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Charging for Long Distances

11th June 1954, Page 98
11th June 1954
Page 98
Page 101
Page 98, 11th June 1954 — Charging for Long Distances
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Which of the following most accurately describes the problem?

" The Commercial Motor" Costs Expert Shows How to Modify Rates When Operational Activities are Extended Outside the Immediate Locality

/AM having a run 44 inquiries from readers who fail to give me sufficient essential information without which the reply cannot be found. They have the further fault that, when asked for the information, they fail to answer. The past month created a record: one out of every two inquiries was of that order. Here is an•example.

After an opening paragraph in which the inquirer told me he had been a reader of the journal for a long time, he stated that he had for some time been interested in my articles on costing. "We have recently had occasion to go into the question of our own haulage costing a little more closely than before, and we notice that you refer frequently to " ' The Commercial Motor' Tables of Operating Costs."

On inquiring at Temple Press Ltd. he was informed that the Tables were out of print and that a new edition was not expected before September, which, he continued, "leaves us in rather a difficulty as, owing to the nature of our business, it is precisely the running costs that we find so difficult to assess correctly and we are wondering whether you can give us any information on the subject.

"Most of our business is export and the goods are carried in containers. Most of our work is carried out by our own fleet of about 100 containers and in consequence all our lorries are flat-bodied with the exception of one, of a type which we keep for special work."

Nature of Work

The writer then set out a schedule of the vehicles be had and proceeded: "Our lorries appear to average between 10,000 and 11,000 miles a year, or about 200 miles a week, the majority of which is spent in running between our depot at X and the London docks and railway stations, and hauling our lift vans and containers within a radius of 30 or 40 miles from London.

"However, we are finding a tendency for our business to alter, inasmuch as we are going more and more into the country for our loads, up to 200 or even 300 miles from London, instead of the previous 30 to 40. We are finding it difficult when quoting for this new type of work to establish the correct mileage basis on which to allow for the extra distance. When working in and around London we find that an all-in allowance of En per day covers our running costs and standing expenses, allowing for about 200 miles Per. week and the driver's wages. Where, as . sometimes happens, a team of porters is sent with the lorry (most of ours are fitted with a double cab to take the extra men), it is easy enough to calculate the extra wages.

n32 " Our difficulty comes in when we have to run, say, up to 200 miles from base to load one of our containers, An allowance of En per day is made for the duration of the run there and back, including the time spent in packing and loading, plus the team's wages and expenses whilst on the job, but we have never been able to establish an accurate figure per mite to add to the other costs to give the total costing for the distance work. We are wondering whether you can give us the benefit of your experience in the matter.

Correct Mileage Figure "A you will see, our lorries do not do a great mileage, which makes it all the more necessary to establish a correct mileage figure for long-distance work. Our haulage is quite a subsidiary part of our business, but as it figures in our costing for any work we do, a more accurate method. of ascertaining costs is advisable. Our lorries are run in the name of Ealin, Ltd., which is merely a paper company wholly owned by us, but by'this means we are able to keep accounting for the haulage separate from the remainder of the undertaking's accounts.

" Since the war it has been found necessary to replace most of our lorries and the only one still running is the Mainland, which, however, still seems capable of giving quite a number of years' use for only a normal outlay in spares and repairs. This lorry is really too powerful for the work it has to do and has lasted well because it has been run to only a fraction of its full:capabilities. The lorries. arc not too heavy on tyres, and to quote an instance, our . Seabird petrol-engined 5-tanner has just completed 50,000 miles and has had its first set of tyres, but we think this is rather exceptional."

I should add, here, that most ofthe vehicles were

5-tonners; some petrol, others oil. •

Now observe the information that I have. I am told that for a day's work the charge is in—for convenience I will assume that n equals six so that, for the purpose of the argument I am told that, for a 5-ton lorry, running approximately 200 miles per week, the charge is £6 per day. I am asked, in effect, to suggest a figure for running costs, to be added to the £6 per day, and thus arrive at a rate or charge to be made.

. Here is my grouse: I am not told what that £6 covers. do not know; nor does any.reader, what the inquirer means when he says the £6 covers fixed charges. Apparently it covers some running costs too, for it is made when the lead mileage is up to 30 or so.

I have dealt with the inquiry in the time-honoured way of such requests: I have written to the inquirer and asked him to tell me what is covered by the charge of £6. Apparently, as I have already suggested, it seems to have been made, up to now, to cover all costs, including establishment costs, also profit, for the writer has been satisfied so far to add any running expenses which have previously been involved, making a flat rate of £6 per day to cover everything. An extra charge is mad.: to cover wages of additional porters and something is added to the £6 to cover unusual expenditure.

To assist him in preparing a reply, I have given him a complete schedule of the expenditure that is involved in the running of any of his lorries. I am hoping that from that list he wilt pick out those which, in his view, are included in that £6 charge, so that I can then make an estimate of the "running costs" which are beginning to worry him.

They are, of course, as follows: fuel, engine oil, tyres, maintenance, depreciation, Road Fund tax, levy, wages, provision for holidays with pay, employee insurances, vehicle insurance, garage rent and rates, interest on the capital locked up in the vehicle, that is to say interest on the capital outlay involved in the purchase of the vehicle itself, and establishment costs or overheads.

Now let me put down some average igures for a 5-ton petrol-engincd iehiele of the type I think he is )perating, and see if I can answer the luestion. First let me pick out of the chedule those which I regard as fixed osts, which are all that he regards as covered by that £6 per ay. I shall assess them on a weekly basis. They are: Road und tax, 14s.; levy, 3s.; garage rent, 10s.; wages (including inpIoyer's contribution on account of national insurance, remiums under Workmen's Compensation Act and 'ovision for statutory holidays with pay; the total is, in Rind figures, 10s.), £7 3s.; vehicle insurance, 18s.; interest capital outlay, £1; depreciation, about £160 or £3 4s. per The total of -these standing charges is £13 12s. per week. Oablishment expenses must be added and in this type of Lsiness they are high; I should say £4 per week at least, aking the real fixed costs, standing charges plus establishent costs, £17 12s. per week of 44 hours; which is 8s. per For an eight-hour day, therefore, the standing arges amount to £3 4s. The charge is assumed to be per day, leaving a margin of £2 16s.

Now this is where we "come unstuck." Flow much of it 12 16s. is profit? If it is all profit then I have nothing say. But it may not be so. There may be some ;vision for 'running costs, not mentioned as such. Let me through the running costs for this 5-ton petrol-engined licle. They are: petrol, 4.50d.; engine oil, 0.20d.; tyres, 0d.; maintenance, 2.40d. Total, 8.40d. Take an average 40 miles per day and the debit on account of running ts is fl 8s, per day. It would not be unreasonable, refore, to assume that, in this £6 per day, there is also vision for running costs at the rate of £1 8s. so that the profit is, not £2 16$., but only £1 8s.

In that basis I should be able to recommend this inquirer lebit the vehicle at the rate of 16 per day plus whatever nay think desirable on the understanding that the £1 85. !lowed for as above. If, for example, he is of opinion his minimum profit should be at the rate of 20 per cent. on cost, he can actually reduce his charges a little. I imagine, however, that he will not wish to do so and I assume, therefore, that he is likely to accept the following proposition as being more to his liking.

I have shown, in the figures which I have assumed, that his fixed charges, including establishment costs, total £17 12s. Per week or 8s, per hour; £3 4s. per eight-hour day. His running costs are 8.40d. per mile, and if we average 40 miles running per day the total expenditure on running costs averages £1 8s. per day and his net profit out of that total of £6 is also £1 8s. per day.

Now the burden of his inquiry was how to make proper provision, in his charges, for the extra mileage involved in the work that his customers are asking him to do. The answer to that is fairly easy now, when we have sorted out his probable actual costs. We can take it that his actual standing charges are £3 12s. per day, in which there is no provision for profit, and therefore that in that £6 there is provision for all the standing charges including establishment costs, and for £2 16s. to cover running costs and a profit amounting to £1 8s. per day.

If he goes beyond that 40 miles per day, his increasing expenditure will be at the rate of 8.40d. per mile. That amount, however, will be void of profit. I should advise him to budget for a profit of at least 25 per cent, on that mileage charge, which on that basis will be 10+d. per mile.

In giving him that advice, I must warn him not to overlook the fact that on these longer journeys there will have to be provision for lodging money for the driver and such extra staff as he has to send with the driver.

If I am to go into that aspect of the matter I shall want to know more about the time taken to get a load aboard the vehicle and also how long it takes to unload. In with that, I shall want to know what likelihood there is of delay awaiting opportunity to put the load aboard the ship, and so on. I imagine these things are fairly well covered by experience and that it is with knowledge of these factors that the £6 per day is based.

If I allow an average of four hours for terminals, the most that can be done within a 10-hour day will be a 50-mile lead. Any distance over that will involve the driver and his mates, if there are any, in stopping away from home. The costing will have to be designed to take subsistence payments into account as well as garaging for the vehicle, S.T.R.

Tags

Organisations: Road Fund
Locations: London

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