Different Rates Same Rules
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AFORTNIGHT ago I dealt with the 10 items into which the cost of operating a vehicle can be conveniently divided. These consisted of two groups—standing costs and running costs. The standing items are (1) licences; (2) wages (3) rent and rates: (4) insurance and (5) interest. Running costs are (1) fuel; (2) lubricants (3) tyres; (4) maintenance and (5) depreciation.
As the article dealt with only the cost of operating a vehicle, 1 emphasized for the benefit of new entrants to haulage that the 10 items did not constitute the whole of their expenses. As distinct from the cost of operating a vehicle, there would be, in addition, the costs of running the business as a whole. These are termed establishment costs.
Depending upon the size of the business, the number of items which can be included in establishment expenses may vary widely. In two articles dealing with this subject (September 27
and October 4, 1957) 55 such items were listed. Even then they would not be completely comprehensive for the largest operator. The items shown were grouped under management, office, garage and stores, warehouse, branch depots, sales staff, professional services, auxiliary fleet (replacement, service or breakdown recovery vehicles), in addition to sundry items.
Whilst many of these obviously would not apply to the small operator, it would be wrong for the newcomer to assume that he has no overhead expenses, or that they must inevitably be lower per vehicle than those of large operators.
As with many other transport expenses, establishment costs may not vary directly in relation to increases in activities. For example, the owner-driver may make use of a room in his house as an office, which will require lighting and heating. Though operating on the most modest scale, he would still require some stationery and a telephone. Precisely the same accommodation would suffice, however, if one or two vehicles more were subsequently acquired.
It is therefore usual and convenient to segregate establishment expenses from those appertaining to actual vehicle operation, as it is virtually impossible to identify these items of cost with any specific vehicle. Having segregated them, however, they must pot be overlooked when calculating charges.
In addition, when there is more than one vehicle, the problem arises as to what is a fair method of allocating the correct proportion of these costs to various types of vehicle. There can be no precise answer to this question. A common method
c2R is to relate the proportion of the carrying capacities to individual vehicles. I say " relate" purposely, because costs based on a direct proportion would obviously be inaccurate.
If the overall objective of simplicity in costing and charging is to be maintained, common sense based on practical experience and knowledge of individual circumstances will always be required. In Tact, it is invariably the mark of a successful operator.
Having determined the cost of operating an individual vehicle, together with an appropriate proportion of establishment costs, there remains the addition of profit margin, which, again, must vary with the circumstances of individual quotations. It will suffice here to say that an accepted average figure is 20 per cent. The haulier who is trying his hand for the first time at running a business of his own should not overtook the fact that in so doing a greater element of risk is incurred than if he were to remain an employee. Briefly, though the rewards may or may not be greater, the risks most certainly will. Therefore, when using the term "profit margin," the emphasis should be on "margin" rather than on "profit," so as to provide some insurance against the risk involved.
Time and mileage are the two inherent factors in vehicle operation and are reflected in the division of operating costs into standing and running costs. It is most important, therefore, that these underlying principles should not be overlooked or ignored when calculating charges. Such a mistake is more likely to occur than would at first be expected, at least by a newcomer. This is because of the totally different types of job for which a haulier may be asked to quote, and the manner in .which the quotation is required by the customer.
There are several ways of calculating charges for the use of a vehicle, but it is invariably necessary to have some indication as to the likely weekly mileage, although the quotation may contain no reference to mileage. This is because until it is known, the standing charges cannot be allocated correctly.
Incidentally, the expected weekly mileage is invariably the item of information which is omitted from readers' inquiries for suggested charges. Whilst it is often extremely difficult for a newcomer to supply such information, some estimation has to be made before charges can be calculated with any degree of accuracy.
Probably the most popular method of charging for a vehicle is on a rate per mile, and it is for this reason that charges are set out in this way in "'The Commercial Motor' Tables of Operating Costs." Although, in addition, minimum charges per week are shown, these are relative to the weekly mileage and are based on the original mileage charge.
For the newcomer it is undoubtedly confusing to charge either by time or mileage, but as I pointed out when discussing depreciation (January 17), when experienced operators specify a period—for example.
an hour or week—they have invariably assumed an approximate mileage that would be covered during that time. Thus, a haulier may be asked to quote for local municipal work on an hourly basis. Whilst he will naturally meet the customer's request and quote accordingly, it would be wrong for the newcomer to assume that he was thereby ignoring mileage.
From previous experience the operator will know the approximate mileage in those circumstances and, in any case, it would normally be low, because much waiting time is involved. For that very reason an hourly, charge would be advisable, as time rather than mileage would represent the major proportion of the work involved. Moreover, in such circumstances, the quotation of a profitable rate per mile would appear high and unattractive to the customer. "
As an example, in "'The Commercial Motor' Tables," the minimum charge per mile for a 5-ton oiler is shown as is. 34d. when the weekly mileage is 600. It is nearly double (2S &Id.) when the weekly mileage is reduced to 200, or £25 10s. for the week. Dividing .L25 10s. by 44 would give an hourly rate of I is. 7d., appropriate when mileage is low.
There is an alternative method where the customer still requires to engage the vehicle by the hour, but, unlike the former example, there is a possibility of wider variation in the mileage covered. In these circumstances it is convenient to quote a fixed period charge--whether it be per hour, per day or per week—inclusive of a maximum mileage, after which an
additional charge is made for excess mileage. .
Where, however, the haulier is asked to quote for the regular employment of a vehicle involving a .balance 'of medium and long, trips, with an average weekly mileage of 600 or so, a quotation on the basis of a rate per mile could then be given, as with higher mileages the rate per mile becomes more stable. Thus, referring again to the 5-ton oiler, the rate per mile of Is. 31d. at 600 miles per week is only slightly lower (Is. 3d.) when the weekly mileage is increased to 800.
Alternatively, the small haulier may be asked to do local work involving small mileage, but in , which neither time nor the total mileage is known beforehand with any degree of accuracy. In that event, the one safe course is not only to calculate the basis of the time and mileage, but also to make the quotation in this manner. It is for this reason that minimum time and mileage charges are shown in the "Tables of Operating Costs," and by use of these two figures the cost of any job of this type can be calculated.
Thus, if only 100 miles were operated during a week of 44 hours, the coat on the basis of charges shown in the "Tables," relative to a 3-tonner, would be 44 hours at 6s. 80. (£14 15s. 2d.), plus 100 miles at 114d. (£4 15s. 10d.), giving a total of f19 lls. Although the totals have been extended here as an example of the manner in which the total charge would be rendered, the actual quotations would be 6s. 80. per hour plus 110. per mile, the total amount charged being determined by the time and mileage involved.
Exclusive Hire
Another method of quoting, requiring similar calculations. but applicable where more information is available beforehand, concerns the exclusive hire of vehicles on retail distribution. A typical example would be a 15-cwt. van operating 5+ days per week, during which time 350 miles would be averaged. Reference to the " Tables " shows the charge per hour to be 6s., or £13 4s. for a 44-hour week, whilst the charge per mile is 7f d., or approximately £10 1 Is. for 350 miles, giving a total for the week of £23 15s. Where hours and mileage were reasonably stable, a weekly rate might be mutually agreed.
Nevertheless„ although hiring of vehicles has become increasingly popular in recent years, most day-to-day quotations which a haulier has to make refer to a specific job, in which he is asked to quote a rate per mile or per ton, The distinction from the previous examples is that in the majority of cases the job concerned will occupy the vehicle for only a part of the week.
Although the quotation will finally be made in the manner required, calculations must once again be based on both time and mileage. Some estimate of the vehicle's overall weekly mileage must also ,be made. S.B.