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What the Owner driver Should Charge
Page 110
Page 113
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'I RECENTLY had an inquirer who was commencing , business on his own account. For' Many years he had . been employed in the haulage business so that he had a sotind "wcirking knowledge of the peculiarities of the industry as viewed from the driver's scat, but tacked what I might term ekeeutive •experience. In Other words, he knew all about loading and Unloading, the time taken to complete different, classes of job; mileages that, could be covered in, a 'clay'. and the Suitability of various models of vehicle. for' differing types of 'work, but did not know how to .aXess rates. ' ' ' He had, in the light of his Practicarexperience, found no difficulty in niaking up his Mind as to the type "of vehicle that he should buy and, as being of greatest all-round use, had ptirch'ased a new 5-ton lOrry with platform body having detachable sides and tailboard. Further, he had had the wisdom 'to: safeguard himself against financial difficulties in the. earlier.slageSofthe building up of his business by obtaining a firm promise of a contract of work for his vehicle from a cement manufacturer.
Contract on Time Basis'
He wanted to know what were the operating costs per mile of his vehicle. The company which was offering him the contract asked hint to quote on a basis of time, as a price per hour was required for the use of his vehicle and services. "Is this," he asked, the beit for me, or would it be more to my advantage to quote on a mileage basis or even on tonnage? " • Next he wanted to know 'what his quotation should he according to each and all of the three methods specified. He adds for my information that, generally speaking, the work will consist of short hauls. He anticipates that on that work he will be able to move about 40 tons per day.
There will, in addition, be occasional long journeys. He does not specify the mileage. included in the latter.
First, in connection with the probable operating cost, au important consideration here is the fact' that a good deal of the work involves short hauls. Every reader knows that such conditions invariably involve increased operating cost. On the other hand, the fact that fot the time being this operator is going to drive and take care of his own. vehicle, discounts to some extent the additions which must inevitably be made to the average figure of operating cost on.aecannt. of this peculiar condition.
According to ``. The Contrnercial. .Motor" Table's =of „. _Operating Costs, the running costs of a 5-ton vehicle total 6.83d. per mile on the assumption that the weekly mileage is about 200. It appears to be so in this case. The standing charges are-set down in the. same publication at £7 6s. 6d. per Week.
As regards the second question, relating to the basis on which quotations should be made, I think that 1 should begin to answer by laying down the maxim that whenever E20 possible • the haulier should meet the requirements of his customer in a matter of this kind. If, in this instance, I adhere strictly, to that, my answer would be to quote by the hour, and I should forthwith set about assessing the rate which should meet the Circumstances. Indeed,. this is not difficult in view of the faCt that the bulk Of the work involves shart 'leads.
It may be as well to proceed in that 'manner and to estimate on an hourly basis the cyst and fair charges for conveying 40tons of cement per day.
On the assumption that the vehicle is not overloaded, then eight loads per day are needed to move 'the 'total. tonnage. An average a over'an hotfr lOad.• If 40 to 45 minutes are assumed to be necessary in loading and unloading, then 15 to 20 minutes are left for driving. That 'means an average mileage of about five or six per journey. so that the vehicle will be running 5 to 6 m.p.h. On the basis of a 44-hour week, the standing charge per hour arrived at by dividing £7 6s. 6d. by 44 is 3s. 4d, The cost of driving five miles at 6.83d. per mile is approximately 2s. 10d., so that the total operating cast is 6s. 2d. per hour.
Next come the troublesome questions of establishment costs and as to what is a reasonable profit on work of this kind.
As regards establishment charges, £2 12s. per week should suffice, having in mind that this particular inquirer appears to be presented with a contract which will keep him busily engaged. and, for the time being, with no need to search for new work or do much in the way of office routine.
Standards of Profit • As to profit, every man has his own standards. Suppose I take £4 per week as meeting this particular case. In this connection it should be ,remembered the business is in a country district where the cost of living is lower than in town.. If this £4 per week beagreed,. that means that the total. of establishment costs and net profit is £6 12s. 6d. per week.' For a 44-hour week that is equivalent to 3s. per hour, . which, added to the 6s. 2d. per hour operating cost, Makes a minimum, total of 9s. 2d. per hour to be charged for the hire of the lorry.
I would advise 9s. 6d. per hi:Mr if it can be obtained. Whether to take that chance depends upon the current state of affairs in the district, particularly as regards competition. If competition be strong and it be necessary for the operator to be fairly keen in his quotation, I should in the, first instance quote at least 9s. 2d. per hour.
In the event of the offer proving unacceptable and a lower figure being suggested,.. and, if it does appear likely that
unless the haulier' goes, halfway, towards meeting the customer in that respect he will lose the contract, then the haulier should bear in mind the following figures as indicating the amount of gross and net profit available on varying rates per hour.
First of all, 6s, 2d. per hour will just clear the cost of operation. A further Is. 3d. per hour is necessary if, in addition; establishment costs-are to be cleared, bringing the quotation to 7s. 5d. per hour. For eaeh penny over 7s, 5d. per hour a sum of 3s. 8d. per week netPrefit.is.yielded, so that, for example, at 8s. per hour the net profit will be -El 5s. 8d. per week; the gross profit, that is, establishment expenses plus net profit being £3 17s. 8d. per week.
It is important to check the speeds which I am assuming in these calculations In -a travelling time of 15 to 20 minutes I assumed broadly that the vehicle would travel five to six miles, that is to say, would complete a 2ito three-mile lead. That is equivalent to a 15to 24-m.p.h. average, a speed which provides a teasonably w,ide margin to cover varying conditions. In the actual calculation 1 took five miles as being the distance travelled, 'which is eqe..ivalent to anything from 15 to 20 m.p.h., Recording to whether the journey took 20 or 15 minutes.
The vehicle is assumed to come within the 30-m.p.h. class: Si) that the above assumption as to average speeds of travel is quite fair, assuming that the conditions are not extraordinarily unfavourable, I now come to the question: "What is a man to do who to oblige a client has quoted for mileage on an hourly basis, under conditions involving an occasional interpolation of long-distance hauls amongst a majority of short leads?"
Up to now I have been considering the conditions which were set out by this inquirer as the basis of the contract into which he proposes to engage, namely, that he will cart 40 tons per day using a 5-ten lorry. That is obviously a fairly difficult proposition if I do not assume overloading, and if it be taken for granted that no overtime is worked.
The haulage of that weight of material over a short distance was a principal part of the contract. In addition. however, occasional long hauls Were to be carried out. Unfortunately, my inquirer was not explicit in his reference to these longer hauls, neither as to their length nor their frequency. He was most definite in his advice that his customer wanted to be :quoted on an hourly basis. have worked out a'quotation in so far as it is applicable to these short hauls. I have shoWn that, in order, to make a gross profit of £6 12s. per week, Of which £2 12s. is assumed to be establishment costs and £4 per week net profit, the rate per hour must be 9s. 3d.
The accompanying table shows how the rates must vary as the length of lead alters. Prices are shown on the three
bases of time, distance and tonnage. The shortest lead considered is half a mile and the longest is 50 miles. The distance. travelled varies, therefore, from one to 100 miles.
The maximum length of lead which can be travelled, in view of the necessity of hauling 40 tons per day, has already • been shown to be 2i miles. and for that the rate is 9s, 2d. per hour. So soon as the length of lead increases beyond that distance the daily tonnage will fall and the rate per hour must be increased in order to maintain the amount of gross profit at the agreed £6 12s. per week.
if, therefore, there be given occasional loads for distances in excess of that, one of -two things must happen—either the rate per hour must be modified accordingly, or there must be a fair percentage of slmrt leads to offset the loss
on the longer one& As, however, there are few leads shorter than 21miles, whereas there may be any number of longer hauls, it follows that there must be a limit to the haulier's forbearance in the matter of his objection to long leads.
Before going further it may be advisable for me to indicate how the figures for the table have been calculated. Column I shows the lead in miles and the second column the distance travelled per complete journey. That obviously is twice the lead mileage.
Under the heading of time (minutes) there, are three columns. First comes the standing time which is the time occupied in loading and unloading, taken to be 40 minutes. Next comes the assumed travelling time which is based on the assumption that over the short leads, the average speed of travelling will be comparatively slow.. For instance, over the half-mile lead, five minutes is allowed to run one mile and 10 to' run two miles, but it is assumed that 13 minutes will be sufficient for three miles and 16 minutes for four miles.
Under the heading of charges, there is first the column of the charge per load, which takes into consideration the total time involved charged at 6s. 41. per hour—that 6s. 4d. being made up of 3s. 4d., the actual standing charge of the veh:cle, and 3s. to cover establishment costs and. profit. To the cost of the total time thus ascertained is added the running costs per mile for every mile run at 6.83d.
That first column under "Charges". is the basic figure from which all the others are calculated. The column for charge per hour is necessary because the customer wishes for a quotation in. that way. The figure for charge per mile is put in from the point of view of interest. • Also that "per mile lead," and these fignres_a.re calculated by dividing first. mileage run into charge per load; that gives the charge per mile, and next by dividing the lead mileage into the charge per mile, giving the charge per lead mile S.T.R.