ADVICE ON TRANSPORT PROBLEMS
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By S. Buckley, Assoc lost T
Service must be related to cost
THE current development of containerization and the publicity it receives leads to emphasis being rightly drawn to the overall through cost of distribution, including trans-shipment and package. This is all to the good in that it focuses attention on costing, which is neglected by many operators, as confirmed by the Prices and Incomes Board report on road haulage.
But it would be wrong to assume that as a result of any such reappraisal of overall distribution costs a decision would necessarily then be taken to divert goods from C-licence vehicles to alternative means of transport. Although the absence of sufficient information on the true cost of running C-licence vehicles is unfortunate—where, in fact, this is proved to be the case—it does not necessarily follow that when that defect is remedied the conclusion will inevitably be reached that the exercise is too expensive in relation to the advantages provided.
Indeed, the reverse could apply. By a thorough-going examination of all aspects of overall distribution costs a trader or industrialist could—and very often would—be re-assured as to the true value of his C-licence fleet, always assuming it was efficiently operated.
A prime objective
Freedom of choice for trade and industry to use any form of transport, including its own, has always been a prime objective of the Traders Road Transport Association. Only the individual firms concerned, which alone precisely know their requirements, can determine their most economic transport.
Some of a firm's transport requirements will be difficult, if not impossible, to quantify. For example the effect of one late delivery can seldom be reckoned in monetary terms. But the accumulative effect of competitors who consistently offer a better collection and delivery service most certainly will.
However, this inability to give a precise value to a particular aspect of a delivery service should not be made an excuse for not troubling to maintain adequate records of the cost of running C-licence vehicles. The benefits of keeping records will not be limited to determining only whether it was too expensive an exercise or not. More positive costing can show which of several alternatives of providing the same service is the most efficient.
One of these alternatives relates to the ownership of a trader's van or truck. By definition a commercial vehicle is acquired and operated to serve a commercial purpose; to collect a firm's raw materials, transfer goods between various points of processing where necessary, to make the final delivery to customers, or a combination of any of these three basic functions.
Therefore it is the use of a commercial vehicle with which the trader is primarily concerned and ownership, though important, is a secondary consideration.
If no other factors apply then obviously the aim would be maximum utilization of every vehicle in the fleet so as to obtain the lowest cost per unit delivered, probably involving pre-scheduled runs for the whole of the working day. This, however, implies that once the vehicles have left the depot in the morning no service can be offered to late-comers or emergency orders.
Here a knowledge of true costs can assist management in deciding whether any "surplus" is required in this context and, if so, what additional expenditure would be acceptable so as to retain good customer relationship.
As an example of how such costing should be undertaken the following details are now given as the cost of operating a 5-ton lorry fitted with diesel engine and standard platform body. Corresponding examples of other sizes of vehicle are given in the COMMERCIAL MOTOR Tables of Operating Costs, obtainable from George Newnes Ltd., Tower House, Southampton Street, London, WC2, 7s, postage paid.
Standing costs
Dealing first with the five items of standing costs of this 5-tonner, it is assumed that the unladen weight would be around 2 tons 17cwt. This incurs an annual excise duty of £63 which is equivalent to a round total of 1 7s a week. As for the other four items of standing cost this weekly figure is based on a 48-week year.
This arrangement allows the equivalent of four weeks in the year when the vehicle may be out of service due to drivers' holidays, vehicle inspection, servicing and maintenance. Therefore revenue earned during the 48 weeks the vehicle is on the road must be sufficient to meet expenditure incurred throughout the year.
The cost of wages to the employer is arbitrarily reckoned at £13 7s a week. For a variety of reasons extra wage payments may be made in individual circumstances and, to facilitate this, relevant data expressed as a cost per mile is included in the Tables.
Rent and rates involved in garaging the vehicle cost £1 8s and vehicle insurance £2 4s 6d a week. Interest on a capital outlay of £1,300 charged at 74 per cent adds £2 Os 6d giving a total standing cost of £20 7s a week.
Assuming an average of 600 miles a week the five items or running costs per mile are estimated to be: Fuel 3.32d, lubricants 0.27d, tyres 1.31d, maintenance 2.73d and depreciation 1.61d; total 9.24d.
The addition of standing and running costs gives a total operating cost of 17.38d a mile or £43 9s a week, still assuming an average of 600 miles. But at 400 miles a week the cost per mile would be 21.63d; at 800 it is reduced to 15.35d.
An alternative to providing spare vehicle capacity is to provide spare load capacity. Thus, assuming a weekly average of 600 miles throughout, the cost per ton mile for this 5-tonner is 3.47d. If a 7-tonner is operated, with an equivalent operating cost per mile of 19.73d, the cost per ton-mile is lower at 2.82d as is to be expected. But if only five tons is carried on a 7-tonner then the cost per ton mile is 3.95d—higher than with the 5-tonner. But at the intermediate figure of six tons the cost per ton mile is 3.29d which is less than when the 5-tonner is carrying the full load.
Therefore, assuming that difficulties of access do not arise, it is apparent that up to 40 per cent additional capacity can be provided by use of the larger vehicle at relatively small additional cost.
This factor introduces the possibility of acquiring commercial vehicles through leasing or some form of contract hire. But even here some knowledge of the likely cost of operating one's own vehicle, as an alternative, is needed if the tenders submitted for leasing or contract hire are to be measured against a realistic yardstick.
A more important—and debatable—issue than ownership to be determined by a trader or industrialist in deciding how best to meet his transport requirements is whether or not he really needs exclusive use of the vehicles carrying his goods. Obviously the availability of over 100,000 A-licence vehicles is positive proof that many traders and industrialists find the service offered by the professional haulier, involving the consolidation of several customers' products, to be satisfactory.
Equally, however, the current figure of around 1-km C-licence vehicles operating in the UK indicates that there arc many occasions when exclusive use of a commercial vehicle is necessary to provide the standard of service needed by a particular trader or industrialist. There are many factors which induce firms to stipulate exclusive use of commercial vehicles. The most important of these is invariably speed and regularity in the timing of collection or delivery.
Closely allied to this is the flexibility needed to deal with unscheduled variations in working arrangements which direct control of vehicles can provide. In an extreme case of delay a trader is obviously better placed to make immediate readjustments to maintain good customer relationship than the professional haulier who is simultaneously concerned with various collections and deliveries.
Benefits As with the reappraisal of overall through distribution costs, consideration has to be given to the benefits of reduction in packing materials and damage in transit, with the attendant savings, when C-licence vehicles are employed. Closely allied to such benefits are those derived from the use of specialized bodywork to ensure that goods are delivered to customers in the best possible condition.
Service to the customer in retail distribution often depends upon the driver of the delivery vehicle when he is the sole personal contact between his firm and its customers. When in addition to taking on this salesman's role he also collects payment for the goods delivered it becomes even more important for him to be employed by the firm, with the vehicle operating under C licence.
Having established that these, and possibly other factors are of sufficient importance in a particular instance to justify a trader operating vehicles exclusively for his own use, it is still necessary for him to know the true cost of operating them and the effect of costing principles on the standard of service provided.
Because time and mileage are inherent in transport operation it is logical that this division should be reflected in costing by grouping total operating costs into standing costs and running costs. By definition the items included in standing costs arise whether the vehicle is used or not, while running costs are incurred in direct relation to vehicle mileage.
This fundamental costing principle has a direct bearing on the service provided. The more a vehicle is used the smaller the proportion of standing costs per unit—whether that unit be reckoned in tonnage, mileage or a combination of both. A 30cwt van such as many traders might use costs 29.33d a mile to operate when averaging 200 miles a week; but at 100 miles a week the cost jumps to 51.92d.