Allowing for Exceptions in Rates and Charges
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Solving the Problems of the Carrier.
Exceptions to Any Rule Fixing Rates and Charges May be Numerous: Are They Likely to be so Many as to Make Stabilization Impracticable ?
NO doubt exists that it is extremely dangerous to dogmatize in the matter of rates stabilization: statements made in all earnestness one week may 'seem foolish a short while later I have had plenty of experience of that sort of thing.
. It has been suggested that vehicle costs are so nearly alike that a fair cost plus profit analysis can easily be made as a basis for tates"fixation. Further, that if any differences in costs he noted, the rates should be assessed on the lower basis, because low costs indicate improved efficiency. It is. only right that, the trader-the haulier's customer.,should be given the benefit of efficient working, or, at least, that it is not fair that he should be penalized by inefficiency of operation on the part of the haulier.
Now on theface of it, that suggestion seems quite fait. But let us see what it may mean. In a previous article I set out four sets of costs figtires--L(a) for an ordinary haulage concern operating in a Grade I area; (b) a similar concern with headquarters in a Grade III area; (c) an ownerd4ver in a Grade I area, and (d) an owner-driver in a Grade III area.
Justifying a Differentiation in Rates
I first pointed out this significant fact-that the ordiniryconcerm opetating entirely in a Grade III area, can work at rates some 12 per cent, lower, than a competitor handling similar traffic in a GradeA area. I put that forward as a justification for differen'tiatiOnnh rates for local traffic (not long-distance work) according to district. I think that
is important. . . •
I then showed that there could be a considerable difference between the total 'Costs Of an owner-driver 'and an ordinary concern, enough to justify a .cut in rates of 30 per 'cent., if the' owner-driver be. satisfied to include his wages as driver in his profits. I. then suggested that it would be a wise thing to, leave the owner-driver to'Work out his own 'salvation in the .belief that 'hie rate cutting
could not „materially harm. therates Structure. ' • The reason is that his potentiality for depredation is limited, as well as being known; and, in the second, he would, in course of time, come into line, all the more readiry, perhaps, in the absence of any attempt at coercion. It was while writing hi that way about the owner-driver that the teconunendation about afiefency came into my mind, and I saw Where it Might lead, "if carried to its logical conclusion. Look at it this way. , •
The fixed costs, i.e., standing charges plus establishment , charges, of an ordinary concern in a Grade I area, I showed to be £17 19s. ld. per week, (tie vehicle is a 6-tonner with driver and mate, the hours 64 per week.) The running costs totalled 6.20d. per mile. In the case of an owner' driver, the fixed costs were Seen to be £8. 12s, 3d. per week and the .running costs 5.58d. per mile.
Now, in thecase of a 5-miles lead, assuming equal terms, i.e.; that each vehicle ran 24, journeys per week, the total costs were (a) for the ordinary concern' £30 7s. ld. per week, and (b) in the case of the ownerdriver £19 15s. 6d. per week. Adding net profit at the rate of 20 per cent, gives t.,e minimum weekly revenue as ,(a) 43613s. Id. and (b) (profit at 45 '5$. per week) 425.0s. 64. 'As 144 tons are carried per week, the rates to be charged are (a) 5s. 1d. and .(b) 3s.. 6d.
But suppose we now introduce this' factor of efficiency. Already, it seems to me, we, are committed to the owner. driver's figures; if we arr to be consistent in our advocacy of the trader's interests. Why should he be expected to pay Si;'ld. per ton nierely to bolster :up the ordinary establishment when an owner-driver Can do the work just as. well for 3s. 6d. per thn?'
The word efficiency, moreover, covers a multitude of
meanings. Take this one: the ordinary driver employee, however conscientious he may be, is not so likely to put his energies so wholly into his work as an owner-driver.
It is quite likely-and most employers will bear me outthat he will dO 18 journeys only per week instead of 24, that is three per day instea,s1 of four. On the other hand, the owner-driver is likely to squeeze in an odd journey or two extra during thesweele, making his total,-say, 27.
Now let us examine, the figures anew, in the light of renewed data for work done.
First, the ordinary concetn. Instead of 480 miles in the week, only 360 miles are „covered. The fixed charges remain at £17 19s. ld.; the running costs (360 miles , at 6.20d.) become £9 6s. per week and the total expenditure £27 5s. ld. Add 20 per cent. profit (£5 95.) and the minimum weekly revenue is shown to be £32 14s. id. The tonnage carried is 108 and the rate per ton must; therefore, be 6s. ld.
Now the owner-driver's figures. His fixed costs still remain at 48 12s. 3d., but his weekly mileage has increased' to 540 so that his running costs, at 5.58d. per Mile, becoine 112 ha 6d.,, so that his totalexpenditis16,is;421 3s. 9d. ,Suppose .he decides to take' about £7 as`-ftirofiehe must -then earn £28 per week. His rate, for 'the 162 tons ."he -carries, can still be 3s. 6d.
Marked Influence of Delaying Effects
• LeaVe the owner-driver. out of it if you .like. Take two ordinary concerns, in .Grade I areas, but -operating in different parts of the' country. One of them has difficult terrain and, in addition,, has to overtorne lack of facilities for loacliAg and unloading. All these factorii have a delay. dig effect, and he finds he cantiot do More ...than 18 journeys per week. His miniinum profitable rate fot this trafficfixed at 55. per ton, :by the way,--is thuS 6s. Id. per ton,
as shown above. •
, In the second. district, conditions are just as favourable as they are unfavourable in the other case, ' The roads are flat, 'straight and wide and the loading and sinloading Jacilities of , the best. The weekly tally averages27 journeys, .a tonnage' of 162 and a mileage of 540. Here, again, the fixed costs remain at £17 19s. I'd, The running costs,. however, are increased to 540 times 6.20d.; being, therefore, £13 19s. The total expenditure is thus, £31 18s. The net profit should be at least £6 8s. and the minimum weekly revenue £38 6s. Id." On that
basis the 'rate per ton can be as low as 4s, 9d. _ Similar, comparisons can be made between, operators' in Grade III areas, between those Ivho are favourably situated and those who are not. Assume the same .two sets of conditions to preVail as in the case of Grade I areas.
The first, the unfortunate one, can complete only 18 journeys per week, carrying 108 tans and covering 360 miles.. His fixed charges, are £14 16s. 5d. per week and his running costs (360 miles, at 5.95d. per mile) total £8 18s. 6d. His total cost per week is; thus, £23 14s. lid. Adding profit at 20 per cent., i.e., £4 14s. 10d., and the minimum weekly revenue must be £28 9s. 9d. and the rate per ton not less than 5s., 4d, The operate* in the flat county with everything in his favour, completing 27 journeys, in the week, carries 162 tons and runs 540 miles. His ixed costs are the same as those of the other fellow in a Oracle III area, namely', £14 16s. 8d. His running costs are 540 times-5.95d., which is £13 Is. 9d. The total weekly 'expenditure amounts to £27 145. 2d. Profit on that, at 20 per cent.; is £5 ha., so that the weekly revenue must be at least £33 5s. 2d. and the minimum rate per ton 4s. 2d,
Now, the 4uestion of efficiency does not enter here. All -these operators may be on the same level with regard to
• that characteristic'. The fact remains that, on a national basis of cost plus profit, there is justification for four scales of rates for this traffic.
Over a 5-miles lead, for which the standard rate is 5s. per ton, these may be :— (a) Operator in difficult country, Grade I, 6s. Id. per ton. (b) Operator in difficult country, Grade III, 5. 4d. per (c) Operator in favourable country, Grade I, 4s. 9d. per ton.
(d) Operator in favourable country, Grade III, sfs. 2d. per ton.
The difference between the highest and lowest rates is, it should be observed, nearly 50 Per cent. The gap, in my opinion. is too great to be bridged by one rate.
When Rate-cutting Cannot Be Prevented Suppose, out of compassion for the unfavourably situated operator in a Grade I area, the rates were to be fixed at 6s Id. per ton. Then, the man in the favourable Grade HI area would be 'slaking excessive profits. He would be carrying 162 tons at 6s, ld. per ton, 'so that his weekly revenue would be £49 5s. 6d. as against a weekly expenditure of £27 14s. 2d., leaving a net profit of £21 lls. 4d., which is exorbitant and, therefore, uneconomic. When profits of that extent are being earned the gate is wide open for rate-cutting and no Statute can prevent it.
It .may be more than a coincidence that the standard rate of 5s. per ton is nearly the average of-the above four rates. Even so, it is not a practicable stabilized rate where such wide fluctuations in costs exist. It shows insufficient returns to the operator in unfavourable country in a Grade I area, and too much profit to the operator in favourable country in a Grade III area.
The former earns only £27 per week, as compared with an expenditure of £27,5s. id. The latter earns £40 10s. per week, whereas his expenditure for the same period, is only £27 14s. 2d. His net profit.is thus £12 15s. 10d. 'per week, which is far too much for a 6-tonner in a rural area.
There are, indeed, so many arguments in favour of discrimination betweea one district and another, in respect of rates for local traffics, that I do not see how that differentiation can possibly be refused. • In view, however, of the important part which railway rates seem likely to play in this work of fixing road rates, it may be as well to point -out that this differentiation in local rates will in no way cut across the principle which
is supposed to, be so important a factor in the fixation of rail rates, namely, the avoidance of undue preference. It is reasonable to assume that traders for whom traffic is carried in one locality will not be in cbmpetition with traders in another district. There will, in that Case, be no question of undue preference in the generally' accepted (railway) meaning of the term,
That, according to Mr. Gilbert Walker, in his admirable., book, " Road and Rail," is sornething like the following: If a preference in rates or facilities is to become " undue," the goods Of the trader suffering the prejudice must be similar in kind to merchandise receiving the preference, and marked in competition with it.
Note the twin conditions-asiniitarity.and in competition. . For example, two merchants shipping bricks into the same town must be given the same rates ant service, for the traffic in each case is the same, and one merchant's bricks are competitive with the other's. , But stone which is shipped into this same town can be carried at a lower or a higher rate than the bricks, although the stone may be for building. For although stone is competitive merchandise, in that both bricks and stone are used for building, it is not similar.
. Same Goods, But Differeht Rates' Bricks going from the same brickfield to two different markets, however, _need not necessarily be cateied at the same rate per mile, nor 'he offered the same facilities. 'Although the merchandise is similar, there is no competition. Bricks for use in one town do not compete with bricks sold -for use-in another.
Moreover, even on the railways a preference can he justified 'and will be held to be reasonable if the goods bf the trader receiving the preference cost. less to carry than those of another, or others. There cannot, therefore, be , any objection to varying the charges for the same or similar classes of merchandise, so long as the traffic is local, and there is a rate which is fixed and unvaried throughout
a specific localits■. . Difficulties are bound to .arise, of course, here and there, especially when localities having different rates schedules touch. They should not, however, prove insuperable. ,
Similar differences in the rates which can be shown to he' profitable will occur in respect of long-distance traffics. The reasons for the variations will not, however, be the same, or the solution bf the -problems in any way similar to those just indicated. S.T.R.