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Influence of Area Location on Comparative Costs

13th July 1940, Page 24
13th July 1940
Page 24
Page 25
Page 24, 13th July 1940 — Influence of Area Location on Comparative Costs
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Which of the following most accurately describes the problem?

IHAVE already shown that, in establishment costs alone, there may be such a divergence, as between a haulier stationed in London and one whose headquarters are in a rural area, as to make all the difference between profit and loss. The actual difference was shown to be approximately 4450 per anoum in respect of an average of eight

vehicles. This is, approximately, 22s. 6d. per week per vehicle.

In other words, the operator in a rural area can afford to work for 22s. 6d. per week per vehicle less than a fellowoperator in London. He still earns the same net profitand that is in relation to establishment costs only. There is also considerable difference in operating costs, as I shall now show.

• When a Lower Net Profit Satisfies • Furthermore, an operator living in a rural area is often content with a net profit lower than that which his London contemporary needs, and, whatever we may think of a man who cuts rates for any reason whatever, there is no sense in blinding ourselves to facts such as these.

To simplify the problem, I will stick to sand and ballast traffic, which is purely local. I propose, also, to adhere to the size of vehicle mentioned in the previous article, namely, a 6-tonner. Tipping wagons are practically essential for this class of traffic. That, unfortunately, lifts the vehicle out of the 30 m.p.h. class, because such vehicle of 6 tons capacity cannot be built to come within the limit of 2/ tons unladen weight.

That consideration does not, however, affect our argument, because the various operators we are considering will all be on the same level in respect of that factor. It is, however, important from the point of view of costs, because it affects such items as taxation and most of the running costs.

Running costs are higher, in this kind of work, than the average. Petrol consumption will be at the rate of about 9 m.p.g. and, assuming petrol at is. 8d. per gallon, it means that the cost per mile will be 2.22d. Lubricants will cost 0.14d, per mile. Tyres, nowadays, for a vehicle of this type, will cost at least 460 per set. It is not usual to obtain more than 20,000 miles of life from a set of tyres on this class of work, so that the cost per mile for tyres is 0.72d. The foregoing items of cost will not differ to any considerable extent, as between one area and another. That cannot be said of the two remaining items of running costs, namely, maintenance and depreciation.

Maintenance of this type of vehicle in pre-war days amounted, in a Grade I area, to 1d. per mile. That is a figure I have confirmed from many sources and if there be any who doubt it I ask them to go through any figures they may have relating to the maintenance of such a vehicle throughout its life, not merely during the first year, and not even the first and second years of its operation. That id. provides for repairs and upkeep arising from only wear and tear. It does not cover expenditure on washing, cleaning, greasing, or daily and weekly adjustments and attention.

If the amount be accepted at id. per mile before the war, it is 1/d. to-day, the increase arising chiefly because of delays in getting spares, which means that the vehicle is laid up, so that its owner loses what it would otherwise be earning if it were on the road.

The variation in the amount of this item from one graded area to another can be assessed only approximately. If it be lid. in a Grade I area, it is probably 1.3d. in London, 1.2d. in a Grade II area, and as little as id. in a Grade III area, where labour is cheaper and where improvization-the use of materials and parts which, elsewhere, might be discarded-is customary, and tends considerably to reduce the expenditure_ The other part of maintenance mentioned above will cost 4c1. in a Grade II area, 0.3d. in London, 0.d. in Grade I, and 0.2d. in Grade III. The total cost of maintenance may, therefore. Vary as much as 0.4d., being 1.6d. in a London area as against 1.2d. in a Grade III area.

• Why Depreciation is Varied •

We come next to depreciation. Here a slight digression from my main theme is necessary. I have increased depreciation figures, in conjunction with all other running costs, to accord with war-time increases in materials. Those who are asked to pay the rates which I recommend are inclined to question this attitude. They say the vehicles are still the same, and they cannot understand why depreciation, which they assume is based on the initial expenditure on the vehicle, should be varied. My answer is that depreciation, as it is understood in this matter of assessment of running costs as a basis for rates, is the amount which is presumed to be set aside towards expenditure on the replacement of vehicles. As that replacement will, in the future, cost more, the provision for it, which is what I mean by " depreciation," must be increased accordingly.

In this case, therefore, in considering depreciation, regard must be had to the probable cost of new vehicles of the type under discussion if bought new, within a reasonable period from now. It is necessary, also, I admit, to appreciate the fact that allowances for secondhand vehicles are better than they were pre-war.

It is probable that a new vehicle would cost £460, so that the net cost, which is the initial outlay less the cost of tyres (£60), is £400. Presume that £60 be obtained off the old vehicle in part exchange, and we have £340 as the basis for calculation of depreciation per mile. That sum, over a life of 100,000 miles, is 0,62d, per mile.

Operators in London and Grade I areas must set aside rather more for depreciation than others, because competition is tending to give advantage to those whose vehicles are up to date and reasonably smart in appearance, and that applies even to machines used for the haulage of sand and ballast On the other hand, in rural areas this matter of appearance and up-to-dateness is of comparatively small importance. (See Table L) One 'point more before we turn to the standing charges. The foregoing figures are general in their application. It is quite possible for an occasional operator in London or a Grade I area to cut his running costa to the level of those of a man in a rural area. It is just as likely that a rural operator may find his expenditure to be as much as that which I have set out as applying to a London area. These, however, are exceptions, In Table II, the standing charges • are set out. Little explanation is required of these, only that in the item wages there is provision—to the extent of 4s. per week in London, Grade I and Grade II areas, and 3s. Cid, per week in Grade III areas—for the three insurances, National Unemployment, National Health, and Employers' Liability, and for the expense involved in allowing drivers holidays with pay.

I shall enlarge upon these matters later. S.T.R.

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