ESTABLISHMENT COSTS LCTOR IN RATE CONTROL
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Solving the Problems of the Carrier What Establishment Costs Are in the Case of the Small Man ani How They Affect His Ideas of Rates
IT is fairly evident that George has forgiven me for not helping him to castigate Jack about those rates that he was getting between London and Ipswich, as described in last week's issue. I ran across. the pair of them
again the other day. I have been pottering around Spitalfields a little lately, gathering data about potato haulage, and it seems that they garage their vehicles somewhere in the vicinity, and that accounted for my coming across them again so soon.
"Look here," said George, "I've been thinking over that little chat we had, the other day, about the rates that Jack is getting and there is something you said that I didn't have time to argue about then, but that has been bothering me since.
" If you remember, you said something about Jack not having much in the way of establishment costs, and it seemed to me that you were putting that out as a reason why Jack's rates could be less than those of anybody else. Now I do not quite see how that is going to work out when we get these established rates about which there is such a lot of talk, just now, at A.R.O. meetings. Are they going to be fixed so that a chap like me, with establishment costs, will be able to make a bit? If they do, our friend jack will be making a fortune. How is it going to work out?"
An Average Figure will be Taken.
"You may take it as certain," I said, "that in fixing rates for road haulage, proper account will be taken of establishment costs. I should imagine that a good average figure, based on the experience of just as many operators as are willing to show their books, will be taken. That will be added to corresponding average figures for each size of vehicle, so that the result can be taken as fairly representative of the total cost for each size and type of machine. Then there will be a profit added to that, and the result will be approximately what each type and size of vehicle should earn per week, per month or per year, according to the mileage it covers."
George: "Well, then, that is not going to be fair to me, because Jack, here, is going to be able to make much more net profit out of a job than I can." . B2 "That is not quite true. When we were arguing, last week, about Jack and the rates he was getting. I said that he saved on his establishment costs because. on his outward journey, he was carrying regularly for one particular firm. Therefore, he did not have to go out looking for work and the clearing houses helped him with his return loads, so that he was at no expense there. He gets a low rate for his regular work largely because it is regular and the firm that are giving it out know that and can get it done at competitive prices. The firm also know that all their consignments are for places where, as a general rule, there is a possibility of getting a return load, so that no haulier Can justify a demand for a rate which will make it profitable for him to carry the traffic one way and come back empty."
George: "That is not going to make any difference to my point, so far as I can see. If I were doing the same traffic, I expect I should get the same rates, and Jack would be putting more money into his pocket because he has no establishment costs."
Jack: "Well, there is no reason why you should not do the same as I am doing, is there? "
George: "Of course there is. How do you think I can .manage my four vehicles, keep my drivers up to scratch, see that they keep their proper hours, and fill in their log sheets if I do not look after it myself? And if I have to look after it myself, I cannot drive one of my lorries as well, and I would have to pay myself a wage, the same as you do, and that wage is one of my establishment costs, is it not, S.T.R.? And another thing—I'm not taking any back loads from clearing houses and paying them 15 per cent. That is no good
to me."
"I've been waiting for that, George," I said. "I
guessed you were a bit cranky about clearing houses, the way you looked down your nose last week when Jack said he was paying 15 per cent. off that 9s. a ton for his return load from Ipswich."
George: "Well, don't you think it is a ramp? "
"I'll answer that question by asking you one," I said. "Your main line of business is traffic from Bedford to the south and west. You have no opportunities of bringing back loads to your customers who give you the stuff from Bedford. How do you manage it? "
George: "Practically all my back loads are inwardbound traffic to London, from the various places where I deliver my stuff from Bedford, and I get them by making contact with consignees in London."
"But your main business is in Bedford, isn't it? " I asked. " I see that is your address on the lorries."
George: "Yes; but I have a little office in London and I usually come up four days a weok to see my customers here and keep an eye on the garage and the men when they finish at the end of the day."
" I see. You get your back loads in that way and so manage to do without clearing houses. But do you not see that the only difference between you and Jack is that you spend your money on keeping an office going in London and in travelling to and fro four days a week —sometimes five—between Bedford and London? "
George: "But isn't that what I am trying to get at? I have to spend that money in getting my back loads and yet I am not going to get a better rate than Jack, who does not spend anything."
"Do you remember what the figure was for Jack's payment to the clearing house, on that load from Ipswich? "
Jack: "I can tell you: it was 6s. 9c1."
"And I suppose it costs you something like that every day, does it not, Jack? "
Jae:: "Round about that. It is about 5s. when I go to Oxford and 7s. 6d. to 8s. when I go to Northampton. . . ."
" I suppose it comes to about 45s. a week? "
Jack:' That is about right.
" So that you see, George, Jack is not quite so foolish as you thought. He pays the clearing houses to do for him what you have to do with your little office and your visits to London, so that, after all, he is not going to make a fortune out of these rates. Have you any idea what your own establishment costs are? "
George; "Since that talk with you last week, I've been reckoning it out and I have the figures here." He forthwith produced notes of his establishment expenses which worked out as follow :— Bedford office rent, £1; telephone, 5s.; London office rent, 10s. ; lighting and heating,. is.; telephene, 8s.; accountancy and audit charges, 19s.; bank charges, 4s.; discounts, 2s.; insurances, 8s.; postages, Is.; printing and stationery, 4s.; travelling expenses, 14s.; sundries, £1 5s.; interest on loans, 28s.; legal expenses in connection with A licences, 7s.; accountant's charges in connection with income tax, 3s.; own salary, £4; office boy at Bedford office, 21. The total is £12 19s.
George: "There you are, you see, and Jack gets away with 45s. to his clearing houses."
Jack: "Wait a bit. I have some other little things to pay out, you know."
" Never mind that, Jack," I said, "we'll deal with this fellow. I can see what this bee is that he has in his bonnet and we will shift it for him. When you were criticizing Jack last week, George, about the rates he was being paid, what was your idea? "
Runs a Regular Service.
George: "Well, I'm getting a much better rate than he is and some of the stuff I carry from London, on my route down to the south and west, is the same, and I was thinking that if it got about that he was getting such a low rate I should be having mine cut too. I run a service every day without fail."
"You give a service which Jack does not pretend to give; he cannot do it with his one vehicle and, because you give that service, you can command a better rate. You, in your turn, have to go to some expense in the way of establishment cost in maintaining that service. When rates are stabilized, that sort of thing will be taken into consideration, and, although I think we all hope that both of you will benefit, you will find that the balance will be struck fairly evenly between you. And, by the way, how much are you making? "
George's answer to that somewhat impertinent ques tion will be given next week. S.T.R.