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Don't Overcharge Overtime

24th December 1954
Page 44
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Page 44, 24th December 1954 — Don't Overcharge Overtime
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Which of the following most accurately describes the problem?

Because Expenses Should Be Covered by Earnings for a Standard Week's Work, It Is Not Always Necessary to Add an Excess Rate for Extra Hours or Miles, Says "The Commercial Motor" Costs Expert

IT always happens soon after the issue of a new edition of " ' The Commercial Motor' Tables of Operating Costs "—hauliers write and congratulate me on the accuracy of the figures but, at the same time, tell me that it is all very well to calculate what rates should be; it is quite another thing to get those rates.

The answer is that these articles are directed, as much as anything, towards helping to maintain haulage rates at a commercial level. Their value is educational: they are intended to educate the haulier, to show him what he should get and indicate to him the line which if crossed will result only in losses.

Better no traffic than traffic which does not show a profit. The point is that I am sure that a good deal of undercharging is, more often than not, the result of ignorance of what the work is costing. The haulier does not know what his costs are, and therefore has no bases on which to erect his rates structure.

Sometimes, however, I get to know of a contrary effect of ignorance. The haulier puts in some charges which he should not include and thus arrives at a rate higher than is needed to cover his costs and provide a reasonable profit.

I am not suggesting that in such a case the haulier should rush around to the customer and beg him to agree to a reduction of the rate: if the customer is satisfied, do not disturb him. After all, the old business maxim that "the price of a commodity is what it will fetch" applies to contracts of haulage as well as other things.

Quotation Too High

It may so happen, however, that a haulier loses a job of haulage because his..price is high, and could be lower but for this mistake in calculations. To avoid such mistakes is my main objective in preparing that part of the Tables which sets out the earnings which should be gained by the haulier.

This line of thought was suggested when I was checking over the figures for costs and earnings sent to me by an operator. He had prepared the figures in such a way as to indicate what his time and mileage charges should be, and in arriving at that set of data had made provision for an extra amount on account of payment of overtime wages to his drivers. That is wrong, and it seems as though I should deal with the subject.

Overtime wages make no difference to the time and mileage figures because, by the time 44 hours, the standard week, is passed, there are no more standing charges to orovkle for. The haulier has received enough to cover those charges, As, however, he is still charging the full amount in his time payments, he is getting his overtime payments and more.

Perhaps if I state a case I shall be better understood. The time charge for a 7-8-tonner is 8s. 6d. per hour. We are not, in this calculation, concerned with the mileage charge. That 8s. 6d. is made up in this way. The standing charges per 44-hour week, according to the Tables, are exactly £12 per week. Add £3 10s. for establishment costs and then £3 4s. for profit. The total is £18 14s. per week, and that is equivalent to 8s, 6d. per hour.

Unjustified Payment Now assume that the haulier is engaged on a job which calls for 50 hours per week. The charge for time at 8s. 6d. per hour is £21 5s., but the haulier is put to no more expenses than six hours of overtime at 3s, 811d. per hour for six hours per week, which is £1 2s. 441. His extra charge is for six hours at 8s. 6d. per hour, which is £2 I Is., whereas his extra cost is only £1 2s. 414.1., a gain of £1 8s. 8d. without charging extra for overtime. Both owner and driver are better off, and no extra charge for overtime is justified.

A haulage contractor came to see me the other day. He was a one-man-one-vehicle type of operator and had, until then, managed to make a reasonable living out of the haulage of building materials. A little judicious inquiry on my part elicited the information that most of his work had been carried out for one customer.

An opportunity had arisen for him to do a little' more work for the same firm, but the commission which was offered involved the purchase of a new vehicle and made it necessary for him to quote a price to cover a contract for a period of rather more than a year. A contract-A licence would suffice so that no difficulty was anticipated in obtaining a licence to enable him to do the work. He had worked out in his own mind what he thought his price should be and came to me for confirmation or criticism.

We had rather a long talk, nearly an argument but, in the end, I was able to give him quite a lot of help. It is surprising how far out a man can get with a quotation, even when he seems to know the ropes.

In such cases I have always found that the best way to convince a man is to take, one by one, the items of cost, and to ask him if my estimate of the amount of any particular item is agreed, After having done that with every item on the list of operating costs, he was convinced, and it occurred to me that in view of the criticisms that are so often raised, a resume of my conversation might be helpful. He had an offer of work for a 6-ton lorry. It was to convey materials from Binmingham to Coventry. The distance was from 18-25 miles each way, according to the precise location of the collecting and delivery points. What should be his price?

I assumed that he would be able to complete two round trips per day five days per week, and one on Saturday. His weekly mileage would be about 500 and the net cost of operation, including wages for himself as driver, £28 9s. His revenue would he that for 11 times 6 tons, that is to say, 66 tons at 8s. 6d. per ton, making £28 is. in all.

• His first reaction was, as I expected, that there must be something wrong with the figures in the Tables. "I know that another fellow is doing the job at the same rate, and he is doing all right," he said.

My natural rejoinder was to the effect that there was nothing wrong with the figures in the Tables, and to reply that I was sure that anyone who was doing the work at the price named was losing money.

He stated that he was sure his competitor was doing well.

" Let us go into your figures properly, but leave your pal Out of the discussion," I said. "Let us start with fuel consumption. The figure in the Tables is 2.39d. With oil fuel at 3s. 9d. per gallon that is equivalent to 18i m.p.g. What do you think you get?"

He probably will not know the answer to that one; it is more than likely he will imagine that he is deriving better results and although I shall, in my own mind, believe that he is mistaken, I shall nevertheless accept the figure he thinks he is getting.

Adtually my surmise was correct, for his response was: "I do better than that; I get 20 m.p.g."

Very well, 20 m.p.g. is 2.25d. per mile. Now about lubricating oil. In the Tables there is an allowance of 0.2.d. per mile for that, which is equal to an average of 600 m.p.g." He accepted that without argument.

Tyre Expenses

What about tyres?" was my next question. "What mileage do you reckon you get from a set? Shall I say 24,000?"

Yes, I think that is probably fair."

"The price of a set is £140, which at 24,000 miles per set is equivalent to 1.40d. per mile. The figure in the Tables is 1.40d. so we are in agreement on that item. Shall we leave it at that? "

We came next to maintenance and I expected trouble about that.

"What do you think you spend in a year on maintenance?" I asked.

"Well," came the reply, "it's rather odd you should ask that question. It is about time that the vehicle had a thorough overhaul and, from what I can gather, it's going to cost me about £90, if not more."

"Rut there must be something else,' I said. 'You must have spent quite a lot on it already."

"You are quite right," he replied. "I have spent rather a good deal during the 18 months that I have had the vehicle and I suppose I must have run about 30,000 miles in all. In that time I suppose that I have spent about £30 on odds and ends of maintenance. The total, if I allow for the overhaul now due, is £120."

That works out at 0.98d. per mile. Not a great deal, but I suppose you have spent quite a lot of time on it yourself, for which you have not made provision in your accounts."

"Accounts!" he grinned. "I have no accounts to show, arid that is why I have come to you for help in quoting for this job."

"Perhaps that is why the figure in theTables of 1.58d. per mile is higher than your 0.90d."

"How do you make that out?"

"What I mean is that, having kept no accounts, you do not really know what you have spent on maintenance. Still, we'll let it go at that. There is only one item of running cost still to record and that is depreciation. What did you pay for the vehicle new?"

"It cost me 1980."

"I propose to assume that it will run about 160,000 miles before you need to replace it. Assuming a life of 160,000 miles, that the tyres cost £140 per set and that you get £80 when you sell it, that means we have to spread £760 over 160,000 miles. The 1760 is the net figure which we must use when we are calculating depreciation. First of all we take away the £140 for the tyres, because they are allowed for in the 1.4d. we have accounted for in the running costs: it would be wrong to include the tyres twice. Then we must take away the £80 we are assuming you will get for it when you sell it. You will probably get that for it in part-exchange for the new vehicle. That is the usual procedure in these cases. Dividing £760 by 160,000 gives us 1.14d, for depreciation."

160,000 Miles of Life

"But I never thought of depreciation as a running cost."

"Look at it this way. The vehicle will not last for ever. It will have to be replaced, or else you will have to go out of business. You have, up to now, been running it about 20,000 miles per annum. .We have taken 160,000 miles as its probable life. If that figure of 20,000 miles a year remains unaltered, the vehicle will be ready for that partexchange deal in eight years. You may want to, get rid of it before then but the figure can stand as being very near to the truth.

"You see, there is no getting away from the fact that every mile the vehicle runs, some part of it has worn away, and according to our figures the loss is at the rate of 1.14d, per mile.

"Now," I said, we have, as running costs, 2.25d. for oil fuel; 0.20d. for lubricating oil; 1.40d. for tyres; 0.98d. for maintenance; and 1.14d. for depreciation, a total of 5.97d. per mile. You have not been able to criticize any of these items. You are, therefore, in agreement that the vehicle is going to cost you 5.97d. for every mile you run." S.T.R. (To be continued.)

Tags

Locations: Binmingham, Coventry

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