A Haulier who Lived on Hope
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In Helping an Operator to Assess Costs and Charges for Deliveries in Five Zones up to 60 Miles from Base, S.T.R. Emphasizes the Dangers of Undertaking Contract A Licence Work Without Adequate Sureties
RECENTLY a haulier asked me to help him to quote for the haulage of motor-vehicle parts on a tonnage basis over distances up to 10 miles, from 10 to 20 miles, from 20 to 30 miles, from 30 to 40 miles, and from 40 to 60 miles, He thought that an average time for loading 5 tons would be 30 minutes and for unloading an hour. He proposed to use a 5-ton long-wheelbase vehicle with drop sides, and had to submit an extra quotation for split deliveries.
The haulier was unable to tell me the cost of the vehicle, because he had not made up his mind whether to have a petrol-engined lorry or an oiler, and he required my advice on this matter.
"I can almost tell you right now, without going into any question of cost, that I should recommend an oiler, but we'll go into figures and see what the conditions are," I said. "First, we had better decide what you are likely to have to pay for the vehicle; we'll take the cost for a complete machine, ready for the road, painted and lettered, and so on."
"By the way, the vehicle has to be painted and lettered to suit the firm that I'm contracting for—it is a Contract A licence job," said the haulier.
"Are you basing the contract on tonnage, with no guarantee as to minimum mileage, or minimum tonnage or anything?' I asked.
"Yes."
" I don't regard that as a good basis for a contract." "Why not ?"
Danger of Loose Agreement
"Because you have no surety that you will be able to use the vehicle continuously. Suppose I work out the figures for you, as I should, in the ordinary way, on the understanding that you have regular employment for the vehicle, and suppose that this firm, for any reason whatever, find themselves unable to give you loads for some months. That would be a dead loss to you, for you cannot use the lorry for any other purpose."
" I think I shall be all right," the haulier persisted. "1 know the firm and I feel quite sure that if their traffic for this particular department falls, they will put me on to something else."
"All right. You know your own business best, but R isn't what I would call a proper basis for a Contract A job," I looked up some figures and came to the conclusion that he would probably have to pay around £650 for the petrolengined vehicle and £985 for the oiler. "The first thing to do, before we get down to detailed operating costs, is to work out the depreciation of these two vehicles," I explained. "Assuming, as is most likely, that the tyres of the petrol vehicle are 34 ins. by 7 ins., a set will cost £85 and that, taken from the £650, leaves £565. Assume a residual value . . ."
"What do you mean by that ?"
"I mean the amount f or which you are likely to sell the vehicle when you have run it as long as you wish to run it and it is time you bought a new one, say, at 120,000 miles."
"I've run vehicles for much bigger mileages than that," the operator replied.
Average Figures Preferable
"Maybe," I said, "but that's an average life. If you find you can keep on running it after that mileage, you are so much the better off, but if you don't get so many miles out of it, you will lose. Now, in a calculation of this sort, it is always better to use average figures, unless you have a particular reason for thinking that your experience is going to be better or worse than average," He agreed to that method and I was able to deduce from the simple calculations just mentioned that the basic figure for the assessment of depreciation was £500 and, on the basis of life of 120,000 miles, the cost was Id. per mile for depreciation. For the oiler, £985, less £85 for tyres, gave me £900, and I proposed £100 as residual value, leaving £800 net.
Why do you reckon that I should get a better price for the oiler than for the petrol-engined vehicle ?" he asked.
" There's a better market for vehicles of that type," I answered, " and, as the wear and tear of the vehicle turns largely on its engine, it will be worth more. At any rate, I advise you to accept my figure for the time being, and on the basis of 120,000 miles, that is 1.6d. per mile."
We then went into the remaining items of running cost, concerning which there was little or no argument, and they were agreed as follows:—For the petrol-engined vehicle, 11 m.p.g. and fuel at Is. 10d. per gallon, 2d. per mile; lubricants, 0.12d.; tyres, on a basis of a life of 20,000 miles, 1.02d.; maintenance, 1.46d., and depreciation, Id.; total of 5.6d. per mile running cost.
For the oiler we assumed fuel to cost Is. 7d. per gallon and the milage per gallon to be 19, giving a cost figure of Id. per mile. For lubricating oil, the cost was 0.15d., against 0.12d. for a petrol engine; tyres, as before, 1.02d: maintenance—I said that an oiler was generally believed to require slightly less maintenance than a petrol vehicleI.33d. per mile; depreciation, 1.6d.; total, 5,1d, Fixed expenditure per week was the same for both types, except as regards interest. With a petrol engine the figures agreed were: Licence, 14s.. wages-here I recommended the haulier to take the proposed new scale, "because," I said, " by the time this contract is fully under way, you will probably be paying the higher rate-£5 2s., net, plus 10s. to cover the three insurances and holidays with pay, giving £5 12s.; garage rent, 10s.; insurance, £1, and interest, 10s. (15s. for the oiler). For establishment charges I took £3 per week and thus got as the total £11 6s. per week for the petrol-engined vehicle and £11 1 ls. per week for the oiler.
" Now," I said, "we have to reduce these amounts to costs per hour for a 44-hour week."
We worked out the two little sums and found that for the petrol-engined vehicle the total was nearly 5s. 2d. per hour and for the oiler 5s. 3d. "It will save a good deal of complication," I said, "if we take it as 5s. 3d. per hour," to which the haulier agreed.
"Those are your costs," I said. "Before we can agree upon a basis for charging, we have to decide the percentage of profit. In the ordinary way, if I were dealing with what I regard as a fair and reasonable Contract A job, I should say that you could accept a minimum of 15 per cent, on cost. This, however, is not to my mind a real Contract A licence job. It does not carry the appropriate guarantee, and with the best will in the world it is still likely that there will be several weeks in the year when you will have little work for this vehicle. You are taking more than a usual risk, and I recommend a minimum of 20 per cent. on cost."
He demurred a little at this-evidently his faith in his prospective customer was strong-but I insisted. At long last, he accepted my view.
Lower Charges With an Oiler
"That means that you should charge at the rate of 6s. 4d: per hour for the use of this vehicle, plus, of course, a charge for mileage run. In the case of the petrol-engined vehicle, the charge will be 5.6d. plus 20 per cent. (1.1d.), making 6.7d.-practically 61d. For the oiler the charge will be 5.1d., plus 20 per cent. (Id.), making 6.1d."
"Does that mean," he asked, "that if I bought an oiler, I could charge less than if I bought a petrol-engined vehicle ?"
"Not necessarily," 1 replied. "It may mean that if you buy an oiler you can charge what you would have charged if you used the petrol-engined vehicle, and so make that much more profit. In fact," I continued, "my recommendation to you is to take that course, so that your basic figures for charges should be 6s. 4d. per hour, plus 61d. per mile."
"But is that fair ?" he asked.
Quite fair. You presumably will have had the gumption to pick the more economical vehicle, and you are entitled to any advantage you may gain. In a keenly competitive market you might have to split the difference and give away half the extra profit which the oiler would earn, but I don't imagine that there is any need in this case.
Influence of Average Speed
"Now," I said, "we'll get down to rates. Forget about split deliveries for the time. We'll come back to those at the end. We'll begin by assessing a charge for the deliveries within the 10-mile zone. I happen to know your town very well," I said (it is a large, thickly populated northern centre with dense traffic), "and your average speed within that 10mile zone will be low. I think I am putting it fairly high at 10 m.p.h. If you have many deliveries over the minimum mileages-two, three and four miles lead-you won't beable to reckon on more than 5-6 m.p.h. Perhaps the best thing is to take an average speed of 10 m.p.h. and assume eight miles as the average radius. That will help to counteract any deficiency on the ultra-short leads.
"First, we want to know how long the average round journey within that Zone will take. The terminal times you have already given me-half an hour to load, an hour to unload, total an hour and a half. Travelling time for eight miles out and eight miles home, at 10 m.p.h., will be 1+ hours. Total time is thus three hours. and total distance 16 miles. Three hours at 6s. 4d. cost 19s., plus 16 miles at 62d. (9s.), so that your total charge should be 28s., which is 5s. 8d. a ton. I should charge 5s. 9d, "In the second zone-distances in excess of 10 and not exceeding 20 miles-most of your travelling will still be in the areas with dense traffic, and in this case I suggest that you assume an average speed of 12 m.p.h. and an average radius of 16 miles. Your travelling time for 32 miles at 12 m.p.h. is actually 21 hours-we'll call it 21. Then there is I+ hours at terminals, so that altogether you need an average of 44 hours for each journey, and that at 6s. 4d. an hour is 26s. 11d., say 27s. Your out-and-home journey involves running 32 miles, and at 61d. (18s.), so that your total charge must be 45s, and your rate 9s. per ton.
"Over the next zone, exceeding 20 miles but not exceeding 30 miles, you will probably average 15 m.p.h."
"What, only 15 m.p.h. between 20 and 30 miles ?" he objected.
"No, no. This 15 m.p.h. is the average speed, starting from near the middle of this concentrated area and doing, perhaps, the first mile or so at 6-7 m.p.h. and then a distance at 10 m.p.h., and then another few miles at 12 m.p.h., and so on. We are not reckoning the speed at which you do the section between 20 and 30 miles. We are reckoning the average speed from the start to anywhere between 20 and 30 miles distant from the centre.
12s. 3d. a Ton for 26 Miles
"With an average radius of 26 miles you have 52 miles to cover at 15 m.p.h., which is practically 3+ hours. You have still 14 hours for loading and unloading, so that your total time is five hours, and that, at 6s. 4d. and hour, is £1 I ls. 8d. Fifty-two miles at 62d. cost £1 9s. 3d., so that the total charge should be £3 Os. lid., say £3 Is. I should charge not less than 12s. 3d. per ton in that zone."
For the next zone, from 30 to 40 miles, we made similar calculations, taking an average speed of 18 m.p.h. and an average radius of 36 miles, We reached a total time of 5+ hours, giving a time charge of £1 14s. 10d., and for 72 miles at 61d. we calculated a charge of £2 Os. 6d., getting altogether £3 15s. 4d., which was equivalent to ,15s_ Id. per ton. I recommended him to charge 15s. 3d.
"You must be careful here, and in the case of the next zone, to make short and long journeys run into one another so as to fill out the day," I said, "otherwise you may find yourself unable to complete two journeys in a day, and you will be at a loss because the vehicle will be standing idle for half a day. That's another point which would be -covered if you had a proper minimum guarantee, as you should have on a Contract A licence."
However, he seemed satisfied that he could make the necessary arrangements to run long and short journeys together in the one day, so we left that point.
Split the Biggest Zone
"Now," I said, "we come to the last zone, which is a big one. You have a minimum lead of 40 miles and a maximum of 60. If you quote too low you may get many 60-mile runs, and if you do you will lose money. If I were you I should bring up that point and suggest splitting that zone into two."
I'll bring the point up," he said, "but for the time being I prefer to quote on the basis of the inquiry." "Very well," I said. In this case the figures were worked out on the basis of an average speed of 24 m.p.h. and an average radius of 52 miles. The total charge came to £4 16s. 6d., equivalent to 19s. 4d, per ton, and I recommended the haulier to charge £1 , per ton, so as to cover contingencies.
"That's very nice of you," he said, "but what about these split deliveries ?" "Have you any idea what they will be like-I mean. as regards weight ?" I asked.
"Yes. The minimum elivery would probably be 1 ton.'
"We'll use that as a basis," I replied. "You said it would take 60 minutes to unload 5 tons, but it will take at least a quarter of an hour to unload I ton. Then it is necessary to allow for the possibility of having to wait, the difficulty, perhaps, in finding the man to sign the dockets, and of discovering the place where the deliveries have to be made. All these things I agree apply to the large full-load deliveries, too, but they are not so important in relation to the total time taken. Here I think you ought to assume that an average time needed for an occasional drop such as this will be half an hour, which, at ,6s. 4d. an hour, equals 3s, 2d. You -should charge a minimum of 3s. 6d. for any drop, and that should be the rate per ton. Consequently, the minimum for any weight will be 3s. 6d., but if the drop is, say, 1+ tons, you will have to charge at the rate of 3s. 6d,
a ton. that is, 5s. 3d., and so on. S.T.R.