Solving the Problems of the Carrier
Page 39
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Some Simple Sums
Arising out of Positive Proof that Many Operators are Still Thinking in Terms of Pre-war Costs and Ned Advice Before They Start Quoting on a Commercial Basis
LE writing the two previoni articles I had an inquiry which provided me with proof that an astonishing state of affairs prevails in the industry as regards its attitude towards costs and rates. It showed me that some operators in business before the war are now entirely out of touch with present-day costs and are making serious errors in their quotations for haulage.
The letter came from an operator who has been in the haulage business for nearly 50 years. He started with horses and has built up a substantial and profitable concern. I have known him for nearly 25 years, so that I can claim to be well acquainted with the details of his business and his methods. Nevertheless, his letter came as an eye-opener.
He did not approach me on the question of rates at all. He was preparing to enter into a contract for the use of a 3-ton van running 500 miles per week, and asked my opinion of certain terms proposed to be introduced into the contract. Only incidentally did he mention that he intended to charge £15 12s. 6d. a week for the hire of this 3-tonner on contract.
Not Worth While As a matter of fact, it was that £15 12s. 6d. that caught my eye. By a rough test, taking Is. per mile as a basis, the rate ought to be £25. Before dealing with the points on which he asked my advice, I checked his figures and 1 wrote to him as follows:
" My immediate reattion is that this contract is not worth 'having at the price named, whatever be the terms. Look at it this way. Your petrol and oil will cost you not less than lid. per mile; your tyres will cost you Id. per mile; maintenance will cost you Id. per mile, and so will depreciation. That is 41d. per mile for running costs only.
For your standing charges, your driver's wages, including insurances, etc., on to-day's rates, are £5 per week. Your tax is 12s. per week. Insurance and sundries will cost another 18s. per week, making £6 10s. per week. You spread that over 500 miles and you will find it is equivalent to a fraction over 3d. per mile, so that your total vehicle operating costs amount to 70. per mile.
The £15 12s. 6d. per week for 500 miles per week is 70. per mile, so that at that rate you have covered your vehicle operating cost only, and have made no provision for your establishment costs, let alone profit." The operator wrote thanking me for the figures, but did not tell me what action he had taken. J am quite sure that he cannot get away from those basic facts, and it seemed to me to be a reasonable inference that if an experienced operator, such as this one, could make such an error, there must be many, less experienced, who are equally liable to commit mistakes of the same kind.
No one can suggest that there is anything difficult about the calculation of cost which I set out in that letter. It is simplicity itself and, therefore, I came to the conclusion that it might be as well to deal with the subject in a simple manner in an article of this series.
I recalled a book which I compiled some 10 or 12 years ago, entitled "The Commercial Motor" Operating Costs Record. That was devised with precisely the same object in view. It is now out of print.
Fig. 1 shows a page from this little book of mine, and to make clear how it operates I have filled in some figures for costs. It provides first for entry of mileage, hours worked, and petrol and oil consumed during one week. Below is a summary of the operating costs; first the running costs, fuel, 51 gallons (taken from the upper half of the sheet) at Is. 8d. per gallon, 85s. Lubricating oil, 4 pints (again from the upper part of the page) at 6d. per pint, 2s.
Now comes the cost of tyres, maintenace, and depreciation, of which, in all probability, the operator has but vague ideas.
In the original it was recommended that he obtained that information from "The Cosinmercial Motor" Tables of Operating Costs, and that advi e still holds good. In writing this article, however, I am ass rrung that there may be some readers who have not a copy of the Tables available and may require some guidance, aid I suggest to all those readers
that they work out the fi s for themselves after the following fashion:
First of all, tyres. I will assume the cost of a set to be £50 (12,000d.). With a tyre 1 fe of 12,000 miles the cost is Id. per mile.
For maintenance I suggest 0. per mile, but if this vehicle be on contract hire, the cost ef maintenance will be greater. For the time being, however, take td. per mile for maintenance.
Finally, depreciation. Herd, again, I am going to take Id. per mile as being approkirnately correct. If the van costs £600, the assumption of Id. per mile allows a life of 144,000 miles, which is a lot.
For tyres, maintenance and depreciation we have, therefore, 20. per mile, and that is the figure entered in the lower half of the table in the appropriate place. For 377 miles (taken from the upper part of the sheet) at 20. per mile these items cost 86s. 6d.
By adding the cost of petrol, oil, tyres, maintenance, and depreciation, the total running cost for the week is £8 13s. 6d. If that sum be divided by 377 miles, we get almost 50. per mile for running cost only.
Now to deal with the standing charges in the same way. Tax, insurance, rent and interest are lumped together, and according to my reckoning they will probably be: tax. 12s.; rent, 8s.: insurance, 12s.; interest, 6s.; total, 38s., which is the amount shown on the sheet.
2s. 10d. an hour for Standing Charges Of the standing charges, only wages remain. It should be noted that the driver works 51 hours per week, so that in addition to his basic wage of £4 15s. 6d., he will have to be paid three hours' overtime at 2s. 50. per hour, say, 7s. 6d., and to that sum must be added about 2s. 6d. to allow for employees' insurances. That gives me £5 5s. 6d.. which is set down on this schedule, and the total of standing charges, coVering the usual five items of tax, insurance, rent. interest and wages, is £7 3s. 6d. Divide by the 51 hours and the result is 2s. 10d. per hour as, the standing charge for that period.
There are various ways of making use of these figures which, I must emphasize. are vehicle operating costs only. Following the procedure I adopted in my letter, it is useful to divide• £7 3s. 6d. by 377 miles, which gives us about 40. per mile. Fourpence halfpenny and 50. added together give us 10d. per mile as the net operating cost of the vehicle. That, as every reader should know, is much less than what the operator should charge for the hire of the vehicle. How much less I am now going to show.
In arriving at proper charges, we have to take into consideration the fact that there are certain establishment charges or overheads, and these, whatever they be, must he added to the standing charges. Many operators imagine they do not have to pay for establishment costs. in which belief they are quite wrong. I think I dealt with that point sufficiently in the previous two articles. I will assume that the reader has no record of his establishment costs, and I will tell him how to proceed to make provision for establishment-costs and profit, without knowing What those establishment costs are.