Of Boris Bikes, Cycling Economy and Gross Cycling Product (GCP, a la Gross Domestic Product-GDP)

During my recent London visit, I took the opportunity to ride what is known in the city as ‘Boris Bike’, named after city's illustrious Mayor Boris Johnson who first introduced the idea of 'bike sharing system' to the city.

For the starters, Boris Bike is part of London’s newest public transport system called Barclays Cycle Hire (BCH) scheme (launched 2010) named after Barclays Bank, who has committed to sponsor it through to 2015. BCH is a self-service public bicycle sharing scheme that gives Londoners the chance to use bikes to replace trips on foot, bus, tube, taxi or car taking pressure off London’s crowded public transport system. As of now, this scheme entails 8000 Barclays branded bicycles for hire in Central London and almost 570 docking stations offering over 10,000 docking points. Recent survey points to the project generating roughly @ 45000 extra cycle trips each day in central London

Biking is certainly not a new phenomenon but given all the transport management & vehicular congestion related issues that megacities face these days and also because of growing awareness among citizens of ‘lifestyle diseases’, it has assumed greater significance for both- city management authorities as well as for ‘aware’ ordinary citizens. 

London’s experiences in propagating & popularizing biking, whilst creating a sustainable revenue stream for the ‘City Authority’, is worth emulating. More so, for a cash-starved Urban Local Bodies (Municipal Corporations and Nagar Panchayats) in a developing country like India. 

This brought me to exploring/understanding the business model of the Barclays Cycle Hire scheme in greater details. How does it operate? What are the components of the BCH value chain? Importantly, how does it make a sustainable revenue stream for Greater London Authority/Transport for London (TfL)? These were some of the obvious questions I set out to seek answers for.

Value chain for BCH is shown below. This involves three major blocks Build, Operate and Maintain consisting of critical processes such as building infrastructure (i.e. cycle tracks, terminals and docking stations etc.), running operations and maintaining infrastructure. Few key suppliers involved with TfL in the value chain are Conway (cycle track building), Bixi (cycle, docking station& terminal), Premier (contact center equipment), alke (electric utility vehicle) and Serco (operations and maintenance)

(Click to enlarge)

Besides Barclay’s sponsorship (in lieu of branding) and London Councils / borough funding, the revenue accrual for BCH has been through membership fee payments (people can sign up online and pay fees resulting in a member being given a plastic key fob for accessing the cycles) and also through access & usage fees charged to casual users, who use cycle release code generated from the 'terminal' at the on-street docking stations.

Launched amid much fanfare in 2010, BCH is yet to make money for TfL. The figure released to ‘Mayor Watch’ by Transport for London (TfL) following a series of Freedom of Information requests (similar to India’s RTI) highlighted that as of March 2012 the scheme had cost more than £119mn, in fact £106mn more than what Barclays had paid up to the end of FY12. BCH Y-on-Y income for 2013 grew by @ 20%, still not sufficient for the scheme to cover the existing funding gap.

Cycling Economy & GCP

In 2010, London School of Economics (LSE) attempted to define the size of ‘cycling economy’ in the UK and coined a new term‘Gross Cycling Product’ (a la Gross Domestic Product GDP) representing total £ (pound) value of all cycling-related goods and services produced over a particular time period. LSE estimated gross cycling product (GCP) of £2.9 Bn (~£230 per cyclist, per annum) for UK in 2010. The key GCP contributing segments are cycle manufacturing, retail sale of bikes and accessories and cycling infrastructure development and maintenance.

The UK cycling manufacturing sector today is represented by only a handful of names such as Brompton, Stratford upon Avon based Pashley and Mercian, although a number of smaller ‘artisan frame builders have also emerged in the market.

The UK retail bicycle sector is highly polarized with a limited number of larger independent and corporate chains such as Evans Cycles or Halfords controlling a large proportion of the market.

Cycling infrastructure and maintenance encompasses employment that builds and maintains dedicated cycling infrastructure. A major player in this space is Sustrans, which is responsible for the construction and maintenance of the National Cycle Network in the UK.

UK GCP is split in the ratio 20:50:30 among these three segments mentioned above

India is the 2^nd biggest cycle producing nation in the world (after China) and produces approximately 12% of the world annual bicycle production, which is estimated at 125 mn units. India’s domestic bicycle industry is oligopolistic, dominated by four players: Hero Cycles Limited (Hero), Tube Investments of India Limited (TI), Avon Cycles and Atlas Cycles (Atlas). These players account for over 90% of the country’s total bicycle sales. Besides, all the big global names such as Giant, Trek, Merida, Canondale, etc. are also present in the country. Of the 15 mn bikes produced in India @2-3, mn are exported to MEA region. Ludhiana alone produces 25k bikes per day. Based on publicly available information from industry sources such as AICMA & UCPMA, India’s GCP could be safely estimated at @ $1.5Bn which includes manufacturing, retail sales and cycle track infrastructure build, etc.

Lastly, I see significant opportunities for Urban local Bodies (ULBs) in the large Indian cities (Pune included) to promote cycling schemes (a la BCH) in a big way, thereby developing a sustainable revenue stream for themselves and contributing positively to nations GCP.