COSTS Must Be KNOWN
Page 54
Page 57
If you've noticed an error in this article please click here to report it so we can fix it.
"The Commercial Motor" Costs Expert Deals With Inquiries from• Readers Who are Concerned Over the Incidence of Rate-cutting in
their Districts, and Wish Him to Calculate Reasonable Rates for Various Types of Vehicle so that the Offenders Can be Corrected: Better to Lose Work Than Not to Gain a Profit.
THERE is one thing I cannot do in dealing with questions of rates, I cannot ensure that the reader obtains the rates I recommend. What the haulier gets for a load is determined in part by his own astuteness in bargaining and, subsequently, the amount of satisfaction which accrues with the first order.
I have frequently emphasized that the rate for any job of haulage is what it will fetch. I have also emphasized that it is *frequently the fault of some single short-sighted and usually ignorant haulier that the rates in any particular district are too low.
Either this particular haulier is -foolish in that he takes upon himself the responsibilities attendant upon the proprietorship of a vehicle and the ownership of a business without endeavouring to obtain a better return than he could by serving some other haulier as a driver, or he is ignorant of what his vehicle is actually costing him to run and thinks he is making a profit when he is actually working at a loss.
Collapse Comes too Late
First of all, in dealing with this particular aspect of rates assessment I should point out that there is no remedy, or at most little chance of one. I can tell a man of this kind that he is foolish and show him where and how his folly arises. Nine times out of ten, however, he remains unconvinced and stays so, until the collapse of his ill-founded business proves my contention. Unfortunately it is then too late, and it is likely that he will bring down others innocent of the crime of rate-cutting in his fall.
There is a certain amount of hope when dealing with a man who is ignorant. If he is given information as to the running costs of his vehicles, and then the expense of 'mining a business, he many amend his ways. It is for his benefit that " The Commercial Motor' Tables of Operating Costs" are compiled. What little those Tables fail to achieve in that direction I am endeavouring to attain through the medium of these articles. One result is that I get quite a number of letters complaining that the other fellow is rate-cutting and asking me to deal with particular instances of rate-cutting so that the complainant can show 'A36 the article to his friend, thus demonstrating to him the error of his ways.
Here is an example of the sort of letter I frequently receive. The writer states that he and another friend have agreed to write •to me and abide by my decision. They fear, however, that if they do adhere to the rates I recom
mend, their competitor will: get the business. A short answer to that would be: "It is better to lose work which shows a loss than to cut and cut, each out-bidding the other until one or other discovers that he has gone too far and cannot any longer carry on at a rate which positively shows a serious loss.
Still at a Loss
It is. however, not as simple as all that. Many take the course of planning to accept the loss on a job, making it up by another; but there again the remedy is worse than Eh e ailment, and the complaining operator is still at a loss as to what to do.
The writer first quotes thc case of the haulage of road materials to be loaded at a station, hauled 12 miles and then unloaded. The vehicle in use is a 6-ton oiler. The time necessary to load, he says, is about one hour; to unload takes half that time. This is like the job I dealt with in my previous article except that the terminal delays are much longer. He reckons that the outward journey with the load would take an hour and a quarter and the return journey an hour. Allowing a quarter of an hour to get into position for loading and again for unloading, that gives a time of four hours for a complete round trip by the vehicle of 24 miles.
The letter continues by stating that the writer, having gone carefully into his own costs, quoted 12s. per ton. The contract was secured by a competitor who quoted 10s. per ton. He adds that he "feels that with a difference of, approximately, 2s. per ton, either he has badly over-quoted or the successful tenderer has under-quoted." Naturally he believes that the latter is the case and I am requested to prove one way or another.
On this particular job, assuming four hours per trip, that seems to be rather a long time, but the figures are given to me as authentic, I may reckon on 11 Icrads Per week,.carrying 66 tons and running 264 miles.
For operating costs, etc., I propose to take the figures given in my previous article, that is 9d. per mile and £10 3s. 6d. per week standing charges. The total for 264 miles is £19 18s.. for running costs plus £10 3s. 6d. for standing charges, £30 is. 6d. in all. This, it should be noted, is the bare operating cost of the vehicle. It takes no account of any expenditure involved in running the business and it makes no allowance whatever for earning a profit.
If I assume that the expense of running the business (establishment costs) is £3 per week per vehicle and that a reasonable profit is £5 10s. per week, I arrive at a total of £38 1 Is. 6d. which must be obtained for carrying 66 tons. That is equivalent to 1 Is. 9d. per ton, in which I agree closely with the rate of 12s. as quoted by this inquirer in respect of this job.
At 10s. per ton, the total revenue is £33, so that the man who has got the contract at that price has got enough only to pay for the operating costs and establishment expenses: there is no profit but actually Is. 6d, loss. I have no hesitation, therefore, in agreeing with this correspondent that 10s, per ton is an ,under-quotation.
With regard to another quotation referred to in this letter, I am-not quite so sure. He tells me that 2s. 6d. was quoted, the lead distance being one mile. Assuming the same times for loading and unloading as in the case already discussed and allowing a quarter of an hour for travelling, the total time for one journey is two hours. That means that it would be possible to do four journeys per day, or 22 per week.
Minimum Revenue
The distance travelled would be 44 miles and the tonnage moved 132. Taking the same figures for running costs and .standing charges, 9d. per mile and £10 3s. 6d. per week, I get a total of £11 16s, 6d, for operating Costs. Adding the same figures for establishment costs and profit as before, it becomes clear that the total minimum revenue must be £20 6s, 6d. At that rate the rate per ton must be 3s. ld. At 2s. 6d. per ton the total revenue would be only £16 10s„ which compares with £11 16s. 6d., the bare operating costs. At that the gross profit is only £4 13s, 6d., and if the £3 for establishment costs is taken away from that, the net profit per week is only 11 13s. 6d.. .
A similar complaint conies from another source, but bearing the same interpretation. The intention, too, is the .same; namely, to enable the complaining haulier to show the article to the competitor and try to make him see sense. In this case the lead mileage is 31, making 62 miles for the normal round trip. The country is rather difficult and includes two steep gradients, stated to be one in five, on the way. The rate quoted in this case was 16s. per ton, roughly, as the letter states, 96s, for 62 miles with a 6-ton lorry 1 Clearly inadequate.
£30 For 30 Tons
In this case only five trips per week would be possible, carrying a total of 30 tons and running 310 miles, The operating cost of the vehicle, on the same basis as the other examples, will amount to £11 12s. 6d. for 310 miles at 9d. per mile-standing charges, £10 3s. 6d.; total, £21 16s. The revenue for 30 tons at 16s. per ton is £24, so that the margin for establishment costs and profit is only £2 4s. According to my reckoning the rate should be £1 per ton, and I arrive at that conclusion in this way. First I have the figures already quoted for cost of operation, namely. £21 16s. Add £3 per week for establishment costs so that the total of fixed expenses becomes £24 I6s. Then add profit at £5 4s. Total, £30 for carrying 30 tons,
The next problem is concerned. with long hauls, and in particular the potential profits on large and small vehiclesnot a new subject so far as readers of these articles are concerned, but nevertheless of interest to newcomers. There is no doubt that many hauliers who have been fortunate enough to pull a vehicle or two "Out of the bag," and with them the special A licences, are interested in large vehicles
and long distances. Some of them may be new to this class of work and require advice.
-Let me take, as an example, a job of haulage involving 200 miles per outward journey and consider first of all what are the conditions and how they vary with the size of the vehicle. I have been asked to deal, at some length, with a case in which the lead distance was, 200 miles. The inquirer has been offered £3 per ton, He wants to know what will be the likelihood of profit first, with a 6-tonner, then with a f2-tonner and a 15-tormer. Obviously, costs will vary on account of their different carrying capacities.
Now, the running costs of these three vehicles are: for the 6-tonner, 9d. per mile, the 12-toriner, Is, 0101.,and for the 15-tanner, Is, 1id. The standing charges amount to £9 10s. for the 6-tanner, £13 for the 12-tanner and £14 for the 15torm er.
There is a pointer in these figures which, without further discussion, indicates that there is likely to be more money in running the larger vehicles than the others. For 6 tons, £9 10s, per week equals £1 lls. 8d. per ton; for the 12-Milner £13 is 21s. 8d. per ton, and the 15-tonner, £14, which is 18s. 8d. per ton.
Two Trips a Week I am to assume that the journey is completed twice in a week, the vehicle runs 800 miles and the total cost of opera
tion is 800 times the running cost plus the standing charges.
In the case of the 6-tonner, the total running cost per week is 800 times 9c1., which is £30, Add the standing charges, £9 10s„ and £3 7s. 6d. for overtime, in order to get at the total cost of operation, £42 17s. 6d. As four single trips of 200 miles each are covered each week, the cost per trip must be £10 14s, 41d.
Now the 12-tonner. The running costs, at is.Old. per week, come to £41 13s. 4d. Standing charges are £13, overtime £3 11s, 6d. Total, £58 4s. 10d. For the 15-tonner the running costs at Is. lid. per mile add up to £45. Standing charges are £14, and overtime £3 1 ls. 6d. Total cost, £62 1 ls. 6d.
These figures do not embody any allowance for the wages of a driver's mate, accommodation for the men when they are away from home, nor any establishment charges. If I leave out the question of the need for a driver's mate, I must still allow for the other items. For establishment costs I take: for the 6-lonner, £3 per week; for the 12-tonner, £5 per week and for the 15-tonner, £6. For subsistence and minor expenses incurred by the driver I shall assume these to be equal to £2 per week per vehicle, whatever the size. This sum should be sufficient.
Total Expanses Adding these amounts to those already calculated, I find that the total expense of running these vehicles 800 mites per week on two journeys of 200 miles each way are, lot the 6-tonner, £47 17s. 6c1.; the I2-tonner, £65 4s. 10d.; 15-tonner, £70 Its, 6d.• The cast of each one-way trip is thus: £11 I9s. 5d., 116 6s. 3d, and £17 1 ls. 2d. (to the nearest penny in each case).
Now I am up against a difficulty. It would be nice to assume that each vehicle carries its capacity load outward and on return, and I am going to make that assumption just for the sake of comparing the economics of the case. I do agree, however, that it will seldom happen that 100-percent. loading will be practicable, but a lot depends on the operator's methods.
Taking it that the vehicle is fully employed, the cost per ton (not the rate) is £2 in the case of the 6-tonner, Li 7s. 4d. for the 12-tonner and El 3s. 5d. for the 15-tonner.
At least it can be said that those figures represent the earning capacity of the three types of vehicle and show that the smallest vehicle is most expensive and the 15-tormer the least, which is what I set out to prove. On the basis of an agreed rate of £3 per ton, the relative gross profits are: El, £1 12s, 8d, and 1.1 16s. 7d. respectively. If there is a lack of return loads, the position would be altered accordingly but the relative values of the three sizes of vehicle are
still the same. S.T.R.