Costing Road Tank Operation
Page 79
Page 80
If you've noticed an error in this article please click here to report it so we can fix it.
EVALUATION of bulk transport was the subject of an article in the series included in our bulk transport issue of December 4 last year. Recent official irveys show that a substantial proportion of goods
alleles are fitted with bulk bodies, including the carrying f liquid in bulk, But even in this already specialized field the variety of quids now carried by road is wide indeed. A correspondigly wide experience is necessary to operate efficiently a eet of vehicles of this type with all the attendant problems C the particular liquid carried. The opportunity is therere taken to return to this subject this week by recording (tracts from two recent papers on the carriage of bulk quids by road. As briefly reported in last week's issue, iese were presented to the Southampton centre of the tstitute of Traffic Administration on February 2 by Ir.' C. Watkins, general manager, and Mr. R. F. Sale, ansport contracts manager, of Wincanton Transport and ngineering Co. Ltd.
Briefly describing the growth of Wincanton Transport, ft. Watkins recalled that the company's first road tank as purchased in 1932 and had a capacity of 2.300gal. he formation of the Milk Marketing Board in 1933 was Fllowed by expansion of the dairy farming industry and lied transport services.
More recently, the Thorold Report to the Ministry of 3od included recommendations on the remuneration of ilk from creameries to town wholesalers, with the .oposal that rates should be "actual cost ". As a lartered accountant, Mr. Watkins pertinently commented, : was longing . to hear a definition of actual cost. pparently this committee did not wish the transport
operator to work at a loss, but it was Mr. Watkins' job to see Wincanton Transport operated at a profit. • Accordingly, even when price increases were halted, the company did not stop expanding its fleet but naturally became more cost conscious. Additionally, they developed other fields for expansion.
This aspect of Wincanton Transport was elaborated by Mr. Sal; as reported last week. In addition to milk, Wincanton Transport now moved large quantities of cider, detergents, petroleum and other liquids. Specialized experience at all levels was essential if a carrier of bulk liquids was to operate economically and at a profit, he said.
Regarding bulk milk collection, Mr. Watkins said he was sorry to have to admit that; although this development had made great strides in some areas, his company did not own one bulk milk tanker. He, personally, wanted to get into this business and offered to co-operate with the M.M.B. in two areas—one in Cornwall and one in Wales. After months of negotiations the former scheme fell through because there were insufficient farmers willing to co-operate, whilst the latter collapsed because the creamery did not consider there was any financial advantage.
Is It Worthwhile?
Briefly, the farmer had to decide whether it was worthwhile investing in equipment and providing the services which bulk milk collection demanded in return for a small premium added to the price of his milk. The creamery, on the other hand, had to be prepared to see less milk go through the factory (when whole tanker loads were diverted elsewhere) and his churns became redundant, whilst his washer and other equipment were used less, and also to accept a lower margin per gallon on the handling of the milk.
The position of the transport operator who owned a bulk milk collection tank was much the same as that of the operator who collected churns. He had to negotiate a rate with the M.M.B. for each creamery to which he delivered. The cost of a tanker (complete with vacuum pump and all other equipment) carrying 1,500 gal. of ex-farm milk was about £5,000, and the transport rate was expressed in pence per gallon. The gallonage carried, which in the nature of things could not be constant, was therefore an important factor.
Cost control was then examined by Mr. Watkins. In a business handling more than 1 m. gal. of liquid every day, and likewise each day covering a distance equivalent to 14 times round the world, cost was of vital importance. His great worry was how to ensure that all spendings-whether on initial equipment or running expenses got value for money. In a period of inflation this subject ought to be of more general importance than it was, but if expenditure was deferred then more was spent in the long run. Consequently. one's attitude to spending---whether
realized or not—tended to be coloured thereby and momentum was added to the inflationary spiral.
Wincanton Transport endeavoured to make its foremen and managers alive to what the company was spending. "We give them no peace. We are drumming it in all the time ", Mr. Watkins added.
Punched Card Accounting
An I.B.M. punched-card accounting system was operated, based on a card on which drivers marked their journey details. From these were produced daily operating reports giving all details of journeys, mileages, time and gallons carried. Then from these charges to customers were built up—whether on a gallonage, tonnage, mileage, hourly or daily rate, or a combination of these. Statistics to which were related income and expenditure were also obtained. Two carbon copies of all reports were taken, which were regularly sent to the foremen and managers on the spot. These were very important, Mr. Watkins insisted, because the company believed that it was only by telling people over and over again what they had spent that they realized their spending was being watched.
Wincanton allocated costs and revenue to vehicles withir classes of vehicles and branches and within branches tc classes of work. Coding on the cards enabled the kinc of goods carried to be identified. Finally, a profit-and-losi account was produced showing the margin on each class oi work and a total for the company. This was done on computer.
Only Half An Answer On the subject of interest on capital and profit margin Mr. Watkins had this to say. The old railway slogat what the traffic will bear' was only half an answer it today's competitive conditions. No one would want it( invest in a business unless it was yielding at least 6 per cen and was covering its dividends at least twice over. Reduce( to its simplest terms, this meant at least 12 per cent of thl investment. Moreover, the investment was not only thi cost of the vehicle. An operator needed buildings, fue storage, maintenance, equipment, including breakdown vehicles, stocks of materials and working capital equal ti at least six weeks' costs (assuming customers paid monthly) and all this added up to a very high figure. My estimat is an addition to the cost of the vehicle of 60 per cent' Mr. Watkins said.
Regarding replacement of vehicles, and having live( with the problem for 20 years during changing times, h confessed that he still did not know the answer. The corr pany produced figures showing in sterling and pence pc mile the money spent on maintenance of each vehicl during the whole of its life. If the accumulating total wa less than the standard Wincanton considered, it was " nc doing too badly ".
Maintenance Costs But this did not necessarily mean that the compan could afford to keep the vehicle running. As an exampl( said Mr. Watkins, it was assumed that a vehicle was si years old on which maintenance to date was £2,000 again: a standard of £2,500 and a budget of £1,000 in the sevens year If the company spent the £1,000, the total cost ft seven years was £3,000 against a standard of £3,500. 1 instead of spending the £1,000 in the seventh year, th company replaced the vehicle at a cost of £7,000, it woul have a depreciation charge of £1,400 (on a five-yea replacement plan) and little maintenance, so that II trading account would show a worse position. Whilst 11 trading account on which the operating efficiency wt judged did not allow for income tax, Mr. Watkins wl aware that on the purchase of a vehicle costing £7,0( there was a Government subsidy in the form of investmei allowance of £1,180.
Insurance of accidental damage was straightforward, bi repairs took time and revenue was lost. Work was evt lost altogether through inability to fulfil commitments c account of accidents. This loss of use, Mr. Watkins adde was not one which could easily be covered by insuranc Another risk was that of delivering loads to the wrol place, bearing in mind that many such loads were pump straight into the plant of the consignee. Thus, high-octai fuel was delivered straight into jet aircraft, whilst a vatic of liquids was conveyed for a variety of processes. it 111 been known for the wrong grade of oil to be delivered a heating installation and, Mr. Watkins added, "I shudd to think what would happen at Harwell or one of t] atomic energy places if we slipped up and our mistake w not spotted ". Because of this, Wincanton had a pub liability policy which it hoped covered all possibiliti where a large claim arose.