Three-year Comparison of Costs
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OPERATORS' EXPENDITURE CONTINUES TO INCREASE
HE recent publication of the new 49th edition of "The Commercial Motor" Tables—of Operating Costs
d on the level of expenditure prevailing on June 9 has significance this year. A fortnight earlier the onal Board for Prices and Incomes had issued its first im report on road haulage rates in which a considerproportion was devoted to the subject of costs and movement in recent years.
aderstandabiy, therefore, there is even more interest usual in comparing the operating costs shown in the edition of the Tables with those of previous years. ?rdingly, I intend to make such a comparison here, ther with additional data relating to the percentage of item of operating costs as a proportion of the total also, the percentage increase over the three years.
sry and Practice )mparisons, to be truly valid, must relate like with like. excellent though this precept may be in theory, it is y to be achieved in practice. First, the tools of the -vehicles and equipment—are subject to continuing, it dramatic, change. But to offset any improvements is direction, and of particular concern to road hauliers,
e fact that their area of operation--namely the roads terminal points—are equally in a continuing state of ge and often unfortunately for the worse. Whilst wway mileage increases to the benefit of long-distance stors (but only then for a proportion of their journey) of productive time with its associated increase in
operating cost continues to arise from urban congestion. Overall, therefore, much as one would prefer to make a comparison on readily ascertainable and accepted facts as to operating costs, in practice some expression. of opinion is virtually unavoidable, however impartial one may attempt to be.
The First Objective
As staled in the introduction to the Tables, the first objective in revising successive editions must be to keep them as up to date as possible in respect of current movements in prices, wages and other costs. But such adjustments are not the only changes that will have taken place during the previous 12 months. For example, the apparently simple exercise of obtaining an average price for a particular size or type of vehicle may seem at first sight to present little difficulty. But as manufacturers add or delete particular models from their range, such action can affect the average price as compared with the previous year. Also, what was one year alternative equipment at additional cost might subsequently be incorporated in the standard model.
Arising from this latter development as well as changes in the quality of vehicles and equipment, any resulting improvement could be expected to be reflected in the performance and possibly lasting qualities of the vehicle, with resulting decrease in overall operating cost. Unfortunately. and because the Tables are intended to serve a practical purpose, the worsening conditions on the roads cannot be ignored or indeed segregated from the results obtained in actual operation when compiling successive editions of the Tables,
A Continuing Process
A further complication in connection with progress in vehicle design is that this is understandably a continuing process so that it may not necessarily justify making a change in operating costs on thts account in any one year, although ultimately the cumulative effect has to be taken into consideration.
Because the 7-ton goods vehicle fitted with platform body and oil engine is an intermediate and popular size of vehicle this has been chosen for the purpose of comparison. In contrast to the alternative specifications that are available for most of the multi-wheelers, the specification for the 7-tonner tends to be more consistent as between the various makes so that an . average price is readily
obtainable. • Dealing first with the costs as they applied in 'June. 1963. allowances had to be made that year for increases in wages paid to operating and maintenance staff and for increases in employers' contributions to National Insurance which commenced on June 3, 1963. New valuations of property made in April that year had effect on the rates paid by operators in respect of garages and depots. There was also some adjustment in the price of fuel oil (derv). spare parts and tyres.
With an unladen weight of 3 tons 4 cwt, the annual licence duty payable in 1963 was £46 10s. Calculated on the basis of a 50-week year to allow for two weeks per annum for drivers' holidays or major repairs to the vehicle, the equivalent cost of licences per week was 19s. 5d. Driver's wages, inclusive of insurance contributions and the adjustment to permit holidays with pay, then amounted to £11 2s. 8d. a week calculated on the basis of the RH174) regulations which then applied.
As previously mentioned, the coast of rent and rates was increased to the equivalent of £1 Is. 3d. a week. The cost of vehicle insurance varies substantially between one operator and another due to the increasing emphasis which insurance companies are attaching to individual accident records. In 1963 the annual premium was reckoned at £124 His, to provide comprehensive cover in a medium-risk area the equivalent of £2 9s. 9d. a week. Interest then reckoned at a nominal 5 per cent on the initial outlay of
£1,383 added 7s. 8d. a week. The resulting total for the five items of standing costs was therefore £17 Os. 9d. Taking 30,000 miles a year as a reasonable average for this size of vehicle, the resulting • standing cost per mile was 6-82d,
Running Costs
Dealing now with the five items of running costs, it was then assumed that fuel oil was purchased In bulk at 4s. 2fd. a gallon. With a rate of consumption of 15 mpg., the resulting fuel cost per mile was 3-35d., whilst lubricants added 0.28d.
Over the past few years there have not only been relatively minor overall percentage adjustments to tyre prices, but there has also been amendment to the prices of particular sizes of tyres, so that the resulting tyre costs per mile do not necessarily follow a recognizable, consistent trend. In this instance the tyre cost per mile was assessed at I-54d. Maintenance for this 7-tonner was reckoned to cost 2-71d. a mile, whilst depreciation added 1-69d. This latter calculation was derived on the basis of a vehicle mileage life of 150,000.
The total for the five items of running cost was therefore 9.57d. per mile, or £23 18s. 6d. a week. When these amounts were added to the standing costs already obtained, the resulting total operating costs were 16-39d. per mile, or £40 19s. 3d. a week.
The 1964 Figures
By June, 1964, the RH (78) wage rate applied. As a result, basic wages were increased by approximately 4 per cent whilst additional adjustments applied to night payment and subsistence allowance.
Running quickly through the five items of standing costs as they applied in 1964, licences remained the same at 19s. 5d. a week, but wages, as already explained, were increased to £11 I Is. 6d. for a basic 42-hour week. There was a slight adjustment to rent and rates 2s. 9d. a week), whilst the insurance premium was adjusted to £130, or £2 12s. a week, due to a slight increase in the initial outlay. on the vehicle to £1,409, as compared with £1,383 the previous year. For the same reason. there was a slight adjustment in the item of interest (Li 8s. 2d.), so giving a total standing cost in 1964 of £17 13s. 10d. a week, or 7-08d. per mile.
There were only marginal differences in the five items of running costs in 1964, as compared with 1963. so that the resulting total operating cost for this 7-tonner in 1964 was I6-63d. per mile, or £41 I is. 4d. a week.
However, when the time came for revision of the Tables this year--and, incidentally, the 49th edition-it was obvious that seldom had it been necessary to increase so many of the 10 items which go to make op the total cost of operating a vehicle.
The Biggest Increase
First, and largest in terms. of percentage increase, is the annual cost of licence duty, which wasinereased by 50 per cent in this year's April Budget. With the unladen weight remaining the same at 3 tons 4 cwt., the annual duty is now £69 15s., or if 8s. 9d. a week. Wages are once again up now, costing the employer the equivalent of £12 Os. 3d. for a basic 42-hour week. Throughout the country there is an increase in rating charges amounting to approximately 10 per cent, so increasing this item to the equivalent of El 5s. 3d. a week.
financing of vehicle purchase by small operators is Lbtedly becoming more difficult and expensive. Not is Bank Rate relatively high, but additions are 'only made to the prevailing rate of interest where operators are concerned. Accordingly, a rate of st of 7i per cent is now applied, and even this is ntially lower than the true interest rate included in d hire purchase.
h the item of interest now amounting to £2 2s. 3d. a the total for the five items of standing costs for a ier in 1965 is £19 14s. 6d. a week or 7.89d. per mile. ause of the addition of 6d. to the fuel tax (now ng 3s. 3d. a gallon) fuel cost per mile has increased 2d. whilst there has been marginal adjustments to ur other items, namely lubricants 0-29d., tyres 1-54d., z..nance 2.85d. and depreciation 1-72d. a mile, s gives a total running cost of 10-12d, a mile or £25 6s. k. Correspondingly the total operating cost is there8-01d. a mile or £45 Os. 6d. a week.
ts Compared nparing these results, it has been shown that the ;tanding cost per week in 1963, 1964 and 1965 were s. 9d., £17 13s. 10d. and £19 14s. 6d. respectively. the 1963 figure being represented as a notional 100. ;ure for 1964 is 10184, whilst for 1965 it jumps to I. Similarly the running costs per mile show an se from 100 in 1963 to 104.27 in 1965. Correspond
ingly the total operating cost per mile can be represented as 1963-100, 1964-101-46 and 1965-109.88.
As already indicated a yearly mileage of 30,000 was chosen as a reasonable average for this type of vehicle. Obviously, however, under varying operating conditions, the average mileage might be substantially lower or alternatively higher. Because the percentage increase in standing costs as between 1963 and 1965 is 15.74 as compared with 4.27 per cent increase in running costs, it follows that the proportional total increase in operating costs (9.88 per cent at 600 miles a week) will vary according to whether the average mileage is less or more than 600.
In order to assess the effect of any subsequent increases or welcome but unlikely decreases in operating costs, it is convenient to set out the 10 items of operating costs just calculated for this 7-tonner in respect of 1965 in terms of percentage, i.e. the total operating cost per mile being 100 per cent. The appropriate percentages for the 10 items are therefore:—Licences 3-19, wages 27-35, rent and rates 2-80, insurance 5.77, interest 4.69 (total standing cost 43-80), fuel 20.66, lubricants 1-61, tyres 0.56, maintenance 15-82, depreciation 9.55 (total running cost 56.20).
In addition to any general increases or decreases in particular items of costs, these percentages would also assist those operators who for one reason or another—for example individual purchasing arrangements or exceptionally arduous operating conditions—have need to substantially adjust any of the standard items.