Miners Transport Must Show Profit
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The Need for Making Special Provisions in a Form of Contract Involving Certain Irregularities in Operation
IHAVE bad several letters, lately, on the subject of charges for the conveyance of miners to and from the pits. As in most cases I am told that the fee paid ;s Is. 3d. per mile for a 32-seater coach, it seems likely that this it regarded as a standard figure by those who pay the opeiators. And once again it seems that it is the customer who fixes the price. The operator has no choice. The fact that Is. 3d. per mile is not sufficient to cover his costs and show a narrow margin of profit, carries no weight.
Glancing at the most recent edition of "The Commercial Motor" Tables 'ofOperating Costs, 1 see that the appropriate charge per mile for a 32-seater coach running 400 miles per week, is 2s. Old. The mileage covered in connection with these contracts for miners is usually about 350-360, so that the charge should be more than 2s. Old. per mile and not less. Haw is it that such a low price has been accepted? Why cannot steps be taken to increase it?
The answer to the first question' is that these contracts were entered into at a time when there was plenty of work in connection with the conveyance of prisoners of war, of workmen constructing aerodromes, and similar operations which, by making additional work for vehicles and increasing the weekly mileage, made it practicable to operate at that rate.
I will admit, however, that the 2s. Old. per mile for a 32-seater coach is possibly high for this class of work: the figures are not strictly applicable to the conditions which prevail In assessing average rates for coaches it is necessary to take into account a preponderance of more expensive luxury-type vehiclet, and of conditions of operation which tend to increase overheads or establishment charges to a fairly high figure. Moreover, in assessing coach charges as such, consideration must be given to the fact that the work is irregular, spasmodic and seasonal, so that a bigger profit margin is necessary if the work ;s to pay •
Overheads are Low
The conveyance of miners on contract more nearly approaches bus operation, except as regards the weekly mileage. The vehicles are not so luxurious, the overheads can be low and, as the work is regular, the profit margin can be almost at a minimum. However, if all those special considerations be taken into account, it is impossible to reduce the figure of 2s. Old. per mile to Is. 3d. and still earn a profit. To take a typical example, an operator in Wales with two new vehicles, averaging £1,475 each, is running on a miners' contract to the extent of 360 miles per week with each machine. He is getting Is. 3d. per mile and has written to me asking if I think it sufficient. I do not, and I gave him the following figures as justification of my opinion.
Assume that a set of Ayres costs £75, then the value of one vehicle, less tyres, becomes £1,400. Taking a level figure of. say £150, as the residual value, then 11,250 is the basis for the calculation of depreciation.
Vehicles of the type specified by the operator can be taken to have a life of 180,000 miles and, therefore. the basic figure for depreciation, arrived at by dividing £1,250 by 180,000 miles, is 1.67d.
That basic figure will apply only if the annual mileage be not less than 24,000. Actually, it is only 18,000, or 6,000 less than the minimum to which the basic figure for depreciation applies. That meaqs I must add six times five, or 30 per cent., to the basic figure, and I then obtain 2.I7d. per mile. Avoiding decimals, I made this 214.
For petrol consumption I take 10 m.p.g., and at Is. lid. per gallon that it practically 21d. per mile. I add another ld. for lubricants, which gives me 21d. per mile for petrol and oil For the tyres, I consider 15,000 miles is the life, “ncl at £75 a set, that is lid. per mile. The mileage allowance for the tyres is perhaps low, but in taking that figure I have in mind the fact that this miners' traffic often involves the operator in running 'his vehicle over 'poor roads.
For maintenance I refer to "The Commercial Motor" Tables of Operating Costs, and on the basis of 400 miles per week the figure is 1.76d. which is about lld. The total of running costs is thus 7/d., made up of 20. for petrol and oil, lid. for tyres, lid. for maintenance and 21rd for depreciation.
Now for the fixed charges. First there is the tax, which is £57 12s. per annum, or £1 4s. per week. For driver's wages, including provision for insurance and holidays, with pay, 1 use a round figure of £5 10s. 1 assess insurance at £65 per annum, which is El 6s. per week. For rent and rates, 5s. will suffice, and that is the one figure which I might admit is excessive.
Fixed Charges £10 a Week
I make no provision for interest on first cost because I do not think there is any hope of that being allowed. For overheads or establishment charges 1 take the low figure of Li 15s. per week. The total of these fixed charges comes to £10 per week.
As the vehicle is running 360 miles per week, I must divide that £10 by £360 to get the incidence of the fixed charges per mile run. The amount is 63d. per mile, which could be taken as 6/d., and in taking that figure I am giving the other side a fraction of a penny. The total per mile is thus 71d. for running costs. and 6/d. for fixed charges, a total of Is. 21d. per mile.
I do not suppose anyone who is unbiased will object when I say that id. per mile profit is insufficient. In my view, a fair and reasonable charge for this particular contract, assuming that my figures be correct, is Is. 6d. per mile. In considering that profit ratio, which is just over 25 per cent. and might, in some circumstances, be regarded as excessive for what is almost a regular contract, it must be borne in mind that there is nearly always some irregularity. The operator is not, in this sort of contract, paid efixed sum per week. plus excess for mileage, and so on. He is paid per mile run, and in any mining area there is not only a considerable number of holidays but there are periods when the miners are on strike. During those days, or even weeks, the vehicle is standing idle and earning nothing, notwithstanding that its overheads, amounting to £10 per week, are still running. That is one case. Now let me take another in which the figures were presented to me in the form of a profit-and-loss account drawn up by a chartered accountant. These figures would seem to show that there is a sufficient margin of profit in this Is. 3d. per mile.
They are set out in the accompanying table and I will take them, not from the point of view of an auditor, but from that of an operator who must look forward, as well as backward. He must make provision in his estimates for certain items of expenditure which do not necessarily appear in the course of a year of operation. What I mean by this will emerge as the argument develops.
Let me take, as I did before, the running costs first. I should mention that, by a coincidence, the mileage per week in this case is almost the same as before, and can be taken as 360. In reducing the amounts to pence per mile, I have again avoided decimals, so that the figures in some cases will be approximate; they are nevertheless near enough, having in mind the end in view.
• Costs Which Compare Favourably
First of all, then, there are petrol and oil which are set down in this account as £182 8s. 8d. That is a fraction over 2id. per mile and thus agrees with my assessment in the other case.
• So, also, with maintenance and tyres, which in this account are put together under the reference "spare parts, tyres and repairs." The amount is £215 15s. 3d., which is a fraction over 3d., again agreeing with my total of lid for tyres and lid, for maintenance.
Depreciation is given as £120, or lid, per mile, as compared with my 21d. k Will come back to that again. Meanwhile we see that on account of this difference in the provision for depreciation the running cost per mile comes out at 71d. instead of 'lid.
Let me turn now to the fixed charges. First of all there are licences and insurance which are put together. The amount is quoted as £52 19s. 8d., which is £1 Is. a week, as compared with my total of £2 10s. That is a big difference and the figure in this table is quite clearly incorrect, as the annual licence, alone, for a 32-seater coach, is £57 12s.
How that mistake has come about, I do not know. I should imagine that the amount is nearer £152 than £52. However, for the moment leave it at £1 Is. per week for licences and insurance. Wages are set out at £235 2s. 3d., which is equivalent to £4 15s. per week, as compared with my £5 10s. The wage is low for a coach driver these days and it does not seem to make any provision for national insurance, holidays with pay, 3r workmen's compensation. (The last-mentioned must still apply in some degree in order to cover the employer against the risk of accidents and claims under Common Laik.) Next comes rent, which is set down as "garage annual value, rates and insurance," which is £2.14s. lid. This is little more than Is. per week, Nominal Wages for Partners
Now for the establishment charges. The first item is set
down as " Partner's Salary." and I gather that this is a sleeping partner. The other two partners work as driver and mechanic, and draw a wage approximating to £6 a week each. As £6 per week is no more than the wages of a foreman driver and foreman mechanic, there is nothing to be deducted from that towards overheads.
Next " there is £1 Is. for association subscription.
£5 16s. 5d. for bank charges and accountant's fees, and £4 18s. 7d. for hire-purchase interest. For garage rent, light and heat, the amount is £5 Ss. 5d.
There is also a sum of £1 ' 18s. for a scrapped bus, and for loss on a bus sold. This. I think, ought to be added to the depreciation, but as the amount is so small I propose to ignore it. We have, altogether, a sum of £32 19s. 6d. per annum for overheads, which is equivalent to 13s. per week, and if I add that on to the amounts already quoted for tax, insurance, wages and rent, I get a grand sum of £6 10s. per week for fixed charges, which is 41(1., or, say, 4id. per mile, giving me Is. per mile as the total expenditure. On that basis, 1s. 3d. per mile shows a profit, on cost, of 25 per cent., which is good enough if the figures are to be accepted as a true picture of the operator's year-by-year cost of running his vehicles and his business. I do not, however, so accept them.
The first principal difference between these figures and mine is in respect of depreciation. -My figure of 21d. per mile is low. On the basis of a weekly mileage of 360, it gives to the vehicle a life of nearly eight years. That may be satisfactory for this class of work, which does not call for much provision against obsolescence. At least, however, when taking 21d, per mile, I am giving an even figure which applies for the purpose of assessing rates just as well in the eighth year of the vehicle's life as it does in the first.
I imagine that the £120 which is set down in this profitand-loss account has been arrived at by the usual accountancy method of deducting annually a percentage of the falling value of the vehicle. Thus, if the vehicle cost initially £1,500, then the depreciation in the first year would be £375, leaving £1,125 to,be carried forward. In the second year the depreciation would be £230, leaving £895 to be carried forward.
Depreciation Figures Are Questioned
In the third year the depreciation would be £225, leaving £670; in the fourth £170, leaving £500; and in the fifth, which is probably the year at which the account has arrived in this case, the depreciation allowance will be £125. Now, my objection is that in the first year the operator, in assessing his cost per mile for depreciation on the basis of 360 miles per week, would have to take as much as 5d. per mile, whereas in this fifth year, as I have already shown, the amount is only a little over 11d. per mile.
What is going to happen to the operator if he buys a new vehicle on which, during the first year, he must allow 5d. per mile for depreciation? Will he be able to go before the authorities and ask for the addition of 31d. per mile plus profit (say, 5d. per mile altogether) to his rate because he has bought a new vehicte? Of course he will not.
I contend, therefore, that my figure for depreciation, whilst admittedly low, is more nearly correct than the one given in this profit-and-loss account. Adorning it increases the operating costs by id. per mile to Is. Oid., in the place of Is.
Standardizing Rate Per Mile
Regarding fixed charges, let me take again the items so that they may be reasonably applicable to the average operator. as 'that is necessary if we arrive at a figure for a rate per mile which can be more or less standardized.
In the first place, the item of £52 19s. 64. per annum, or £1 Is. per week for licences and insurance, I have shown to be wrong. It ought to be £2 10s, per week. For wages, there must be few operators who can reckon on less than £5 10s, per week, and for garage rent, 5s. per week is a reasonable allowance in country places. It is not fair to take this nominal amount of Is. per week as having any widespread application.
So far as overheads are concerned, the only one which really needs any reconsideration is 110 I8s. 5d. as the partner's salary, leaving no provision for payment to the other two, on account of the work they do as managers of the business. To the £10, £150 ought to be added. hut assuming that there be other vehicles operated, that need only be taken to be LI per week additional to the fixed charges as set out, making the total E9 18s., or, say, £10 pet week, which is the same as 1 had suggested. This is equivalent to 61d. per mile, making the total cost per mile also the same as I gave it, namely Is. 21d. A fair charge is thus not less than Is. 64. S.T.R.