Those Ten
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Items of Expense
Costs of Operating Vehicles May Be Grouped Into Standing and Running Charges .• Past Results and Future Estimates Affect Rates
IN citing examples of the operating costs of specific vehicles in this series of articles, persistent use of terms relevant to standing and running costs of commercial vehicles is naturally unavoidable. Whilst these will be familiar to regular readers, requests continue to be received for a fuller explanation of both the terms and underlying principles, as distinct from the actual operating costs likely to be expected from the various types of vehicle.
Costing of commercial vehicles can be used for several purposes. Even before a vehicle is acquired, costing provides the only prudent means for ascertaining whether it will be wise to begin to operate, or whether, in the case of a trader, he will be better advised to hire a haulier.
Both before and during operation, costs should be the basis of rates, even though other factors must be taken into account. A third, and equally important, aspect is that costing provides the only real yardstick by which efficiency of current operations can be measured, whilst at the same time pointing to the possibility of future economies. This use of costing is facilitated by comparisons with standard tables, such as — The Commercial Motor' Tables of Operating Costs."
The fact that past, present and future operations are involved can cause confusion if the distinction is not fully understood. Both the professional haulier and many ancillary users are regularly required to quote either rates or actual costs for particular _collections or deliveries.
Practical Experience
Although such estimates would relate to the future, they can be accurately made only by reference to past operations with the types of vehicle concerned. The longer the background of practical experience, the more accurate are such estimates likely to be. Here another use can be made of "' The Commercial Motor' Tables" by new operators who may not as yet have sufficient experience to be able to formulate rates from their own costings, but still require to make quotations to customers.
This necessity for present and future costs finds reflection in the terms, actual or estimated costs. Where the precise information is available, actual costs can be given. For example, the initial price of a vehicle may be £1,000, and if it is agreed that interest is charged at 3 per cent., the interest cost per week will be 12s. When calculating depreciation, however, although the same basic factor of i1,000 as the initial cost of the vehicle is used, the cost of depreciation of a specific vehicle can only be estimated, although there may be every ground for assuming that its useful life will be similar to the results already obtained from the same class of vehicle under relative conditions.
As a vehicle is always either standing or running, it is logical to segregate the operating cost of a vehicle under these two heading's. It is most important that the persistence of B28 standing costs should be fully recognized. In many cases the extent to which a vehicle is used, or the limited time it is allowed to stand, could have far more effect on ultimate profitability than efficiency in other directions.
Running costs are incurred only when the vehicle is in use, and normally increase relative to mileage run. The sum obtained from the addition of standing and running costs is the total operating cost. Because standing costs do not vary with mileage, whereas running costs do, the combination of the two results in the operating costs per mile diminishing with increases in mileage. Also, the total cost of operating a vehicle over a given number of miles will naturally rise with higher mileages. It will not, however, be in direct ratio to the mileage, but will reflect the same diminution as appeared in the relevant operating costs per mile.
For the purpose of " ' The Commercial Motor' Tables of Operating Costs" and this series of articles, commercial-vehicle operating costs are divided into 10 items. The five standing costs are: (1) Licences, (2) wages, (3) rent and rates, (4) insurance and (5) interest. The five running costs are: (1) Fuel, (2) lubricants, (3) tyres, (4) maintenance and (5) depreciation.
Convenient Compromise Because standing costs reflect the time clement in transport operation they are calculated in appropria4e units of time— hourly, weekly or yearly. As it is considered a convenient compromise, standing costs are here calculated on a weekly basis. To provide some allowance for a period when the vehicle will probably be off the road for major repairs or drivers' annual holidays, these costs are estimated on the basis of a 50-week year.
The first standing cost—licences—allows for the duty payable under the Vehicles (Excise) Act, 1949, and still commonly, though erroneously, referred to as the Road Fund tax. In the case of goods vehicles the amount of duty varies with the unladen weight. As, however, the goods vehicles shown in the " Tables " are listed according to payloads, the amount of licence duty will not always vary relative to their capacity. A carrier's licence fee will also be payable by users according to their type of operation and must be added appropriately. The comparative additions per week are: A licence, 10d.; B licence. Is.; C licence, lid.
Wages shown in the tables of goods-vehicle costs are based on current Road Haulage Wages Orders (Grade 1 areas). Although these are a statutory obligation onlyon A and B licensees, many C-licence operators observe them. Whilst there is no one statutory sum of wages which must be paid to drivers of passenger vehicles, an average of relevant national scales is used.
Additions are made to the basic wage rate for a standard week to allow for employers' contributions to National Insurance. Whilst employers' indemnity insurance is now voluntary, replacing contributions under the former Workmen's Compensation Act, many operators do, in fact, arrange such additional cover, for which reason some allowance is made for this cost a preparing the "Tables" A further allowance has-tobe c when estimating wage costs to allow for holidays with
le third item of standing costs—rent and rates—is on that vary widely between operators and, in fact, it may often mined altogether by some users on the ground that no provision is made in their case. Where this does in fact y, it can reasonably be claimed that the addition to their itenance costs can at least equal, if not outweigh, the paratively small charge which is estimated as the cost of iding or renting garage accommodation to avoid accelerated rioration of bodywork through exposure.
hilst large operators may well be concerned with many s of insurance, the one detailed as a standing cost is limited .roviding cover for the vehicle. The premium can vary rding to several factors, such as location, type of operation. city and value of vehicle, and the extent of cover required. e recently, following increases in Premiums, individual ators' accident records have had a substantial bearing on 'mount of premium required.
is also considered reasonable to include as a standing cost charge in respect of .interest on Capital outlay,. even gh this may be rated at the nominal amount of 3 per cent.
Varying with Mileage ; • !cause running costs are incurred only when the vehicle is ated and vary relative to .mileage, it is convenient to calcu-. them in terms of cost per mile, as distinct from cost per : for standing costs.
le of the largest is, of course, fuel and in this case the per mile is obtained by dividing the cost per gallon by the of fuel consumption obtained. This is one of the items h Aan vary substantially between operators, though it Can y Ee calculated according to individual conditions, such as 'rice paid relative to the zones in which it is purchased, or bulk, fleet or agency discciunts to Which the operator is led. Abnormal operating or geographical conditions may ously cause a large variation in fuel consumption and lately in the total operating cost. Ir simplicity, the cost of lubricants is limited to engine-oil umption and sump replenishments. In this context it Id be emphasized that, although every endeavour should lade to record and estimate as accurately as possible, some rice must be kept as between what is reasonable and practicable and academic accuracy. Up-to-date simplicity should be the objective if a choice has to be made. In calculating tyre costs, the cost of tubes and flaps should be included in the price of the initial set, but excluding the spare. Whilst these prices will be known, an estimate of probable tyre life can be derived only from past experience in similar circumstances.
Clear Definition • Although it is convenient to use the word "maintenance" in formulating operating costs, it must be admitted that some ambiguity can arise if the term is not clearly defined and understood. It is meant here to imply washing, servicing and such repairs as are necessary if the vehicle is to operate efficiently over a normal life. Because it is not unusual for washing and light servicing to be carried out weekly, regardless of the mileage covered, the maintenance cost per mile will be slightly higher where the average weekly mileage is unusually low.
Depreciation is calculated on mileage, although under certain conditions it can be successfully treated as a standing cost. Alternatively, under exceptional conditions, examples can be produced in which both the methods appear to disadvantage. On balance, the mileage basis of calculation provides the best compromise. Apart from whether . the divisor is calculated by mileage or time, it is first necessary to arrive at an agreed proportion of
the initialof the vehicle which it is considered will ultimately have to be written off. Because the cost of tyres is already included as a separate item of running costs, it is first necessary to deduct the price of the original set of tyres from the cost price of the vehicle to avoid duplicating this charge. An estimate has to be made also of the price that can be expected when the vehicle is finally resold. Whilst this would normally be determined largely by the mechanical condition of the vehicle, obsolescence may be an equally important factor. particularly with some special types of goods or passenger vehicle.
These 10 items of cost concern expenditure which can be directly allocated to the operation of a specific vehicle. Where more than one vehicle is operated, however, there will also be overhead or establishment costs which are incurred ,in running the business as a whole, such as managerial, office and sundry
expenses. S.B.