Why Town and Country Coach Rates Differ
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rIOACH owners who operate in country districts are at disadvantage as compared with their town competitors, inasmuch as the opportunities for doing business are not usually So numerous. The annual mileages run by their vehicles are correspondingly low and the cost—which is my present theme—correspondingly high. The rates they charge for contract hire must, of course, be related to cost, and it follows, therefore, that operators in rural areas should charge more than those in more thickly populated districts. I have often found that the level of charges for contract hire in these cases is, even to-day, below what it should be, having in mind present-day costs and the peculiar limitations to which I have already referred. Cases have been brought to my notice, in fact, where the excess of revenue over total outgoings is so small as to make the worth of the business questionable.
Perhaps I should qualify "total outgoings" by stating that by that I mean the total of the expenditure which the operator will ultimately have to face. It is unfortunately the case that so many of these operators appear to overlook the importance of some items of cost. I have in mind, in particular, depreciation, but there are others.
Making Good Idle Time
One important fact that operators of this kind so frequently fail to appreciate is that a vehicle which is idle for at least a third of the year must earn 30 per cent. more than a fully employed machine if it is to justify its existence and show a profit on the year's working. Some of the annual expenditure may, it is true, be curtailed as the result of the limitation of the period of employment, but only if the vehicle be actually laid by for a long period. That is not always the case, because some operators like to do an .occasional day's work during the slack period and the coach cannot be regarded as being laid by.
Even if the vehicle be off the road, the savings are comparatively small. They comprise a proportion of the Road Fund Tax, some of the insurance premium (the vehicle should still be covered for fire and theft even when idle), and, of course, a cut in expense for driver's wages. These economies, however, become almost negligible if the coach be kept for occasional use during the winter. As I have already mentioned, depreciation, more than any other item, is underestimated, even if it be taken into account. There are many coach owners who keep reasonably accurate cost of operation otherwise, but omit that item from their calculations. That omission alone is sufficient to exclude all chance of making a real profit, because, in the majority of cases, it is the heaviest item of expense. In the calculations made in this article I have, to some extent, departed from by usual practice, as exemplified in "The Commercial Motor" Tables of Operating Costs, of quoting average figures. Instead I am going to assume that the conditions are in every way in favour of the operator, so that his cost of operation is at the lowest level. By dealing with the matter in this way I hope to impress some who do operate at uneconomic rates, with the importanCe of increasing the charges.
I propose to take as an example a 32-seater coach, that being the most popular, even in country areas, and I 'shall assume that the first cost of a new vehicle, properly equipped and up to date, is £2,200. Assuming that the vehicle be kept in commission for a full year, four of the five standing charges can be disposed of quite simply.
Tax is £57 12s. per annum; the insurance premium will approximate to £60; provision for garage rent £26 per annum; and interest on capital outlay at 4 per cent., £88. The total is £231 12s. If, as is likely in country areas; the vehicle be employed for no more than 160 days in the year, these fixed charges are equivalent to approximately £1 10s. per day. Now to consider the running costs, and it is in connection with these that I am going to follow the principle just enunciated, of setting out figures which I consider to be the minimum.
I -am going to take it for granted that the vehicle is petrolengined, for even to-day, notwithstanding the advantages of the oil engine, most coach operators who concern themselves mainly with contract hire, still prefer-petrol. If the operator pays Is. 10d. per gallon for petrol and the average consumption be equal to S m.p.g., the cost is (to the nearest fraction of a penny) 21d. per mile for fuel. Already, in this, there is an example of what I mean by quoting minimum cost figures, for most country operators buy their petrol retail and to-day will have to pay 2s. 01d. per gallon for it. For lubricating oil I propose to take id. per mile as being sufficiently accurate for all practical purposes. The operator who is thinking in terms of the amount of oil with which he tops up, needs to be reminded that at every 2,000 or 3,000 miles the sump, which often holds 3-31 gallons, must be emptied and the old oil replaced by new. The tyres on a 32-seater coach will in all probability be 9.0-in. by 20-in, and the cost of a set of six such tyres is about £105. Tyres are undoubtedly improving in quality and in the mileage which they give, and I am going to assume that, with natural rubber tyres, an operator will obtain at least 30,000 miles per set. On that basis the cost per mile again to the nearest fraction of 'a penny and avoiding decimals) is id. Maintenance, as I am assured by every operator with whom I come into contact, cannot possibly be effected for less than 2d. per mile run. The foregoing are four of the five running costs and I come now to depreciation. _There is in the minds of some coach owners the idea that this item ought to be treated as a standing charge. If an operator keeps accounts and knows how to read his figures and assesses them at their proper value, I have no criticism to offer. I will, indeed, in the first place, consider it as a standing charge.
" 'How Mud) for Depreciation?
Suppose, for example, that an operator concludes that he ought to depreciate the vehicle over five years. The net figure on which he must calculate depreciation is, of course, the initial cost of the vehicle, which is £2,200, less the cost of a set of tyres, £105, leaving E2,095. From that sum must be deducted the amount which he expects to get for that vehicle at the end of five years. It is somewhat tricky, these days, to attempt, to assess second-hand values. At the present time the second-hand value of a vehicle in anything like reasonable condition may appro.leh or even exceed the purchase price of a new coach. That state of affairs, however, is not likely to last for five years.
In five years from now we sincerely hope that the market for motor vehicles of all kinds will have returned to normal and it is on that basis that the assessment of the residual value must be made. I propose to assume that the operator gets £495 for the vehicle, so that the net figure upon which depreciation is calculated Must be £1,600. If he depreciates it over the five years, he must set apart £320 per annum on account of depreciation. Taking again our figure of 160 working days per annum, we get an amount of 12 per day for depreciation.
Mileage and Costs The expenditure varies, of course, according to the mileage which the vehicle covers in any of its working days. if the operator is going to apply that figure directly in respect of each day's work, he will find that it is a heavy item during the off-season, when possibly a day's work will consist of no more than 30 or 40 miles of running. Consequently he will have to set aside at .least Is. a mile for depreciation.
On the other hand, if the vehicle makes a fairly long run of 200 miles or so in a day, which may well be the case during the summer season, depreciation will be at the rate of only 20, per mile. In the winter, therefore, when jobs are hard to obtain, the operator will be handicapped in quoting by having to include this excessive figure of is. per mile for depreciation, whereas in the summer, when there is plenty of work and fairly long mileages to cover, the debit on account of depreciation will be low.
That is contrary to his best interests, for he is putting up a high charge when business is difficult and cutting the charge when business is comparatively easy. It is for that reason that I prefer as ft general rule to deal with depreciation as a running cost.
In .assessing it as a running cost J have to assume some figure for annual mileage, and I have been told by operators that in country areas, in any event, 20,000 miles per annum is reasonable. Indeed, some operators have told me they would be pleased if they could be assured of that annual
mileage. If, therefore, I take 20,000 miles, I am making the figures as easy as can be for the operator who thinks he can keep his costs within the average.
I do not entirely agree with him, but I am endeavouring to meet him, so that he will appreciate that, as a general rule. his rates are not so high as they should be. If I accept the figure of 1320 per annum for depreciation, the amount to be debited to that item for each mile run is-again to the nearest fraction of a penny-30.
Running Costs Per Mile
We can now get the figure for the total of running costs, comprising 20. per mile for petrol, id. for lubricants, for tyres, 2d. for maintenance and 30. for depreciation. The total is 9td. per mile. The bare operating cost of the vehicle is thus, assessed on the time and mileage basis. 90. per mile, plus 30s. per day, plus wages, which can be assessed at 3s. per hour.
The operator has certain other charges-business expenses, establishment costs, and so on-to add to the foregoing, if he is to assess full expenditure.
Now a coach operator, even in a country district, is necessarily involved in much more expense on account of these charges than most haulage contractors, or even operators of stage and express carriages. On the haulage side the only operators whose expenses are comparable are those engaged in parcels carrying I he coach operator must do a certain amount of advertising. He has to make arrangements ahead with hotel or restaurant proprietors. These are in addition to ordinary office expenses for telephones, licences, stationery, etc.
At a moderate estimate these overhead; will equal at least 30 per cent, of the vehicle operating costs, In assessing the cost of any particular day's work, therefore, the procedure will be as follows:
Assume that there is a day trip to cover 100 miles and that the vehicle will be engaged for 10 hours. The vehicle operating cost is, first, 100 times 9.td. for the mileage charge, which is 14 Os. 2d. Then there is the £.1 10s. per day for the four standing charges, as enumerated above. Next come the wages of the driver at 3s. per hour, another £1 10s. The total vehicle operating cost is thus £7 Os. 2d. for the day. On top of the foregoing are the establishment charges at 30 per cent., which is another £2 2s,, giving 19 2s. 2d.
The next question which arises is what profit an operator should earn. In my view, he should earn 25 per cent., because this is occasional business. Twenty-five per cent. of £9 2s. is £2 5s. 6d. The charge for the hire of that vehicle for that day should, therefore, be 1=1 1 7s. 8d.
Figures for 50-mile Trip f the mileage to be covered during the day be 50, the following figures apply:-Running costs (50 miles at 9Rd. per mile), £2 Os. Id.; standing charges, £1 10s.; driver's wage, probably the same as before, as we are considering a day's trip; the total vehicle operating cost alone is £5 Os. Id., say £5. Add 30 per cent. for establishment costs, 11 103., arid we get a total cost of 16 10s. for the day. Now we must add 25 per cent. (€1 12s. 6d.), so that the actual charge for 50 miles must be £8 2s. 6d., as compared with El 1 7s. 8d. for the 100 miles run.
It should be easy for any operator to apply the foregoing figures and assess his proper charges. If he does not agree with any particular item in the costs I have laid down, he is at liberty to modify it according to his own Views. I as.k him, however, to make sure, if he does alter any of these figures, that his own costs are sufficiently accurate to justify that correction.