PROFITS
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and a 30 m.p.h. limit THE previous article was written to be of value to C-licensees and others. in it, I dealt with the aspects of cost only, making no provision for profit. The results of the arguments and calculations made in that
article are shown briefly in Table I. Perhaps the most important column is the last one, which shows the percentage saving in cost with a lorry carrying a 10-ton load. Three
well-known traffic routes were selected, from London to Leicester, taken as 108 miles, from London to Leeds, 192 miles, and London to Blackburn, 210 miles. One-way loading was assumed, as was strict observance of limit.
In Table H are set out minimum rates per ton which should be charged, on the assumption that the rate agreed is 20 per cent, more than the actual cost of transport.
For example, taking the 108 miles journey, in which the cost per ton with a 20 m.p.h. limit was shown to be £1 9s. 2d., the rate assumed is El 15s,, which is approximately 20 per cent. more than £1 9s, 2d. I have shown in this table the weekly cost, revenue and profits.
The final column gives figures which must be disconcerting if it be observed that so far as the London to Leicester and London to Blackburn runs are concerned, the operator will actually make less profit on a vehicle running at 30 m.p.h. than he would with one at 20 m.p.h. That is inevitable so long as it be assumed that the rate is based strictly upon cost plus 20 per cent. profit, for as the cost diminishes so, also, does the profit.
The exception, the middle line, referring to the London to Leeds trip, is due to the fact that with a 30 m.p.h. limit it is just possible to cover three journeys per week, whereas with the 20 m.p.h. limit only two can be covered, and it seems obvious that if the haulier, again on the basis of a 20 per cent. profit margin, cannot, as the result of the change in speed limit, increase his number of journeys per week, he is going to be worse off.
The weakness in the whole argument is the supposition that hauliers' rates are of necessity assessed on the basis of cost plus 20 per cent. profit. Actually, of course, rates are seldom assessed upon such a basis.
"What the Traffic Will Bear" The deciding factor is, as everyone is aware, far from being a simple calculation of cost plus profit. It is mainly competition, but a good second to that is—and I confess it—what the traffic will bear. The experienced haulier, when quoting, takes into consideration such matters as bulk, ease of handling, risk of damage, and so on. Even so, he cannot ignore a competitive rate unless he can offer a better service and, what is more important, convince his customer that his service is worth the higher cost.
As for the factor of what the traffic will bear every haulier is as familiar with the terms "high-grade traffic" and lowgrade traffic" as is every railway man. If a haulier is to mix his qualities of traffic, carrying high-grade and lowgrade goods, then if he is going to make his business pay, a high percentage of his journeys must be such as to enable him to pick up return loads.
If he is going to make a reasonable profit, however, he must give consideration to the time element. The effect of speed, already shown to be important, and as a matter of fact being the principal subject of these articles, now becomes almost overriding.
Let me go back again to the original proposition, assessing the figures for costs and rates and profits if a return load is to be picked up_ With the journey from London to Leicester it will be recollected that the loading time was taken to be two hours, the travelling time with a 20 m.p.h. limit 63hours and the unloading time two hours, a total of 10i hours—one full day's work.
Now assume that the operator picks up a return load. That will, in all probability, involve a short run from the delivery point of the outward load to the pick-up for the return load. The distance may be anything from one mile to 50, but let us assume it to be five miles. In city traffic that will take from 20 to 30 minutes. Loading time, if it be low-grade traffic, will probably be short, perhaps five minutes per ton, and with 10 minutes turn round that will be an hour altogether. That means 1 hours for the travelling from point to point and picking up the load.
Another Day's Work The return journey will take as long as the outward journey, that is 6i hours, then there will be another hour for unloading and half an hour to get back to the garage. The total is thus 91 hours, another day's work, and a total of 20 hours for the round journey and mileage of 226. That is 108 out, five miles from delivery point to pick-up point, 108 back and five miles again from delivery point to garage.
On the basis ot 20 hours per return journey, it can safely be assumed that he will complete three journeys per week, with a total mileage of 678. The cost, set out as in the previous article, will be as follows:—
60 hours at 7s. 3d. per hour .. ' 21 15 0
678 Miles at 5.6d. permile • • 15,14 0
Driver's wages, including subsistence and expenses 10 3 6
• • . •
Total .. 47 14 6
• •
For that sum presumably 60 tons have been carried (10 tons in each direction for three journeys per week) and the average cost per ton is 15s. lid., or practically 16s. Now consider this from the point of view of the haulier who is agreeable to assessing his rates on the basis of cost plus 20 per cent., or rather let me assume that we are trying to find What the minimum rate must be in order to earn a 20 per cent profit on his outlay.
Adding 20 per cent. to 16s. gives us 19s. 3d. That is the average rate. If, for example, the outward traffic is high-grade traffic and he gets 23s. per ton then he could carry the return low-grade traffic at as little as 15s. 6d. per ton and still make his average rate of 19s. 3d. That is to say he could still make a 20 per cent, profit on his outlay. It should be noted that the total revenue, on that basis, will approximate to £57 15s. per week, showing a net profit of £10 Os. 6d.
The above calculation is made on the assumption that he obtains a return load on every journey. That, of course, may not happen, and let me now assume that on an average he gets two return loads for every three outward loads.
If the average be only two return loads, then the time per week is reduced by three hours, which is the time
needed to travelfrom delivery point to pick-up point of the return load and -the time to load, and at the other end of the journey time to deliver that return load and again the time to travel from the delivery point back to the garage.
The mileage, too, is reduced by 10 to 668 per week instead of 678 and the wages are reduced by the difference between a wage for 60 hours and that for 57. thus becomes -as follows:
For that total expenditure, 50 tons have been carried-30 tons in one ,direction, 20 tons in another ---and the average Cost is 18s, 4d. per ton. If I add 20 per cent. to ascertain the minimum average rate, I get 22s.
Again, taking it for granted that the outward load is high-grade and return is low-grade traffic, then the approximate figures for the rates might be 24s. 4d. for the outward -load and £1 per ton for the return load. Here the revenue is £55 8s. 4d. per week and the profit £9 12s. 60.
A Dangerous Assumption
Now suppose that this operator has, very foolishly. of course, reckoned his rates on the basis that he invariably obtains a return load, That is to say, let me assume that he has taken his rates to be the figures given in the first example above, namely 23s. per ton for the outward highgrade traffic and 15s. 6d, per ton for the return low-grade. If he misses a load a week, then his cost will be as in the second example,£45 15s. 10d. Revenue will now be for 30 tons at 23s. per ton, which is £34 10s.. plus 20 tons at 15s. 6d. per ton, which is 115 10s. Total revenue k 150, so profit will be only £4 5s. per week. It should be a general rule, when assessing rates for traffic carried ovett routes giving reasonable prospects of loads in both directions, to take it that the percentage of return loads will be 60 per cent, of the outward loads. It would be quite near enough, in a case such as this, to assume, as in the second example above, that the operator may reckon on two loads in reverse for every three outward loads and the minimum rates should therefore be as assessed in that example, namely, 24s. 4d. per ton for the outward load and it per ton for the return load.
• The foregoing calculations are based on the assumption that the speed limit is 20 mph. Now let its go into the figures on the assumption that the limit will be increased.
I shall assume that the conditions for picking up between loads are the same as in the above case, namely, that the operator has five miles to go to pick up his return load and that it takes approximately half an hour for that. It should be appreciated that the change in speed limit should make no difference to the five miles through congested areas, For the sake of clarity it may be as well to set out the times carefully once more. At the commencement of the first journey the fo tons of high-grade traffic will be loaded and the time taken will be 10 minutes per ton, which is 100 minutes, plus a quarter of an hour for turn round, say, 115 minutes or two hours in all.
The first part of the journey, the first 10 miles, will be travelled at a comparatively low speed, averaging 12 m.p.h., and will .thus take 50 minutes. For the next 88 miles, that is to say until we come to within 10 miles of the terminal, the average speed can be taken as being 27 m.p.h., which means approximately 31 hours travelling time. Then comes the final 10 miles in city traffic at 12 m.p.h., which takes another 50 minutes and finally the unloading of the
vehicle which is assumed to take the same as Loading.•We have, therefore, altogether four hours for loading and unloading, one hour 40 minutes.for this slow speed travelling at each end of the journey and 31 hours for the fairly highspeed point-to-point along main roads; total nine hours. Now comes the picking up of the return load, half-an-hour to travel to the pick-up point and one hour to load, that is 1.T. hours, 50 minutes plus 31 hours plus 50 minutes travelling, say another live hours and It hours at the other end for unloading low-grade traffic and returning to garage.
That is a total of eight boors for the return journey including picking up the load and so on. The total time for the round journey is thus 17 hours. It seems likely, then, that the vehicle will do three round trips per week, but in all will take only 51 hours instead of 60 and the Cost will thus be:
51 hours at 7s. 3d. per how . IS 9 9 975 miles al Si. 60. per isle ..• 15 lu ii DrUer's sisansrs. including sunsii.tence and expenses .. 8 9 0 Total 4: 14 9
For that SUM. 60 tons has been conveyed, so that the average cost per ton is I4s. 3d. The minimum rate, still adhering to the theoretical principle of adding 20 per een;. to the cost. must be 17s.. so that if the outward traffic be good enough to earn 11 per ton, then the return traffic can be carried for as low as 15s. per ton, thus still earning the minimum average of 17s.
The revenue per week will be 151. so that the net profit is .18 Ss. 3d. This compares most unfavourably with the .E10 Os. 6d. per week net profit which the operator would earn if the vehicle were limited in speed to 20 imph.
Return Loads
Now continuing the routine already followed in the previous examples, assume that only two return loads be obtained. The time occupied for three journeys, when one of them is of the one-way loaded type, is reduced as in the previous example by three hours, so that a week's ssay.k occupies now only 48 hours and the mileage likewise is reduced from 678 to 668.-1 he figures for cost are thus:
5 a it.
45 hours at 7s. 3(1_ pa near . 17 ti Hill miles at 5.4. 6d. Per .. 15 It Ii
Driver's wages. including subsisience and expenses 7 ISO
Thal .. 411 18 ll
that is not quite 16s. 6d. per ton. but it can be taken as that. The theoretical rate, on the basis of cost plus 20 per cent.. is thus LI per ion. and if on the outward journey 23s. per ton can be obtained, the return traffic can he caleied at 17s., the average being still maintained at £1. The revenue will be £50, the profit £9 2s., comparing with £9 12s. 6d. if the vehicle were compelled 10 travel at only 20 m.p.h.
Now, once mote let 1T12 assume that the operator has been foolish enough to assess his rates on the basis dint he would obtain return loads every journey, that is to say that he charges only El for his outward traffic and 14s. per ton for his return traffic.
Under those conditions, his revenue for the week would comprise that for 30 tons at El per ton, which is £30 plus that for 20 tons at 14s. per ton, which is 1.14. Th total is £44 and the profit only £3 2s. per week. The minimum theoretical rate should, as above mentioned, be calculated on the assumption that 60 per cent, of th journeys bring return loads, and according to my calculations that means that the minimum theoretical rates should be 23s. and 17s., or at any rate something to bring in tin average of El per ton all the time. I should like still to deal with the other two examples and set the data out in tabular form, and then to co on to study the aspects of economy or loss if a second man were employed on the vehicle, but those matters will have to he left for a subsequent article. S.T.R.