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( ffi 'Know your costs and

17th September 1992
Page 52
Page 52, 17th September 1992 — ( ffi 'Know your costs and
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Which of the following most accurately describes the problem?

convince your customers that you know them'

I i n the December 1957 edition of Roadway, after the death of my father had left me with a haulage business to run, I wrote an article entitled, 'Whither Rates?" — based on my painful discovery that rates were desperately low and never based on any notion of actual costs.

Today 1 am still riding the same hobby horse. Our industry is full of people who measure their required revenue in terms of pence per mile or pounds per day. While this is better than having no yardstick at all, both targets are dangerous because they are meaningless.

There is no such thing as a cost per mile or cost per day — trying to measure revenue in either way is the road to ruin.

Vehicle costs consist of two distinct elements — either time-related or mileage-related. Time-related costs continue whether or not the engine is started and the wheels are rolling. Mileage-related are those which involve moving the vehicle such as fuels, lubricants, tyres and repairs. Maintenance costs are often included in the time-related element because they are incurred on a planned basis over time.

The only reliable method of measuring costs to determine required revenue is to split them to find for each class of vehicle its time-related costs for the current year and its actual mileage-related costs at the most recently measurable moment.

Time-related costs must now be divided to represent a figure for each effective working day. This number of days will vary between businesses and between lorries owned by a business. The actual cost per day and the potential for profit per day depends upon the number of working days it takes to recover time-related costs. Two hauliers may have the same level of costs for similar vehicles operating at a given rate, but the one which spreads its costs over 240 working days instead of 225 will make more money.

This highlights the rule that vehicle use is the key to making profits. It is particularly true — as is usually the fate of road haulage — where rates are held at uneconomic levels through the sort of competition the industry has always inflicted upon itself.

The message is therefore: 0 Know your costs and be able to convince your customers that you know them.

0 Calculate them in costs per day plus costs per mile.

0 Calculate your rates on the basis of adding these two elements together. 0 Allow for incidentals such as subsistence, tolls, bonuses.

0 Remember you need some profit. 0 Go all out to achieve the resulting price for the work for which you are quoting.

We must be realistic and accept that knowing our costs will not in itself ensure getting the right rate for the work we do. But if enough operators can inject good sense about costs and rates into the market — who knows? We might eventually stop cutting each other's throats.

0 If you want to sound off about a road transport issue write to features editor Patric Cunnane.

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