Unfairness of That 6 per Cent. Solving the
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Problems of
on Tangible Assets the Carrier
It Makes No Allowance for the Reward of Enterprise, Ignores the Existence of the Professional Ability of the Haulier and Condemns Him to Penury
IF I possessed the gift of sardonic humour I should have had ample opportunity to exercise it when scrutinizing the financial proposals relating to the latest Government Haulage Scheme; Unfortunately, I have not that gift, but if you ask why the financial provisions of the scheme should ' be a source of Sardonic merriment on the part bf anyone with a leaning that way, I will answer at some length.
It all turns on that little matter of the assessment of a haulier's fair and reasonable profit on the basis of 6 per cent. •
of his 'tangible assets. That came as a shock and a surprise to most operators, but not to me i I have seen it .coming, for nearly three years, for it is nearly that length ot time since I first experienced that attitude on the part of officialdom and I have now 'net it time and time again. At first I was amazed, and that first experience is vivid in my recollection, partly because of the shock and partly because, of the absurdity of it, especially in the particular case to which it was attempted to apply that rule.
It arose from a claim for loss of profits due to the unnecessarily prolonged detention of two -vehicle a on A.R.P. work, in the early days of the war.
Calculating the Net Profit
The tangible assets of this particular haulier comprised little mote than those two vehicles—both six-wheelers of 12-ton load capacity—and were assessed at £5,000. The official with whom I had to discuss the matter blandly suggested that the basis on which .the net profit should be calculated ought to be at the rate of £250 per annum, that being 5 per cent per annum on the capital sum involved. (1 now realize that he was being absurdly generous. Both vehicles were more than five years old, so that the value • had (diminished to £1,25.0 and the rate of profit allowable should have been no more than £62 10s, per annum. That, at least, is how he would have reckoned it according to the new Government method.)
Actually, I was, for a momeht, too taken aback to reply, and it was a moment or two before I did so. Then I said: "You cannot apply that method of reckoning profits to a business such as haulage."
I can and do," be replied. " Haulage is just a business, and is entitled, equally with any other business, to a reasonable profit on capital invested. My department is accustomed to making an allowance of 5 per cent, on that capital, and I propose to apply that rule to this case."
' nut," I almost spluttered, " it's absurd."
" I'm afraid I cannot see it in that light," he replied, evidently a little nettled. •
" You seriously suggest," I said, "that this haulage contractor, running these two large and expensive vehicles, many thousands of miles per annum, is not entitled to earn any more than £5 per week as the return for his efforts?"
" I do," he replied.
" And you Would. apply that method of calculating profits to any business? "
" I don't see why not." " Then take my case," I said. " Mv business assets comprise a car, a couple of typewriters and some office furniture; total value, say, £400. According to your method of c,akulation, I am entitled to earn no more then £20 per ann urn," • " Not at all," he replivd, " There-is no parallel; you are a professional man, and are entitled to earn what you can."
"You do not recognize any intermediate grade," I asked, " between the professional man and the proprietor of a
business?" •
" There may be such cases," he answered, " but I do
not regard this as one of them."
" But," I objected, " my client earns more of less per
annum, according to his professional knowledge of how to run a haulage business. His is as much a profession as mine and he is entitled to some consideration of that fact."
" I do not agree," he said.
"Perhaps lean persuade you," I replied.
" I am willing to learn," lie answered.
" Do you know anything at all about road haulage?" asked, to which I received the reply " Nothing." " That makes it difficult," I said.
Arriving at the Ton Mileage " These vehicles, when they are not needlessly lying idle in a back street at the behest of some A.R.P. official, are on a regular .service between London and Liverpool, a distance of 200 miles. Each vehicle carries, on that journey, a load of 12 tons of urgently needed war materials. The work, it does on that journey is reckoned, according to the custom of the haulage industry, in what are called ton miles ; 12 tons are carried 200 miles and the number of ton miles of work done-is 12 multiplied by 200. That is 2,400 ton miles.
" Now, on the return journey the vehicle again carries 12 tons, so that it does another 2,400 ton miles. It repeats this performance again during the week, bringing the total to 9,600 ton miles. The other vehicle does the same, so that the two of them do work calculated as 19,200 ton miles per week."
" Yes,I quite see that, but. . . ." " Wait a minute," .I interrupted, " I've not finished yet." " Suppose that these two vehicjes, instead of performing in the manner just described, were to carry only 8 tons or so on the London to Liverpool journey, always returning empty and, moreover, making only one journey per week. The total ton mileage per week, calculated as before, is then 3,200. Now, would you say that the operator is equally deserving of profit, `whichever of those two sets of figures be representative of the work done by his vehicles? "
" I don't see that there is any connection between the tonnage carried—or the ton mileage as you call it—and the question of remuneration as I am viewing it. The fact still remains that 6 per cent, per annum on the capital invested, or tangible assets, to be mOre pretise, is regarded by my department as an adequate return on the operation of a business."
" Quite, but you agreed just now that a professional man did not come in the same category. Well, how do you suppose this operator is enabled to keep his vehicles running two journeys per week, loaded to capacity in both directions, completing a total of 19,200 ton miles per week as against a possible 9,200 ton miles?
" You probably don't know, so I must tell you. Ile does it by the exercise of his ability as a professional haulier, enabling him to find loads for his vehicles at each end of the journey. He finds those loads, moreover, quickly enough to ensure that each machine can be loaded promptly, turn round quickly, and so ensure the regularity of that twice-weekly service.
" Now, I contend that the haulier, depending as he does upon the exercise of his professional ability, comes' more nearly into the class of professional men, and that his profit should be assessed on the basis of the work he does and-not upon the value of his tangible assets. Moreover, I may tell you, from long experience of this industry, that such an .elfect is the case, so far as every successful haulier is concerned."
" There may be something in what you say," he replied, " but it does not, in my view, alter the case, as I see it. However, I would like you to go a little farther and indicate how the fair and reasonable profit should be assessed. I will then give you my answer."
"Very good," I replied.
. Assessment of Total Revenue • " First of all, you must appreciate that there are _three items in the assessment of the total revenue which an efficient haulier should ehrn. First, the cost of operating the vehicles;second, the cost of administration, which includes the expense of the organization necessary to provide the loads for the vehicles so as to achieve the maximum ton mileage as juit described; third, the profit, which is assessed as a percentage of the total cost—the sum of the first and second items. '
" What do you regard as a fair percentage? " he questioned.' • " That depends to some extent on the nature of the business.. The minimum is 1$ per cent, and that might reasonably apply to such an example as we are discussing, where the service is regular and operates over a route on which the traffic is dense. In less favourable circumstances. —over which the operator has no control—the percentage might be 20, rising to 25 in respect of haulage work which is of an irregular or seasonal nature."
" Those percentages seem extraordinarily high. What would the amount be, for example, in this particular case? " " First of all the vehicle operating costs,. For these, it is safe to take the figures froth 'The Commercial Motor' Tables of Operating Costs. Table VII gives the figures for the type of vehicle run by this operator, namely, the maximum-load six-wheeler. Such a vehicle, running 800 miles per week, costs at least £38 9s. per week." " Why ' at least '? " I was asked.
" Because it is unlikely that the mileage named will be covered without a certain amount of overtime, for which there is no provision in the figures and because, in this class of work, there will be driver's expenses and subsistence allowances, totalling not less than £1 per week. It is likely that the cost will exceed £40 and it will not be unfair to take that as the actual figure.
" Next comes the second item, the administrative costs. These are probably in the region of £10 per week per vehicle."
"As high as that? " interrupted_ my questioner.
" Yes, for you must appreciate that they cover two • establishments, one in London and the other in Liverpool, to organize the provision of loads for the vehicles at both ends of the journey.
Minimum Profit Per Week "The total cost is, thus, £50 per vehicle per week, or £100 per week for the two, and I would assess the minimum profit per week at £15, making, approximately, £750 per annum, as against your £250."
" Will you now apply the same reasoning to the case when each vehicle does no more than one journey per week, carrying 8 tons'in one direction and returning empty?" I was asked.
" Yes, I will, most certainly," I replied.
" In the first place, the weekly mileage per vehicle is now 400 and not 800, so that the cost of operation—again according to 'The Commercial Motor' Tables of Operating Costs—is now £26 16s, per week. That is probably the total and may even be an excessive figure."
" Why should that be? "
"For this reason. The vehicles should be having an easy time, thus making for low maintenance costs. In addition, the drivers have plenty of time to assist in routine maintenance operations, so that expense to the owner is saved. Probably £25 per week will suffice, including' the drivers' expenses for one night per week away from home. The second item of expenditure, adininistrative cost, Will probably be no more than £.5 per week per vehicle: the organization is probably insufficient as well as inefficient, so that the total cost is £30 per week per %Thiele, or 260 for the two. The profit, at 15 per cent, on cost, is thus £9 per week or £450 per annum."
" Surely," he interpoSed, " there is something fundamentally wrong with your method of allocating profit." "Why do you say that? " I asked.
" Well," he answered, "you allow a profit of £450 per annum to a man who does 3,200 ton miles of work per week, that is about 2s. 10d. per annum per ton mile per week, whereas an operator who completes 19,200 ton miles per week receives only £750 per annum as his profit. That is only 90. per annum per ton mile per week. Surely there is something wrong there? "
" The difference does not exist in actual fact," I answered. "To explain it involves a further discussion of the more practical aspects." • , S.T.R.