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FROM QUOTED RAT1 '0 FLAT RATES

13th January 1940
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Page 36, 13th January 1940 — FROM QUOTED RAT1 '0 FLAT RATES
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Which of the following most accurately describes the problem?

Examination of a Difficult Problem, That of Determining How a Series of Quoted Rates for General Haulage Can be Replaced by a Flat Rate

IN last week's article I described the relations between a large manufacturing concern and the haulier who had been, for years, accustomed to handle its traffic. That was the first part of the story of rates revision, the substitution of a scheme of flat rates for one which involved the haulier in quoting for nearly every load.

The haulier's fleet comprises 21 vehicles, of which 17 are petrol-engined 5-6-tonners of the 30 m.p.h. class and four are 7-8-tonners having oil engines. The average annual mileage per vehicle is about 36,000. The flat rate proposed was £1 per day, _plus 7d. per mile in the case of journeys which, out and home, did not total more than 100 miles, and 6d. per mile for longer trips.

The rate at first sight seems likely to be unsatisfactory, as £1 per day is, obviously, insufficient to cover even the vehicle standing charges, let alone making provision for overheads and a little profit on that expenditure. On the other hand, there is a reasonable margin of profit over the running costs in the mileage rate, and, at least so far as the smaller machines are concerned, it seems as though there might be sufficient profit in the mileage charge to cover the deficiency on the time charge. i • Examination of Operating Costs Necessary • That is true of the small machine. So far as the large vehicles are concerned, the mileage rate itself is also insufficient and it is clear, without any complicated figuring, that the flat rate proposed will not be satisfactory in respect of them. Some examination of the working of the fleet is needed, however, even for the small vehicles, in order to make sure that there is not a preponderance of days in. which the mileage covered is so small as to make the operation unprofitable at the rates proposed.

Obviously, the first thing to do is to ascertain the operating costs of the two classes of vehicle. That I have done and the figures are set out in Table I. The figures for running costs taken from the haulier's books relate, of course, to* pre-war costs. To bring them up to date 20 per cent, has been added. The standing charges need no explanation.

The figures for establishment costs are arrived at in this way. The total averages about £4,500 per annum, within a few pounds up or down. The total tonnage, reckoning the two sizes of vehicle as being 51-tonners and 7i-tonners respectively, is 123. Divide 1231 into £4,500 and we get £36 8s. 9d. per ton as the Overhead.

The vehicles are all fairly regularly employed, so that A26

it is fair to reckon the establishment charge per vehicle in proportion to its pay-load.That means that the 51-tonners must be -debited with 5i times £36 8s. 9d., which is £200 7s. 2d. per annum, or 77s. ld. per week, and the 7i-tonners, correspondingly, 103s. 1d. per week. Those figures appear in Table I.

The conclusions to be drawn from the data in Table I are that the small vehicles cost the haulier 37s. 11d. per day (say 38s.) and the large ones 49s. 10d. per day (say 50s.). That is, of course, additional to the running costs of 4.76d. and 6.24d. per mile respectively. It will be sufficiently accurate to take the running costs as 41c1. and 61d. per mile.

One item of information is still required before it is possible to try out the proposed flat rate to see if it is practicable or not. We must know the proportion of journeys under 100 miles and those which are over that limit. A close examination of the figures shows that approximately one in four of the journeys is short of the limiting figure, or, more correctly, that a quarter of the annual mileage, that is to say, 9,000, is run on shorttrips and the remainder on long journeys. Roughly, each week's work comprises, on the average, 180 miles per vehicle on journeys less than 100 miles all told, and 540 miles on journeys over that distance. . Now, the cost of one week's running of a small vehicle is 29 9s. 7c1. for the fixed charges-standing charges, plus establishment costs--and 214 5s. for running costs, a total of 223 14s. 7d. The revenue comprises, at the flat rate proposed, 25 for five days at 21 per day, plus 180 miles at 7d. per mile, which is 25 5s., and 540 miles at 6d., which is 213 10s. The total is 223 15s., and the margin of profit is 5d. per week! Ergo, the fiat rate will not do.

The revenue, for the turnover named, should not be less than 227 10s. per week. The question now arises, how must the flat-rate proposal be altered, in order that the revenue shall be about that amount? There are two obvious ways. According to one, the daily rate may be increased, leaving the mileage rate as it is. Now, the figures above show that the earnings on the latter total 218 15s. per week, leaving a balance of 28 15s. to be found by the daily rate. That will have to be 35s. per day. A scheme of 35s, per day, plus 7d. per mile for journeys of less than 100 miles and 6d. per mile for journeys of over that distance will, therefore, meet the requirements.

Alternatively, suppose we stick to the 21 per day, then there is 222 10s. to be obtained from the mileage rate. By trial and error methods, I have found that 81d. and 71d, per mile for short and long journeys respectively will give the necessary sum.

There is, of course, a third way of dealing with this particular part of the problem. It might be preferred, for example, to pay 305. per day and to add a little to the mileage rate. In that way, since a week's earnings on the time rate amount to 27 10s., the mileage rate must earn 220 per week. That can be done if the rates for short and long runs are 8d. and 61d. respectively. It is probable that this is, of the three methods, the best, since by increasing the rate for the short runs the risk

The revenue is no more than that already calculated for the smaller vehicles, namely, 223 15s. The larger vehicles would, therefore, be operated under the proposeescheme at a considerable loss.

Dealing with this problem in the same way as I did in the case of the smaller machines, I will take first a proposition that the 2.1 per day be allowed to stand and discover what the mileage rate will have to be, in order to show a revenue which must not, in the case of these vehicles, be less than 236 per week. Take away 25 for the revenue from the day rate and there is still 231 to come from the mileage rate. That must be at least is. per mile for the short journeys and 9d. per mile for the long ones.

On the other hand, keeping the mileage rates still at 7d. and 6d. leaves 217 5s, to be earned by the day rate, which, therefore, will have to be nearly 70s. II the mileage rate be fixed at 10id, for the short runs and 8d. for the long ones, the revenue from that source will total 225 17s. 6d., leaving 210 per week from the day rate which is 22 per day.

tio Flat-rate Figures for the Small Vehicles • Again, I should say that the third scheme is the best. My suggestion for the flat rate would, therefore, for the small vehicles be 30s. per day, 8d. per mile for journeys of less than 100 miles, and 61d. for those longer than that. For the large vehicles, 22 per day, and bid. and _ 8d. per mile for the short and long journeys respectively would be the rate.

This raises another difficulty, which, I believe, the manufacturer wished to avoid, namely, that he would have to discriminate carefully between the two sizes of vehicle, and would, naturally, specify the small vehicles for preference, but I will postpone dealing with it and yet another until next week. S.T.R.

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