OVERHEADS in town and country
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TN my previous article I gave some figures for operating costs under three heads: London, average and country.
The data relating to these is shown in Table I. 1 suggest that if we are logical, and if we adhere strictly to the rule that rates and charges should be assessed on a cost-plusproti t basis, then those rates and charges should be different in town and country because costs in town are higher than in the country.
Actually, I took three sets of figures, one dealing with " average " costs quoted from " ' The Commercial Motor' Tables of Operating Costs "; another with London, with which can probably be included large industrial areas; and costs in rural areas. They show that costs in London and similar areas are approximately 50 per cent. higher than those in the country. " Average " costs in the country are about 10 per cent, lower than in London.
1 concluded the article last week by referring to establishment costs, and promised to deal with those this week.
I shall show that the differences in vehicle operating costs in town and country are reflected in the establishment costs. Moreover, the differences in establishment costs are, as it were, cumulative and thus tend to emphasize and increase differences in the operating costs so that the net result is that the rates chargeable in those differing areas are higher in London, but need not by any means be so high in rural areas.
Wide Variation
Establishment costs vary between different concerns as well as between different places. These differences can be quite considerable, so much so that even to consider arriving at an average which could be used regularly in such investigations as this is quite hopeless. What I now propose to do is to set out a schedule of costs such as 1 have compiled from time to time and note how the figures, and especially the differences between town and country, can be appreciated, at least to the point of realizing what the difference in rates can be when these expenses, as well as the operating costs, are taken into consideration. These establishment costs figures relate to a fleet of five 5-tonners, so that their amounts in relation to the vehicles can easily be assessed. They are £306 per vehicle per annum in London, £216 average and £126 in a rural area. (For the moment 1 am ignoring shillings and pence. For full enlightenment the reader should turn to Table III where I have brought together the three main divisions of cost, namely, net operating costs, establishment expenses and profit, assuming the latter to be at the rate of 20 per cent. on cost.) To complete the picture; I have assumed that each vehicle carries an average of 50 tons per week and have worked out the rate on that basis. The enormous difference between the rates which can apply in a rural area and the other schedules is plainly seen. Now let me refer again to the suggestion that rates should be assessed on the basis of those costs which are highest, expecting those in the lower price areas to adhere to these high rates and be content to earn the extra profits which would thus come to them.
To discover just what those costs would be refer again to Table III. The weekly expenditure in the most expensive area, London, is shown to be £37 9s. 6d. Profit on that at 20 per cent. is 17 9s. 11d., which is not excessive. The B24 corresponding figure for the rural area is £25 5s. 2d. per week. If it be decided that the rural haulier must Charge the same as in the London area, his profit will be the difference between £44 19s, 5d., the recommended weekly revenue in the London area and the operating cost in a rural area, namely, £25 5s, 2d. His weekly profit under those conditions will amount to £19 14s. 3d. The majority of operators in rural areas will not agree to make these charges.
As a matter of interest, I can apply these figures to an actual inquiry. It comes from an operator who has just returned to the laaulage business." He is on the point
of quoting a price for the use of five 5-formers, He is situated in a country area, and the bulk of the haulage is in a small .district. Nevertheless he tells me that each vehicle will cover about 25,000 miles per annum. He wants to know what he should charge per mile.
I can, in the first place, give him his answer on the basis of the figures set out above. His annual expenditure, according to these figures, is £1,262 10s. Running 25,000 miles per annum, his cost per mile is just over Is. His profit on the 20 per cent, basis should, therefore, be 21d., so that his charge per mile should be Is. 23-d.
_Town Rates
Now suppose that the company who have asked for quotations also write to a haulier whose premises are reasonably near, but located in a busy industrial town, where the highest scale should apply. That operator, using appropriate figures for cost, would estimate his weekly expenditure as £37 9s. 6d. If he adds 20 per cent, to that his minimum weekly revenue should be not less than £44 19s. 5d., and to get that he must charge at the rate of rather more than Is. 94d. per mile.
The would-be customer, thinking he has made a mistake, tells him that he has received a much lower quotation, gives the name of the competing haulier and tells him that the other operator quoted Is. 21d. per mile. The " town " haulier "goes off the handle" and accuses the other man of rate cutting, in which, of course, he is quite wrong. At this point, the rural operator writes to me again and states that he has got the job and would I tell him whether or not he should buy oilers—his original inquiry said nothing about this, and I have admittedly assessed the rate in the belief that he was intending to use petrol. Now we must again revise those estimates. His running costs for oilers (reckoning on the basis of pence per mile) will approximate to the following: fuel, 2.25d.: engine oil, 0.20d.; tyres, 0.80d.; maintenance (d), 0.20d.; maintenance (e), 0.90d.; depreciation, Id.; total, 5.35d. per mile, which for a week of 500 miles, works out at £11 3s.
There will be a slight alteration in the standing charges. The item interest mu1t be increased because the oiler will cost rather more than the petrol-engined vehicle. The total standing charges wilt be £10, to the nearest shilling and the total operating cost of each vehicle will thus be £21 3s., compared with £22 14s. 9d. for the petrol-driven vehicle.
Recently I received a letter from a haulier on a subject within the scope of this article. It comes from an operator who writes: "1 do not seem to be making a profit from jny haulage business and I am wondering if my rates are too low." Referring to the particular job about which he is mainly concerned, he says that when the vehicles return to the garage each night they seem to be "all petrol and tyres." Referring to certain items of cost he says his tyres, which are of the 34 in. by 7 in. type, appear to do no more than 10,000 miles before they are due for the scrap heap which, he says, seems to work out at about £1 per 100 miles. He has tried to improve on this performance, but so far without success.
Is It Enough ?
His inquiry relates to the haulage of sand and gravel over more than moderate distances. One relates to a lead mileage of 74 miles, the other to a lead of 43 miles. For the first he is obtaining a rate of 10s. 6d. per ton. He is able to complete three journeys per day with overtime. Taking into account the fact that he runs 12 miles each way from his garage to the gravel pits, the total daily mileage works out at 246 and the suggested rate brings in £9 9s. per day. "Will that rate be any good to me?" he asks.
For 246 miles I would, at a rough estimate, say £12 and not £9 9s., basing that on a round figure of Is. per mile, which, in my view, is very nearly the minimum for which a 5-ton vehicle (the size he operates) can be run today. The fact that he operates from a rural area makes a little difference, as we have seen, and, as a result, it will be easy to show that about 11d. per mile is approximately what I recommend. Actually, earning £9 9s. for 246 miles means that he is getting slightly less than 90. per mile, which cannot possibly be enough.
It will be quite in order to take the figures already quoted for cost, except for the weekly mileage which, on the showing of this operator's figures, must be more than 1,200. His running costs per 1,200 miles will total £32 5s. Adding £9 6s. for standing charges makes the total operating costs £41 I Is. For establishment costs I take £2 10s., bringing the total outgoings to £44 is. Divide that by five, for the five-day week, and we get £8 16s. If, therefore, the haulier gets only £9 9s. per day he is making a profit of only 13s, which is clearly insufficient.
Taking the minimum profit of 20 per cent., which is £1 15s. to the nearest shilling, then the daily rate is seen to be £10 I ls., not so much as I suggested in my preliminary reaction but certainly more than the rate offered.
Whether a haulier is based in the town or country, it is important for him to keep a close tally on those of his outgoings only indirectly related to his vehicles.
S.T.R.