How to Taper Rates
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MANY hauliers are satisfied with contracting at a flat rate. Probably the suggestion to do so came in the first place from a prospective customer to whom it was attractive because of its apparent simplicity. However, a flat rate is rarely practicable: in nearly every case a tapering scale should be applied.
A typical example of the application of a tapering scale is in connection with -the haulage of parcels. The rate for a small parcel is much greater, weight for weight, than that for a large one Over any stipulated distance, for example, the rate for a parcel up to and including 7 lb_ is Sd., which is 1 1/7d. Per lb. if, the parcel be the full 7 lb. In the majority of cases it is more than 11 i7d. per lb, because most of these parcels will weigh less than 7 lb. more-accurate to state that the 'rate may be anything from I I/7d. to 3d. per lb., or even more. A parcel weighing 1 cwt. is carried for 2s. 3d., or about id. per lb. Again, a 2/1-1b. parcel is carried, according to one scale of rates, for 7 miles for 104., which is about 1 1/7d. per mile. The same parcel can be transported for 100 miles for Is. 8d., or
el. per mile. , .
This method is easy to-understand, once thefundamental principles underlying rates fixation are appreciated. The rates forming a tapering scale are calculated by a .system which takes into consideration the elementary principle that it takes as long to collect and deliver a small parcel as a large one (provided, of course, that the large parcel is not exceptionally difficult to handle) and that, for any given journey, the time occupied in terminal collection and delivery is the same That period for collection and delivery is represented, so far as haulage rates are concerned, by a certain sum of money Comprising a charge for the time involved, reckoned in accordance with the standing charges of the vehicle, plus its proportion for establishment expenses, and profit. It is
a big amount in proportion for a small parcel or a small mileage, but only a small amount for a large parcel or a long-distance haul. In other words, the amount is the same, whether the parcel be small or large, or whether the mileage be short or long.
It might, for example, be 6d: for either the 7-113: or 1-cwt. parcel in the examples given above. If that amount be subtracted from the rate it leaves only Id. for conveying a 2-lb. parcel, for instance, and Is. 9d for the same work with the 1-cwt. consignment. That is equivalent to -id. per lb. for conveying the small parcel and a little over d. per lb. for
conveying the large one. • In the case of the 28-lb. parcel, if I assume the same cost for collection and delivery (6d.), there is left, as payment for the actual journey, 4d.• for a 7-mik journey and Is. 2d. for a 100-mile iourney. That is equivalent to 4/7 per mile for the short distance and. approximately 1/7d.' per mile for the long distance.
Beyond Comprehension I have found that the meaning of this tapering scale is almost entirely beyond the comprehension of a certairl'elass of haulage contractor. I refer to the man who will persist in reckoning his rates for the hire of a vehicle on the basis of a standard price per mile independent of other conditions.
Although he may calculate the actual cost per mile quite accurately, he fails to realize that to offer to work on the basis' 'of a flat rate per mile on short mileages as well as long-distance journeys is a serious error. It is more than likely that in so doing he is actually cutting rates for short hauls and overcharging for long leads.
The result is that long-distance work which shows an excess profit is taken from him by competitors who work at reasonable rates which are more in accordance with mileage, and he is Wt with the uneconomic short-distance .haulage. It may be, however, that some of this argument is losing its point as so many operators are now confined to work within a 25-mile radius. There is, however, a number with permits to travel beyond that distance. Moreover, there are operators who are entering into contracts to operate vehicles under C-licence hiring margins who have to study this question of rates and charges even more carefully to-day than ever before.
I have been impelled to bring this subject forward for discussion as the result of an inquiry which strikingly indicated the possibility of error present in any attempt to quote flat rates per mile when the distances over which haulage is to be effected may vary.
The inquiry concerned a 5-ton petrol-engined vehicle. I am told that on various jobs the average annual mileage will be 30,000, and that the inquirer had been asked to quote a flat rate per mile. The distances over which the vehicles may be used per
journey may be 1, 10, 20, 40 or 75 miles. My
correspondent is evidently about to proceed on the understanding that, as he knows his annual mileage, he is aware of his average cost per mile, so that he ought to be able to quote a flat rate per mile to his various customers.
Actually, the average Cost per ,mile for a 5-1on petrolengined lorry on a weekly mileage of 600, is 81d. per mile. A minimum charge for the hire of this type of vehicle, still reckoning on a weekly mileage of 600, should be Is. per Mile. If I were to fall in with this haulier's suggestion, I should have to advise him that if he charged 1s. per mile, his revenue would be sufficient to cover costs and show a reasonable minimum profit.
My advice to this inquirer is that he takes no notice of these average figures in preparing his schedule of rates for his various customers, that he makes no attempt to apply a flat rate per mile, but that he bases his rates on time and mileage. He should calculate that the rate per hour is 5s. 8d. and the rate per mile is 8d.
Now I must assume sonic period of time for loading and unloading. If I take it that there are no undue delays and that loading and unloading can be carried out reasonably quickly, 1 hr. for the two operations may he sufficient. For a 1-mile haul, the total time will be: first, I hr. for loading and unloading, plus the time taken to run 2 miles, which will be quite 10 rnins. A fair charge for this work is 1 hr. 10 mins. at the rate of 5s. 8d. per hour, which I shall call 6s. 8d., plus 2 miles at 8d., which is Is. 4c1., so that the total is 8s. If he charges, as he assumes he should do, at a flat rate per mile, he would ask this customer for only the amount equivalent to 2 miles at Is. per mile, which is 2s., whereas 8s. is the correct price.
Now take the other extreme, a journey of 75 miles, that is to say, 150 miles in all. There is still 1 hr. for loading and unloading, and at least 7 hrs. for travelling. There is then, first, 8 hrs. at 5s. 8d., which is £2 5s. 4d., plus 150 miles at 8d., which is £5. The total is £7 5s. 4d, On the other hand, taking a flat rate, we have 150 miles at Is. per mile, which is £7 10s.
will quickly run through figures for the other lead distances mentioned. On the 10-mile lead I should take it that the travelling time will be I hr. Loading and unloading, as before, takes another hour. so that the total time is 2 hrs. The charge should be for 2 hrs. at 5s. 8d., which is us. 4d., plus 20 miles at 8d., which is 13s. 4d. The total is £1 4s. 8d., equivalent to 2s. Sid, per mile.
For the 20-mile lead we take a total time of 2i hrs., which, at 5s. 8d. per hour is 14s. 2d., plus 40 miles at 8d., £1 6s. 8d. Total £2 Os. 10d., which is 2s. OA. per mile. For 40 miles I take a total time of 3 hrs., so that the time charge is I7s.; the mileage charge £2 13s. 4d., total £3 10s. 4d.. which is equivalent to Is. 9d. per mile.
Charges for Other Leads It appears, therefore, that if he still insists on making a charge per mile then, instead of a flat rate of Is. per mile, he should charge 4s. per mile for the I-mile lead; 2s. 51d. for the 10-mile lead; 2s. OW. for the 20-mile lead; ls. 9d. for the 40-mile lead; and a fraction over 110. for the 75-mile lead. That is what is meant by a tapering scale. and best illustrated by Fig. I. on which these rates and lead mileages are combined in a graph raph
In concluding the reference to this particular inquiry, should state that if the operator concerned were dealing with only one customer, then there would be no harm in his quoting a fiat rate per mile if he had a guaranteed mileage of 30.000 per annum.
Curiously enough, while I was engaged in dealing with the foregoing inquiry, another came along which called for discussion along the same lines. The subject was the haulage of sand and ballast, and the letter started with a complaint about rate-cutting by a competitor.
Holding a Permit
The size of the vehicle concerned was the same, a 5-ton petrol-engined vehicle, and it was engaged in carrying 4 cubic yds. of ballast and similar traffic, equivalent approximately to a 5-ton load. This correspondent is obviously in the position of holding a permit allowing him to engage in an annual contract for the haulage of sand and gravel over a 45-mile lead.
He writes that the sandpit is awkwardly situated and that his vehicle is habitually overloaded, so that his running costs are high. He states that the vehicles engaged on this class of work would normally be replaced every year, but as he cannot do that he has made a corresponding increase in maintenance costs while waiting to replace worn vehicles. Petrol and oil con sumption is high. Tyres, he states, wear out quickly, and that is in addition to this excessive cost of maintenance. The usual five items of running cost can be taken to be approximately, for petrol and oil, 21d.; for tyres, I Id.; for maintenance, 2d.; and for depreciation. 2d.-a total of 8d. per mile.
The standing charges are those normally experienced in connection with a 5-ton lorry and include provision for'overtime, which is £9, equivalent to 3s. 8d. per hour. I understand that the vehicles work five days at 10 hrs. per day.
A round journey, which must provide for two loadings and two unloadings, occupies 5 hrs., and the total bare cost of operation is thus 5 hrs. at 3s. 8d.-18s. 41, plus 90 miles at 8d., £3. The total is £3 18s, 4d., say, £1 19s. each way, which is a fraction short of 100. per mile, or 2.6d. per cubic-yd.-mile. On similar work, but assuming a 5-mile haul in each direction, it would take at least If hrs, and thus cost 4s. 7d. plus 6s. 8d.-Ils. 3d., which is Is. lid. per mile and 31d. per cubic yd.-mile.
It is more than likely, in the usual course of sand-andgravel haulage, that the load is for only one way, in which case the respective figures would be 5.2d., say Sid., per cubic yd.-mile for the 45-mile lead, and bid per cubic yd.mile for the 5-mile lead. , The foregoing figures, deduced from this contractor's letter embodying data for cost, are not, of course, fair charges for the haulage of sand and gravel under these conditions. They embody no provision for establishment costs and profit.
The establishment costs I should take as being at least £3 per week, making the total of fixed charges £12, to which T would add 25 per cent. profit for this class of work, making £15 per week in all, which is equivalent to 6s. per hour. The charge per mile should be 25 per cent. over and ab9ve the cost at 8d. which is thus 10d. per mile.
Taking the case of the 45-mile haul, the charge should be for 5 hrs. at 6s., which is £1 10s., plus 90 miles at I0d., which is £3 15s., totalling £5 5s. per journey, which is equivalent to Is. 2d. per mile or 3id. per cubic yd.-mile, assuming two-way traffic, and 7d. per cubic yd.-mile for one-way traffic.
Similarly, over the 5-mile lead, the rate should be for 1.1hrs. at 6s., which is 7s. 6d.; plus 10 miles at 10d. per mite, 8s. 4d.; totalling 15s. 10d., which is Is. 7d: per mile run. That is equivalent to 44d. per cubic yd.-mile for two-we' traffic and 9id. per cubic yd.-mile for one-way traffic. S.T.R. a41