FLAWS IN YARDSTICKS FOI ATES FIXING
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Various Ways of Measuring the Worth of a Motor Vehicle and its Capacity for Earning Profits: Some Misunderstandings
0 F late years, the phrase "a yardstick for the industry ' has becamefamiliar to all of us. Chiefly, it . has been used by those man3i well-Meaning people— some of them actually outside our industry—who have been so btisily 'engaged in 'trying to devise a sChedule of rates
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which hauliers shoukl charge far their work. . Feeling, for reasons which I can well appreciate, that there may be scope for --eriticisni Of the schedules thus presented, attempts have been Made to disarm such criticism in advance by pleading for consideratfon of the schedule as being a yardstick by which all other suggested rates may be measured, •
The term has, in fact, become so familiar that it comes to mind unbidden in application to all sorts Of problems. It came to me, for example, in just that way when I was making some investigations into the comparative merits of competing makes of chassis, So that I could properly advise a haulier who was contemplating the purchase of one or other of them.
Should Earning Capacity Be the Basis?
. One of the people with whom I discussed the problem suggested that the basis for comparison should be the
earning capacity of the vehicle. He assessed that at £20,000, for a. 6-ton, oil-engined, 30 mlp.h. double-drop. sided lorry: I made no attempt at the time to check the figure, but made a mental note of it. The method of measuring the value of a vehicle was quite new to me; it might prove useful some clay. It would, perhaps. do as a
yardstick. .
• Having finished my investigations, I thought I would go into this yardstick idea, and check up on . my friend's estimate. I was surprised at the result. -I took, first, the figures from " The Commercial Motor " Tables of Operating Costs.
• In a Week during which the vehicle covers 400 miles. the fair—and minimum,--reve_nue is quoted, at' £25, as against a vehicle operating cost of £17 17s., leaving a margin of £7 3s, for gross profit, i.e., establishment costs plus net profit. If I take the establishment•costs to be £4 per week, there is £3 3s. left as. net profit for the same period; that is 1.89d. per mile. To earn £20,000 the vehicle would have to last for 2,540,000 miles! Something wrong 'there. : Suppose the vehicle runs for 240,000 miles, an outside figure—in peace time at any rate. In that case it would earn £1,890. If, as is proper, I take an average life of 160,000 miles, I get £1,260.
Suppose the 'vehicle runs 800 miles per week. The revenue earned should be, according to The Tables, £35, whilst the operating costs are £26 14s. The margin 4or gross profit is £8 6s. and, with establishment costs at,' say, £4 Os., the net profit is £4, which is only 1.2d. per mile. The maximum earning capacity of the vehicle, assuming a life of 24,000 miles, is thus no more than £1.200. Taking, as is more reasonable, the -average life of 160,000 miles, the
earnings drop to £800. .
A20 ' • . Now, an interesting point arises 'here, to which I would like to refer before proceeding with my main argument. •
Extremes of initial cost -for this type of.vehicle are £800 and 21,200 (round figures). The average expectation. of life, in normal cirCurristances, is 100;000 Miles for the former and 200,000 miles for the latter. At 900 miles per 'week:, therefore', the foriner would'earn £787 10s., And the latter £1,575. At 800 miles per weekathe corresponding figures for earnings are £500 and £1,000 respectively. The argiv mkt in favour of paying a good price for a vehicle in the first place is thus considerably strengthened, and this new point is additionalto these substantial ones enumerated in my recent articles.
To return to my problem. What did my friend meaa by stating that a vehicle of this type could be expected to earn £20,000. He is a knowledgeable fellow, whose juclgnient I have, hitherto, always found to be reliable.
Taking the average figtire for expectation of life, namely, 160,000 miles, the, vehicle would have to earn 2s. 6d.• per mile run. That is obviously out of the' question, even if I accept, as it seems I must, his interpretation of the word " earnings" as " gross takings.". II II I take the outside figure of total mileage, namely, 240,000, then. Iconclude that he expects the vehicle, to bring in, a 'gross revenue of is. 8d: per mile.
That,T think, must be the answer. . He was assuming a maximum mileage and his. word " earnings " means total, takings, whereas when I use the word I am thinking in
terms of 'net profit. Our yardsticks are quite different, although if they beunderstood, and used as they are meant to_be used, .both are useful in their way.
An R.T:C.'s Idea on Yardsticks While I am on the subject of yardsticks here is another which has intrigued 'me for a long while. It is not mine. but comes from no less an authority than Major F. S. Eastwood, North-eastern Regional Transport Commissioner.
once said that a gallon of petrol .should earn 15s. The. occasion was sonic time ago--about three years, possibly more—and he may have seen fit to .alter his opinion since. The idea attracted my notice at. the time, but up till now. I have dot had the opportunity to try it out. This seems to he a suitable occasion.
How much can 'a haulier earn with a gallon of petrol. and what does the R.T.C. mean by the word " edrn "? This time, in assessing potential revenue, I, Will take my data from a schedule of rates published by the Northeast of Scotland Road Transport Association, For a lead of 12 miles the rate quoted is Gs. 3d. per ton for ordinary types of vehicle carrying 4 tons or over per load. If tippers be used an increased charge is held to be justified, but what that charge should be is not stated. I propose to assume, in this ease, that it is 3c1: per ton, bringing the rate to 6s. 6d. per ton. Now, in a nine-hours day,. under normal conditions of working, with the vehicle loaded by chute and unloaded by tipping, it should be possible quite comfortably to complete
four round journeys per day, and one on Saturday, making .21 journeys per week. and carrying a load 9f six tons each trip. That • is 126 tons per. week for a mileage of 504. The number of hours worked, need not exceed the guaranteed 48, comprising nine hours each day from Monday to Friday inclusive, and three hours on Saturday. • According to "The Commercial Motor" Tables of Operating Costs, the total standing charges for a 6-ton petrol-engined vehicfe,are 26 14s. To that must be added 10s. per week on account of the heavier insurance premiums that hauliers must pay, and 2s. 6d. per week for increases in wages since the current edition of The Tables was compiled. That brings the total to £7 6s. 6d. per week. Take establishment charges at £4 13s. 6d. and there is a total of £12 per week for fixed charges.
The running costs per mile are quoted at 7.22d. and for 504 miles that is £15 10s., as near as makes no matter. The total expenditure per week is thus £27 10s.
The revenue is that accruing from 126 tons at 6s. 6d. per ton, which is £40 19s., say, £41.
In the course of travelling 504 miles this vehicle will probably consume about 56 gallons of petrol. 'According to Major Eastwood it should, therefore, earn £42. It seems clear, therefore (a) that the earnings of a 6-tonner according to this Scottish scale, approximate very closely to the R.T.C.'s yardstick. Further, it seems obvious that when Major Eastwood uses the word "earnings " be means gross revenue.
Scottish Schedule Applied to Longer Lead However, I think that before I leave this particular aspect of the problem, I should try out one or two. more of these Scottish rates, about which I am a little uneasy. Take a longer lead: 60 miles is the maximum, for which the rate, for 4 tons and over, is 13s, 9d. per ton. Now, it is conceivable that a 6-tonner carrying grain over a 60miles lead could % complete one journey per day, five days per week, plus a short run of, say, 15-miles lead on the Saturday, without the complication of overtime.
The mileage covered would, in those circumstances, be 630 per week. Take £12 per week as the fixed costs and add £18 9s. id, (say, £18 10s,), for 630 milesat 7.03d.
per mile, then the total cost is £30 10s. The tonnage carried is 36, of which 30 is over a lead of 60 miles, rated at 13s. 9d, per ton. The total revenue is, thus, £22 12s. The profit, it may well be said, is " negligible." Using Major Eastwood's yardstick, about 70 gallons of petrol will have been consumed. At 15s. per gallon, the earnings would total £52 10s., which rather goes to show that Major Eastwood has 'a better idea of what rates should he than have those who planned this schedule.
There is yet another kind of yardstick, very popular with many hauliers. A minimum, daily earning is assessed for each vehicle, and the owner is content if that minimum be reached or passed. It is quite a good scheme, as a sort of ready reckOner, but there are risks attached to its unintelligent application.
What the minimum figure should be can easily be ascertained by reference to "The Commercial Motor-" Tables of Operating Costs. As an example, take the type of . vehicle I have been discussing in part of this article--a petrol-engined 6-tonner.
Assume that the operator knows, from experience, that his average mileage is 600 per week. According to these Tables his weekly revenue should be not less than £32 10s., plus any allowance for overtime and special expenditure, such as the employment of a second man on the vehicle.
In the absence of payment for overtime or any other of these supplementary items of expenditure, his daily earnings can be reckoned by dividing £32 10s. by 5f-the number of days constituting 'a working week. That is to say, the minimum daily revenue should be £5 185. 2d., say, £6. That man may rest fairly secure, if his daily reVenue from the vehicle does not fall below £6, always provided, of course, that there is no change in the class of traffic he is carrying, or the lead distances. If the lead Mileage increases, for example, it might well happen that his w-eekly mileage would rise, perhaps unnoticed; to 700 per week. In that case his figure of £6 is 10s. short of what it should he, and if he goes on for long under the new conditions at that figure per day his net profit would cease to exist. There are, however, other and more insidious ways in which an operator who relies tho much upon this £6 per clay may find himself at a loss. Take the operation of thisScottish schedule of rates as an example. A weekly mileage of 600 is equivalent to approximately 110 per day. Now that might be made up of one round journey, 55-miles lead, earning a revenue, at 13s. per ton-the prescribed rate, according to this` schedule-of £3 18s. per day. A bad day that.
How AS Per Day Yardstick Works Out
On the other hand, if instead of one journey the vehicle makes two journeys of 27 miles each, the revenue will be 12 times 8s. 9d., Or £5 5s. If it makes three journeys of 18 miles each, as might be practicable in favourable condi tions, the revenue will , be 18 times 7s. which is £6 10s. 6d,.
It is to be imagined that an operator who reckon:, his earnings by the yardstick of £6 per day will decline the traffic of 55-miles lead, which returns him only £3 18s. He may be dubious about the 27-miles lead 'work, which earns no more. than £5 5s., but takes it thinking that the extra 10s. per day on the I8-miles lead will compensate. Actually, it does not, unless there be a considerablip preponderance of loads over the shortest route. In that £6 per day there is a margin, for net profit, of 15s., so that on those days in which he earns £5 5s., he is working for nothing. On the days when be earns £6 10s. his net profit is £1.5s. He,must,. therefore, have at least three days out of every, five on the short-distance work if he is to maintain his standard of profit. S.T.R.