An Operator's Rates Difficulty .
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An Inquiry From a Reader Gives Rise to Several Observations of Widespread Interest. Abnormally High Cost of Present-day Synthetic Tyres.
EVERY day and in a variety of ways T am gathering information relating to the high wit. of present-day synthetic tyres, as fitted to commercial vehicles. At a moderate estimate, it seems that, to-day, tyre costs are at least four times what they were six years ago; six times
that cost is, perhaps, nearer the mark and represents the average and there are some examples which indicate that the cost is even greater.
I have been told on good authority that for a touring, car equipped with synthetic tyres to be driven at speeds much in excess of 30 m.p.h. is to invite trouble and that to run for over 10 minutes or so at 50 m.p.h. is to invite a burst. And, we are told that, whereas synthetic tyres are " reasonably satisfactory " for cars they. become' less so as giant equipment for commercial vehicles. It does seem that synthetic tyres have little to commend them from the practical point of view for heavy vehicles and the sooner we are able "to get back to natural rubber the better for all concerned.
However, this article is not about tyres. It so happens, however, that in dealing with the subject which it covers, the cost of tyres came prominently into the question and gave rise to the foregoing preliminary asides.
By a coincidence I received, immediately after • writing (but before publication of) the previous article dealing with differences in costs and rates as between a city dweller and an operator in a rural area, an inquiry from a country district. Whilst it raises anew this question of differences. at the same time it demonstrates that, in some aspects of the matter, the differences are not so pronounced as the average case which was cited in the article in question.
The inquiry comes from one who states that he has been a reader of " The Commercial Motor" for 25 years. The problem it raises, as will become apparent in the course of this article, is a simple one, but, in giving it consideration, it seemed to me that there were others indirectly arising from it which were of consequence, and certainly important enough to be discussed in these columns. It will be appropriate to deal with the problem itself, before pointing out the major considerations which develop from it. I propose to quote some of the par4raphs from the letter, as showing the state of mind into which experienced operators are getting.
Are the Rates Which ,are Charged at Too-low a Level ?
This operator says he does not seem to have been able to make his business pay for a year or so ,and he wonders if some of his rates be too low. Referring to the particular jobs about which he writes, he says that each night, when the lorries come in, it seems to be " all petrol and tyres." A little later in his letter, referring to certain items of cost which he includes as a guide to me in formulating rates, he says his tyres, which are of 34 ins. by 7 ins. dimensions, appear to do from 5,000 to 7,000 miles per set, which, he says, seems to work out at about 21 per 100 miles. He has tried all ways to improve this performance but cannot better these results.
Actually, his estimate of £1 per 100 miles is a modest one. According to my reckoning, given below, he gets only two-thirds of that mileage for his pound, and that is a very/poor return.
His inquiry relates to the haulage of sand and gravel over more than moderate distances. One relates to a lead of 74 miles, the other to a lead of 43 miles. For the first he is obtaining a rate of 10s. 6d. per ton. He tells me that he is able to complete three journeys per day working
overtime. Taking into account the fact that he runs 12 miles each way from garage to gravel pit, the total daily mileage is 246 and the suggested rate is £9 9s. per day. " Will this rate be any good to Me? " he asks.
That question can be answered without going into any figures at all. For,246 miles I would, at a rough estimate, say £12 and not £9 9s., basing that on a roundfigure of is. per mile, which, in my view, is very nearly the minimum for which a 5-ton vehicle (the size he uses) can be operated to-day. The fact that he is in a rural area makes a little difference and, as a result, it will be shown that about lid, per mile is approximately what I recommend. Actually earning £9 9s. (189s.) for 246 miles means that he is getting slightly less than 91d. per mile, which cannot possibly be enough.
Now let us go into details concerning his costs and see what his rates should be.
First of all his tax is £35 per annum, which is 14s, per week. His rent and rates I will take at 5s. per week; insurance (£40 per annum) at 16s, per week: interest on capital outlay (from "The Commercial Motor " Tables of Operating Costs for a 5,tonner) Ss. 3d. per. week. For wages he is in a Grade II area and the basic figure is E4 8s. per week.
I will take, in the first instance, a six-day week and assume that he works for 60 hours, in which case the wages figure will be £5 17s. 4d., plus 5s. for employees' insurances and holidays with pay, a total of £6 2s. 4d.
Adding up the foregoine. standing 'charges, we get £8 5s. 7d. per week. I tae his establishment costs at rural rates to be £2 10s., so that his total of fixed costs is £10 15s. 7d. per week.
Breaking Down the Various Items of Running Costs Now for the running costs. So far as petrol is concerned, he tells me he pays Is. 10d. per gallon and is getting from 10 to 12 m.p.g. If we take the mean of 11 m.p.g. we get a nice even figure of 2d. per mile. Oil costs I will take as being the same as in-the tables, 0.16d. per mile.
Tyres must now be considered. The current price of a 34-in. by 7-in, cover and tube is £13 3s. 6d. so that a set of six will cost £79 Is. The old idea typified in the calculations made in respect of milk haulage, that a tube will outlast two covers, cannot be applied in the case of synthetic tyres, for it appears that it is just as likely as not that the tube will be very short-lived and I am probably taking a modest estimate when I take one tube per cover. If, therefore, I take his figure of 6,000 miles per set, I find that the cost of his tyres is no less than 3.2d. per mile!
It is when I come to maintenance costs that I go back on what I said in the previous article about maintenance in rural areas being less expensive than that in. a town, but only in this case, becausehe tells me quite frankly that, on an inexpensive vehicle designed for 5 tons, he is carrying 6 tons. I am, therefore, putting in 1.38c1. per mile for the average maintenance of a 5-tonner and I expect his costs actually are in excess of that.
Similarly., for depreciation I depart from what I said in the previous article and this time for another reason. I said that depreciation in rural areas could be taken as less, because the factor of obsolescence is not so important. In this case, with a vehicle doing approximately 1,500 miles per week, the question of obsolescence does not enter at all. The vehicle will be in bits before it begins to be obsolete and I take again the average figure from the tables of ld. per mile. The total of these running costs is 7.74d., which, as near as makes no matter, is 71d. per mile.
Taking a six-day week, the charges per day amount to £1 16s. For 246 miles at 71d. per mile the cost is £7 19s., so that the total net cost per day, on this paiticular job, is £9 15s., for which he is offered £9 9s, If he accepts, therefore, he will be making a net loss of 6s. per day.
Next comes the question of how much should he earn per day and what should the rate be per ton. A fair revenue would be found by adding 20 per cent. to the daily cost of £9 15s., which would make it £11 14s., showing a profit of £1 19s. -per day. In order to obtain that revenue he should charge 13s. per ton, -instead of 10s. 6d. An absolute minimum, in my view, woald be found by adding 15 per cent, to that basic cost figure of E9 15s., which gives us £11 4s., fat which the rate would have to be 12s. 6d. per ton.
Actually, he does not tell mewhether he works five, five and a half, or six days per week, and inorder to be quite sure of my answer I will now take out the figures on the basis of a five-day week.
The total hours worked will be 50 instead of 60. Net wages will thus be £4 12s. 7d., and, adding 5s. as before for employees' insurances and holidays with pay, we get a total of £4 17s. 7d., which is £1 5s. per week less than when he works six days per week. That is the only difference to his costs. His weekly fixed costs, are thus reduced to £9 10s. 7d., which is £1 18s. per day, ignoring the odd coppers. The running costs are the sanae as before, so that the total is £9 17s. 9d. per day, in which case , he is losing 8s. 9d. for each day of five days per week. The difference in cost, per day is small and not sufficient to justify any material alteration in the rate. A few pence perhaps, but nothing. worth discussing. In any .case it will be higher and not lower than the 12s. 6d. or 13s. per ton which I have quoted above.
If by chance it be a 5i-day week the result is likely to lie between the six-day and five-day week and again will produce no material difference in the rate to be charged.
The Position When 5-tonners are Used on a Lead Mileage of 43 We tiro now to the other job, which my correspondent tells me still involves the use of 5-ton lorries, but now carrying only 5 taxis, because the district is very hilly. Moreover, only two journeys per day are completed and these without overtime. The rate paid is 14s per ton. There is no dead mileage from garage to gravel pit, so that the daily mileage is 172, and for '10 tons at 14s. that brings in a revenue of £7.
Now the standing charges, indeed the fixed costs entirely, will be the same as before, except for a further small diminution in wages. The drivers wages now are the standard £4 8s. per week, and, adding 5s. for employees' insurances and provision for holidays with pay, we get £4 13s., which is just 4s. 7d. less per week than in the previous case. The total of fixed costs is thus, £9 6s. per week, which is £1 Ils. per day allowing for a six-day week.
The running costs, 172 miles at 7/d. per mile, total £5 lls., so that the cost per day is £7 2s., for which my friend is offered payment of £7. If, therefore, he takes on this contract he will lose 2s. per day for every day that he runs, and as he tells me the contract is for four years he is going to be at a considerable loss before he gets away from it. Actually, taking a fair profit of 20 per cent, on cost, he should earn £8 10s. 6d. per day, and that for 10 -tons is approximately 17s. per ton instead of the 14s, which is offered to him. At that he makes a profit of £8 lls per week.
If he be content with the minimum profit of 15 per cent. he should make 16s. 4d. per ton, and at that rate be will make £6 9s. profit per week.
Now I turn to the final paragraph of his letter. He says that he would like to know how he stands at these rates and whether I advise him to accept the
contract or not. " The trouble is," he continues, " if I do not take it up, someone else is likely to do so. But I do look at it in--this way, it is better to do nothing than work at a loss."
That is a wise decision and he will no' doubt adhere to it so long as he can find other work for his vehicles. What I am wondering is what will be his attitude when work ceases to be so plentiful and it means either taking this job or letting his vehicles stand idle. If his competitors-those who might, in his opinion, accept the work at the rates I have shown to be unprofitable-are in the same position as himself, that is to say, if they be master men and employ drivers for each of their vehicles, then, probably the best plan would be to let them take the work. The reason is that it certainly will not be long before they will have to revise their rates in an upward direction or go out of business.
When Competition Has to be Met from the Owner-driver The trouble is, in the event of an owner-driver or a small family of owner-drivers taking up the work, and if they, be content to accept the driver's wages as their net profit, they may even be willing to drudge along doing their own accounts at night and thus cutting establishment costs. In that case the competition will go on for a long while, probably much too long for my friend to be able to stand out if he has no other work to do. In those circumstances the only consolation I can offer is, that these owner-drivers are limited as, to capacity and co long as they are doing this work they will not be able to do any other. It is that other work for which he should be able to tender and for which he should be able to obtain fair rates.
But the big problem is, how to stop operators from working at rates which are so clearly and obviously _uneconomic. I feel sure that, whatever may happen, only a minority is, after the experience of the past. five years, willing th agree to further Governmental interference, and compulsory rates schedules will involve such interference.
Local agreements should be a help provided that those whii are parties to them do not depart from them ad underquote. Unfortunately, it is the experience of the industry that that kind of behaviour, far from being the exception, is more nearly the rule. Nevertheless, my own view is that such agreements on these local traffics are the solution: What is wanted is a better spirit in the industry and a greater willingness to stick to agreements once they are made. Then, even if there be some who do not agree, they must be in a minority and, as I have already pointed out, the harm that they can do is strictly limited. It is controlled by the number of vehicles for which they are licensed, and proof of a steady policy of rate-cutting would, surely be justification for objecting to any increase in the -number of those licences. Putting it even more strongly, their licences might be regranted to those hauliers who can prove better behaviour. It may be that these final paragraphs of mine will draw criticisms from readers. If they do I shall be most pleased so long as the criticism is -constructive. S.T.R.