The Effect of Absenteeism 01
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.osts and Rates
A Problem of Growing Importance to Hauliers Everywhere and One which, Moreover, will have a Parallel when the Government Haulage Scheme Comes into
• S I was turning over in my mind the subject of this
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article, there came to hand a copy of the monthly bulletin of the Eastern 'Area A.R.O. Mr. G. W. Irwin, the secretary of the Area is, of course, responsible for the compilation of the bulletin and be concludes it with what I, personally regard as a particularly wise exhortation, especially at the present time.
The new Government Haulage Scheme, he writes, has once more brought out the absolutely vital need for hauliers to keep proper an4 adequate accounts. It is the first essential of any business that there shall be a good accounting system, in order not only to be able to arrive at what rates should be to show a profit, but also to bring in the money when it has been earned, to close up overdue accounts, and to confirm, when it has all come in, that the business is solvent and that it is showing a profit when all costs have been met. •
Haulier's Success Is Linked Up with Accurate Accounts Keeping .
Now, I have not the slightest doubt that Mr. Irwin could have written at much greater length on that topic. I am equally certain that, had he extended himself on the subject, he would have developed the theme on lines similar to those I have in mind. He and I hold precisely the same opinions on this subject; at least to this extent, that we both believe reasonably accurate accounts keeping is essential to the suceess of a haulage business. Equally, we are both aware how difficult it is to persuade hauliers to keep such accounts.
The subject is not entirely new as a topic for discussion in these articles. I have always -in mind the generic title " Solving the Problems of the Carrier." Each of these articles is suggested to me by some problem which is confronting hauliers in general. lf, as now, I re-open an old discussion, it is usually because some turn of events has discovered a new problem, the solution of which involves reference to an old subject. • The turn of events which, once again, brings certain aspects of costing to the fore is that mentioned by Mr. Irwin, namely, the development of the new Goverament Haulage Scheme. The aspect of costing which is in this way thrust into prominence is that of establishment costs. ' As usual, too, it came fire to my mind while discussing with one of my haulier friends a problem concerning the solution of which he asked my assistance.
In the course of our conversation, he mentioned that one of his current difficulties arose from absenteeism. That nas so bad, he said, that, although he possessed five vehicles, he could reckon on regular service from only four of them.
The Value. of a Sound Knowledge ' of Operating Costs
That was not the problem iie had come to discuss, so no more was said about it at the time. It did occur to me, however, that here was a factor which considerably enhanced the importance of a knowledge of costs in general and of fixed costs in particular.
The vehicles were 5-tonnefs, all engaged on local haulage and covering an annual mileage of approximately ' 15,000 to 16,000, ,say 300 miles per week.
Now, according to "The Commercial Motor" Tables of Operating Costs, these machines involve an expenditure of £6 6s. per week each in standing charges, plus 6-0. per mile running costs. The establishment costs, at 10s. per week per ton of pay-load, total .£12 10s. per week. Actually, the standing charges exceed the £6 6s., because the vehicles Are in use for 60 hours per week, involving overtine to the amount of approximately 25s. per week per vehicle. The standing -charges are thus £7 1 ls. per week per vehicle.
' The total costs of operating the fleet, when all five vehicles are working full time, is thus £90 17s. 6d., made up as follow :-Establishment costs, £12 10s.; standing charges (five vehicles at £7 115.), £37 15s.; running costs, 1,500 miles at 6-0. per mile, £40-12s. 6d.
If this haulier is to earn a profit of 15 per cent, on his expenditure (and he must do that if the business is to be reasonably profitable), his revenue must be £105 per week. He hires his vehicles out on an hourly basis, so that his minimum rates should be £105, divided by 'five times 60. That is 7s. per hour, which, ai a matter of fact, is -the rate he is actually receiving.
Now, my point is this. He made. his original calculations, as I happen to know, not from his costings-they probably 'do not exist in such form as would enable him to come to a right conclusion-but by using the figures in " The Commercial Motor" Tables of Operating Costs, Has he realized how much he is really losing owifig to absenteeism?
Approaching the Problem from the Angle of Costs •
Suppose we tackle the problem from' the costs angle. His establishment costs; which are, as their name indicates, determined by the size Of his establishment, do not alter. They remain a,t £12 10s. per week. The standing charges for four vehicles remain at £7 11s, per week each, thus totalling £30 4s. Some standing charges remain in respect of the idle vehicle. There is still the Road Fund licence, which comes out at 12s. per week, garage rent and rates 10s., insurance 16s., and interest on capital outlay 8s. 6d. The total of these is £2 6s. 6d. per week, bringing the sum of all the standing charges to £32 10s. 6d. per week The total weekly mileage is now reduced to 1,200, and that, at 60. per mile, costs £32 10s. The total of all these is £77 10s. 6d.
The revenue is that derived from 240 hours at 7s. per hour, which is £84. The net profit is thus £6 9s. 6d. per week, as against £14 2s. 6d. Definitely not so good.
The trouble is that my friend, in all probability, is failing to realize that the drop in profit is so great. He has calcu • lated his deficiency in one of two ways. He has reckoned on a loss of one-fifth of his profit, say a drop of £3 per week, and, setting that against the gain of £5 odd in driver's wages, come to the conclusion that he can regard this absenteeism as more of a nuisance than anything else. (No, that is not ridiculous. I can quote similar incidents galore.)
Alternatively, lie has made a guess which brings him nearer the mark. He has taken the actual drop in weekly revenue, £21 per week, set that against the total costs of operation ot the missing vehicle, as set out in "The Commercial Motor" "Tables of Operating. Costs, plus the 25s. overtime, thus arriving at a total of £15 14s., and come to the conclusion that his profits are diminished by only £5 6s. per week, instead of the actual figure of £7 13s.
'Certain Weekly Outgoings Not Dependent on Vehicle Use
In coming to this conclusion, he has, of course, overlooked the fact that -the possession of, a motor vehicle involves certain weeklyexpenditure, whether it be used or not. ,More important still, he has forgotten all about his establishment costs.
Little consideration is needed to suggest that a problem, similar to this in its fundamentals, but much more serious in its effects, is likely to arise in connection with the operations of hundreds, perhaps' thousands, of small hauliers, when the present Government Haulage Scheme really gets into• its stride, I have in mind, of course, those hauliers who are not regarded as of sufficient consequence to be invited to become controlled undertakings. Their businesses are all of the kind which is concerned with long-distance haulage. Presumably, all the work they can expect will be the left. overs from that which the controlled undertakings can accomplish. For that work they will be paid at hiring rates, which, we are told; are not yet determined. Aliternatively, until•these rate g are settled, they may bepaid the rates they have been accustomed to receive hitherto for similar classes of work.
• The question is, what is going to be the financial outcome in the case of all such operators, presuming, as' seems likely, that they are precluded from diverting their attention to local haulage or short-distance work? Take the case of another haulier I know. He has seven 84onners, all of thein regularly employed on long-distance • haulage, , Incidentally, they are .doing a maximum-loaded mileage and carrying nothing but urgent war .material. The 'point that arises there, of course, is that all this • urgent traffic islikely to be taken over by the nearest unit controller. My friend, who wastes neither fuel nor tyres.
will lose it, and get real conipensation. There is, ifis
true, a vague promise, set out in the earlier proclamations of the scheme, that some C-licensee vehicles Would be Com pulsorily retired and the traffic transferred to A and B licensed vehicles. Little has been heard of that lately, howevei, and there seems a prospect of that promise being
of the pir,crust-variety. • In any event, all that traffic, too, may be needed to ensure that the vehicles of controlled undertakings are fully employed and it seems likely that my friend will get none.
The Position When a Reduced Number of Vehicles Is in Use However, let us look on the bright side and assume that the crumbs from the tables of the controlled undertakings are sufficient to enable him to keep three of his vehicles ' fairly well employed. His position, at present, is something hire the following: —The average weekly mileage per vehicle is 800. The average number of hours worked per week by each vehicle is 60. The standing charge per vehicle is £9 15s. per week, Including overtime. The running ccot per mile is 7.9d. The total of establishment costs is £35 per week for the fleet, roughly £1,300 per annum. The total costs per vehicle per week are £41 Is. ad.
The earnings average £48 per vehicle per week. . That is just short of £7 net profit per vehicle per week, or somewhat less than £35 per week for the fleet. The fact that • the earnings are good is, in itself, a guarantee that little • waste mileage is run.
What Will be his circumstances under the new regime? He has three vehicles at work and, for a time, at least, he is to be paid the rates he has been accustomed to obtain. Assuming, for the sake of argument, that the percentage 'loading under the direction of the unit controller is nearly es good as it was under his own management, he will probably earn an average of about £45 per week per vehicle, , £135 Per week in all. The hare operating costs of thevehicles will remain approximately the same as before, viz., • £35 as. each, a total of £105 9s, per week.
There are still two major items of expense to be accounted for before any assessment of profit or loss can be made. First, the establishment costs. It may be found, subsequently, that they cad be diminished; I will consider that possibility in a, moment. No reduction of any considerable amount is likely to be possible immediately. They, still stand, therefore, at £35 per week. Then there is the cost of keeping four vehicles in idleness, for be sure that the Operator is not going to dispose of them; he is still looking forward to the time when be will again have full use of them.
He will, of course, have no Road Fund licence to pay, and no wages. (His drivers, under the scheme, are presumed to have been set to do some important national work, such as will allow them immediately to return to their vehicle driving if the need for their services arises.) Fr; will still be responsible for the rent. He will wish to insure against fire and, possibly, theft. He will be unable to avoid' the book debit of the interest on first cost. The total of these three items will be approximately 30s. per vehicle or £6 per week for the four. His total expenditure is thus 2146 per week, as against a gross revenue of £135. Let us, at least, hope he starts on the new scheme with an ample bank balance.
How Some of the Establishment Costs May be Reduced In the accompanying table I have given the actual figures for his establishment costs to-ddy, in the column headed "Normal." In the' second column I have shown to what extent they may be reduced. One item, it may be noticed, has increased, that of expenditure on postage. No one who has had any experience of operating under a Government haulage scheme will query the wisdom of that.
The total reduction, as may be seen, is £641 per annum, approximatelY £12 6s. 6d: per week, bringing the expenditure to £133 13s. id. per week, against revenue of £135.
There is, at least, one thing my friend can be thankful for, it he he able to exist into the second year of operation of the scheme—assuming it lasts so long as that. He will iiave no income tax to pay! S.T.R.