick up and drop off passengers most anywhere along the route, not just at bus stops.
The new regulations for the operation of such taxis were supposed to be completed this year as part of an industry reform, but the government has once again dragged its feet and not even one new tender has been issued for operating a sherut route.
Regarding licensing practices up to now, the Transportation Ministry has issued 2,289 licenses for sherut taxis, and given them out for free, without holding tenders, without clear criteria for awarding the licenses and without oversight. As a result, the ministry has been accused of handing out licenses to those with political connections, and of having created a market for the sale of the free licenses. Today the number of these licenses in active use on the routes for which they were intended is estimated at only 800 to 1,000 all told.
Before 2005, most sherut lines (with a few exceptions such as the airport taxis) were operated illegally. The Transportation Ministry decided then to legalize and license existing sherut lines. Most of the “pirates” were weeded out, while others received the permits. Some of the operators admit today that the choice of the operators back then was based to a great extent on who they knew at the Transportation Ministry, or what their political connections were.
Under great pressure from the new operators, and with the full backing of the Transportation Ministry, the Justice Ministry was forced to give in and temporarily approve granting the licenses for five years – along with a commitment to carry out a major reform of the industry through legislation at the end of the period. In the meantime, the sherut system has remained unchanged until such legislation is agreed upon, and passed by the Knesset.
But today, 11 years after the process began, no such reforms have been approved. Every year since 2010, the expiration date of the sherut licenses has been extended for an additional year. Now, at the end of 2016, they are supposed to really expire, finally. They can no longer be extended without new legislation.
But the finance and transportation ministries have agreed to only have a half-baked, partial reform included in the Economic Arrangements Law for next year, the supplementary legislation that accompanies the state budget.
The proposed law would allow the government to extend existing licenses for another three years until the end of 2019, without tenders. At the same time, the bill states that new routes will be added where necessary, and be put out for competitive bidding between existing taxi companies and new operators.’
Up to 150,000 passengers a day
The sherut minibuses and vans are considered the black sheep of public transportation. They are in great demand, but their numbers have been constantly shrinking over the years because of the negligence by regulators on one hand and an increase in bus services on the other.
At its height, the sherut taxi industry had 1,700 to 1,900 active taxis in operation. This number has plunged over the years to just 800 to 1,000, which are operated by some 50 companies.
Government figures show that these taxis transport between 100,000 and 150,000 people a day on average. Other figures, from industry sources, which are based not just on reports to the Tax Authority, talk about twice that number of passengers – more than the number of passengers who ride the trains every day.
Even though the number of sherut lines has dropped, their profitability has also fallen because of the strengthening of the government-subsidized public transit system; partly because passengers who buy daily, weekly or monthly public transit passes can now transfer between all buses and trains, but the passes cannot be used on sherut taxis.
The sheruts have other disadvantages too, compared to the regular bus and train lines. They are more expensive than buses, particularly now after the recent reforms in public transportation, and offer no daily, weekly or monthly passes at reduced rates. In addition, the sheruts do not always run on regular schedules; they have limited routes, which have become even sparser over the years; and the main lines fill up quickly (some have as few as 10 seats); and many potential sherut passengers are left waiting for the regular buses. Finally, because the Transportation Ministry does not really supervise the sheruts, there is no oversight of the quality of service.
Many people who do not own cars use sheruts regularly, especially at times when the regular public transportation does not run, such as on Saturdays, holidays and late at night.
Regular, full-sized buses, “jumbos” as the sherut drivers call them, are eternal rivals to the nimble vans. Because the sherut taxis began as an unlicensed, pirate service, they focused on routes along the main bus lines in an attempt to fill the vacuum created by infrequent bus service.
This is how Israel has become almost the sole example in the world in which these kinds of independent taxis compete with regular public transportation services, which is subsidized by the government – Egged, Dan and the other private bus companies – instead of being a complementary service in areas and routes where public transportation is lacking.
The bus companies are carefully watching the developments concerning the sherut companies and are just waiting to go after many of the sherut routes once they are opened to competition and put out for tender. The Transportation Ministry is considering allowing the veteran bus companies to participate in such tenders, with limitations. For example, they would not be allowed to bid on routes that overlap their existing bus lines.
Exit for sherut license collectors
The fact that only some 40% of the sherut taxi licenses are currently being used creates two types of license holders: those holding permits not in use and those who hold active licenses, some of which are very profitable. This conflict of interest between the two groups has led to an unavoidable dispute.
Many of the inactive licenses were bought up before the initial regulation in 2005, wholesale and cheaply, as an investment and without any real intention by the buyers to operate the routes, sometimes because the routes were not profitable. Ironically, the leadership of the organization “representing” the sherut taxi operators, which for years has included numerous Likud party activists, own inactive licenses.
For example, Avraham Fried, director of the umbrella organization for taxi owners and the chairman of the organization of sherut taxi companies, who is known as the legendary “mouth” of the taxi drivers, owns sherut licenses in the area of Tirat Hacarmel just south of Haifa, but does not make use of them. But his powerful connections inside Likud, have served him and other taxi owners in the battles they have waged over the years.
Fried and his colleagues approached the Transportation Ministry a year and a half ago and offered to trade in their inactive sherut licenses in return for “compensation.” What compensation? A regular taxi license, known in Israel as a “green number,” for every sherut license, or two, they turn in. In other words, they would get a regular taxi license, which is worth about 250,000 shekels ($66,000) today, in return for an unused route that the government plans to eliminate in any case.
This proposal for a quarter of a million shekel gift for canceling an already inactive permit, scheduled to expire in a few months, has been rejected so far, but has not been ruled out. The Transportation Ministry is continuing to send the taxi owners organization a message of “there is something to talk about,” while the organization has not given up either and is continuing to use its political influence on Likud Knesset members, as well as other MKs.
It is easy to understand these license owners, some of whom own dozens of permits that they bought up over the years, if the government arranges a dream “exit” for them worth many millions of shekels.
“The negotiations we are conducting with the state are general and do not just deal with trading in [the licenses],” says Fried. “We are conducting the negotiations for companies with very different opinions, but also in very different situations. There are those that are interested in continuing to operate and we are obligated to take care of them. There are others who took a hit and have no right to exist, and we are asking that they get an exchange for [regular taxi licenses] or a certain amount of compensation for them, to allow these companies to survive and return part of their investment made over the years. Not a single private citizen owns dozens of sherut taxi licenses.”
‘Rebels’ want another 6 years
Another group of sherut license owners, those with active routes, led by those with popular Tel Aviv routes. They have “rebelled” against the official taxi drivers organization and decided to run their own, independent campaign in preparation for the negotiations on the future of the sector.
The rebels are interested in continuing to run their routes, and not the “compensation” the inactive owners are demanding. They want their licenses extended through 2023, and not just the three years proposed in the current draft of the Economic Arrangements Law, along with changes and improvements – including government subsidies for them too. A government official called such demands chutzpah and said there was no way subsidies or cheaper passes would ever apply to sheruts.
“The government does not subsidize profitable routes, and there is no reason whatsoever to ‘launder’ licenses that were handed out without a tender and at the same time subsidize services that compete with buses,” he said.
Finally, the sherut owners may be missing the real threat to their business, and that is why many want to cash out now. Even if they succeed in getting a six-year extension on their licenses, who knows if they will even have a business left by then? The real competition in the future may most likely lie in such shared ride applications as Via, from apps that allow users to order taxis directly such as Gett (formerly GetTaxi), or from the one that scares them, and all taxi drivers, the most: Uber. Of course some of the sherut companies are looking to use these same technologies themselves, and see them as their path to the future.