Solving the Problems of the Carrier
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What Is This Rate-cutting?
To One Man it is Reasonable and Fair Business Procedure : in His Competitor it is Scandalous: S.T.R. Answers His Own Question
SOMEONE asked me the other day if I thought that the problem of rate-cutting, as we knew it before the war, would return now that peace—so far as the war with Germany is concerned—has returned. " It depends," I said, "on what you mean by ratecutting. What do you mean ?",
" Well—er—" he hesitated, obviously nonplussed. " It just means cutting .a rate, that's all."
At once I knew what he meant, but I was much too polite to tell him so. He meant that a competitor whe quoted a rate less than that at which he himself was working was cutting a rate. If, on the other hand, be had done the same thing, underquoted that competitor, he would have urged that he was behaving as an ordinary business man; he could do the job at a rate less than that of the other fellow, who didn't know his business.
Now, curiously enough, the'latter view is the right one. The problem arises only because there is no reciprocity: what is sound business to one man is scandalous ratecutting if the other fellow does it. My own candid view of the situation is that most of these people who talk so much about rate-cutting cannot see the wood for the trees. They have heard so much about rate-cutting that they have got beyond the point at which they are able to discuss the subject of rates in a logical, cool and collected manner.
' Turning to Account a Fa.vourable Position
I have written and said as ,much about rate-cutting and its attendant evils as anyone, but I have never once accepted the view that to quote a rate less than that of a competitor is rate-cutting. It may be so, in particular instances, but generally it is not. It is a case of one business man in, perhaps, a faviaurable position, either as regards expenditure or conditions of operation, taking fair and reasonable advantage of these conditions to obtain basiness.
It is a practice common to all but controlled industry. It will disappear from the road haulage industry if it becomes permanently Government controlled. That day will be a sad one for this country's trade and industry and will completely ruin its chances of survival in a post-war world in which, by the irony of circumstances, we shall depend more than anything upOn being able to produce satisfactory commodities for export, at prices less than those quoted by competing countries. In other words, some at least of the ,prospects of this country coming out " on top " in peace depends on its traders and manufacturers being able to cut the rates of competing countries when selling in 'highly competitive markets.
A vital factor in helping those traders and manufacturers to achieve that end is low cost of transport, which means that there must be keen, commercial, business-like competition as between one form of transport and andther, as well as between the individual operators within each department.
So far is road transport is concerned, the only way to ensure that rates shall be as low as is commercially practicable is for each individual member of the industry to be kept constantly "On his toes," searching for ways whereby he may improve the efficiency of his organization and cut down the operating cost of his vehicles. The only way to achieve that end is for the operator to realize that all his Competitors are doing the same and that if he does not Succeed he will lose the billeiness to the better man.
The most certain way to ensure that transport costs shall remain at a high level and efficiency be at a discount is to fix arbitrary rates below which no operator may go. (In making that statement I am in error. There is nothing like Government -control for achieving that objective, at least, is) far as road transport is concerned, and 'I make that one
exception.) . I am even going to suggest that, in the majority of instances, collective agreements about rates ard likely to be just as subversive of efficiency and economy in transport as Nation-wide agreements or compulsory rates schedules. Such rates are bound to be set oa a reasonably high level, human nature being what it is.
It is true, of course, that amongst those who are party to agreements there will be some who will work hard to cut down their costs and improve the efficiency of their businesses so that, at the agreed rates, they may earn greater profits. That, indeed, is the flaw in such agreements, for what one can do others should at least try to do, and if such economies can be achieved some at least of the savings should be passed on to the users-of transport.. If not, the Nation loses what it is justified in expecting, namely, low transport costs.
Even so, what I am sure is wrong is for an operator to enter into rates agreement with his fellows, in group, area and dis&ict, or for specific traffics, and then proceed almost immediately to depart from the agreement and underquote. That, in my view, is rate-cutting in its worst form.
If an operator has been so misguided as to enter into an agreement and, subsequently; on mature consideration or because of altered circumstances, deems it right or even expedient to depart from that agreement, he should do so only after giving dire notice of his intentions to all those who were party to the agreement.
I mention that form of rate-cutting, because I experienced so many cases of it during the years before the war. It was, indeed, almost endemic, certainly to such an extent that experienced operators reached the stage of 'refusing to attend meetings called for the discussion of such agreements.
The Real Definition of Rate-cutting
Some readers may now wish to ask for my definition of rate-cutting, because the example just quoted is but an example and nothing more, certainly not a definition. I say, and have always said, that rate-cutting is quoting a rate without knowing, and without regard to, whether it will show a working profit or not.
Readers of my articles, those who have attended my lectures, and with whom I have talked about the subject: will all confirm that the method of quoting against which I have always itehemently protested, has been that of quoting 6d. or Is. or so per ton less than the current rate, without any reference to costs and conditions and without knowing whether the quoted rate was likely to be profitable.
That kind of thing soon grows; one man starts it, and all the others in the area and in that line of business catch the fever. The inevitable result is that the rate for that traffic quickly becomes uneconomic, and operators engaged become toe poor to maintain their machines properly, to run their businesses efficiently, or to render good and proper service.
What members of the industry do not realize is that that line of conduct is, Will be, or can certainly be made to be,• a thing of the past.
The effect of the operation of the Road and Rail Traffic Act—which has some Merits, although not many—has, at least, been enough to make that process of insane competition entirely unnecessary, In any district the precise potentiality for harm of any haulier is completely known, It was disclosed before the war, and will shortly be again, in a publication called "Applications and Decisions." Therefore, if an operator cuts what I will, for the sake of argument, call an established rate, the others, instead' of immediately doing likewise,. must think for themselves., Perhaps the first thing to consider is, can the new rate be described as economic? Is it possibly a fact that, having in mind changing conditions and diminishing cotta—as May be expected soon—the late hith'erto'regarded 'as established has become excessive? If the answer be in the affirmative, then, in my view, only one course is likely to be effective' for any appreciable period, i.e., to lower .the rate.
If, on the other band, there has been no diminution in cost, and if each individual operator comes to the conclusion that the established rate, which he has been charging, is a reasona,ble:one, he, and all those Who think with him, should continue to charge the pId rate. They know, for the reasons just given, the extent of the tonnage which can be carried by their competitor who is quoting a lower rate. They know he cannot, without their agreement, or, at least, without their objections, obtain further tonnage. They know, too, what tonnage still remains to be carried and can, thehfore, be.rerionably sure to retain their own quotas -at the old rate.
The Correct Way to Access Rates Rates for road haulage should be assessed on a costs-plusprofit basis, and when I use the word costs in that sense mean the costs . of the individual operator. There are undoubtedly differences as between one and another, and where one can cut his costs he is entitled to lower, his rates accordingly.
If a competitor does not like its.it is up to him to Overhaul his organization and endeavour to find out in what way he is being extravagant. • It may be that his extra costs are due to the steps he takes to give his customers better service than the other fellow. If that be true, be need fear no competition on that basis of rates. He may lose a customer or two temporarily, but -they will _return.
-Whenever I get an inquiry from, a haulier as to the rate' he' should charge for a particular traffic, which is, approximately, daily, I do -nOt attempt to .quote any so-called siandard. I assess his costs, as accurately as rimy be, on , the basis of his own information and my knowledge of his cirLmstances;. I decide, on the basis of the job, What percentage of profit should accrue, and advise flint accordingly. Sometimes I get one of these requests Which is worded a little differently.. I have one before me at the moment; it is germane to the subject of this ar icle and worthy of reference.
The inquirer was quoting for a job in connection with which competition was going to be keen. He did not, on this occasion, ask me to suggest' a rate. He asked me to advise him as to what would he the lowest possible cost of doing the job. With that information available, be would know hpw far to go in fightin . price competition
before getting so low as to make a I s. .
Now, I do not suggest that his attitude was altogether correct. MY Main' objection to it is that, in quoting an ultra-low figure, as seemed likely 'to happen, he would be setting a standard by, which his future quotations would be judged. He might, therefore, condemn himself tO work for a very long time on a margin which, albeit a profif, is; nevertheless, too small for any haulage business.
What I do commend—and this is where this story lines up with the arguments i have been putting forward—is that before he did quote he made sure Of his basic groundwork of costs, so that he did not quote blindly.
Education in Costing is Sadiy Lacking It is education as to cost which has always been, stiffis, and is likely to be, the big thing lacking in the rank and tile of the industry. In my opinion, if the powers that be, the leaders of the industry, had spent as much time on perfecting that education as they have on the profitless' pursuit of stabilized rates schedules, they would have done a far, far better thing. Nation-wide stabilliation of roadhaulage rates means regimentation of the industry and the elimination of the individualistic characteristic which is the principal asset of road haulage in its competition with other forms of transport. .
Now, here are two pointers. The plea has often been made that road rates should, in effect, be,equated td Tail rates, and competition between tho two be on quality of ' service. r have always argued against that, for the good reason that it is the kind of service rendered 'by road, rather than efficiency,–although that is there, too—which has stood it in such good stead in that competition.
I have also reiterated, time and again, that the Government, if it fixes rates; will fix maximum rates which must not be exceeded and will raise no objection to those rates being cut. ' The trading community would not for one moment tolerate a minimum schedule and no Goyernment dare try to impose one. • .
Lord Leathers, Minister of War Transport,
has just dotted the I's and crossed the T's of those two statements. He has said, in effect, that he will not accept a plan which provides for the levelling up of road and rail rates. In otLer words, he disagrees with the suggestion that rates should be equated and, more important still, he has seen the damage of consenting to road rates being increased