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LOSING £5 A WEEK ON CONTRACT WORK

13th June 1947, Page 36
13th June 1947
Page 36
Page 37
Page 36, 13th June 1947 — LOSING £5 A WEEK ON CONTRACT WORK
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Which of the following most accurately describes the problem?

IHAVE recently received many inquiries dealing with contract A licences, and I hope that all those who are dabbling in this class of work understand what they are doing, and fully appreciate their legal limitations. I have the idea that some operators are entering this work because they have discovered that contract A licences are easy to obtain. If they think they will be able to "earn a little hit on the side" with vehicles thus licensed, I should warn them against any such idea. They will undoubtedly come adrift and the penalties, quite rightly, are severe.

Contract A licences are easy to obtain because, in effect, they are the equivalent of C licences. A vehicle authorized to a haulage contractor under a contract A licence can do only the same work as it would be allowed to do if it were operated by an ancillary user under a C licence.

A contract A licence is issued to an operator who can produce a properly signed and drawn-up contract with a trader or merchant for a period of not less than a year. The vehicle licensed may be used in the service of only that merchant or trader. It may not carry goods belonging to anyone else, and those conditions are strictly enforced.

The Only Outlet for Initiative

One reason, no doubt, for the interest which is being taken by so many operators in this field of activity is that contract work is really the only outlet available for energetic and enterprising operators. Additional A and B licences are increasingly difficult to obtain, and there is no doubt that many hauliers feel that they are justly aggrieved in having to turn away business.

The idea of catering into a haulage contract is attractive, but, as I have already suggested, it is not always appreciated that operation under a contract A licence is not likely to be as remunerative as under an ordinary A licence. With the latter the operator can obtain return loads and carry for whom he pleases.

Unfortunately, many operators, anxious to obtain these contracts, are quoting cut rates in order to get them.

In competing for business of this kind, even the timehonoured method of ascertaining what a competitor has 'quoted and offering to operate the contract for a pound or two a week less has not been overlooked. Such a case came to my notice a short time ago. It concerned the hire of 10-cwt. vans.

Conditions of Contract

There was nothing mean about the requirements stipulated in the contract. It called for a van of the capacity named, painted and written to choice of colour and design, taxed, insured under a fully comprehensive policy, the contract to cover provision for all repairs, including replacement of tyres and maintenance of the paintwork in first-class condition. Each van had to be touched up and varnished once every 12 months and a regular inspection had to be made by a fully qualified mechanic, who was to check and replenish lubricating oil whenever necessary. There was provision for a spare van to be kept in readiness and available instantly in the case of a breakdown.

Those having experience of this class of work will appreciate that the foregoing is a brief summary of a normal form of contract for hire. The conditions of these contracts are usually fairly stringently applied against the contractor, who is almost invariably expected to live up to the spirit, as well as the letter, of his agreement. The stipulation that the vehicle shall be touched up and varnished annually is rn indication of the way in which the contract as a whole is likely to be interpreted. It follows from that alone, apart from the possibility of any breakdown, that a spare vehicle would be required for at least two weeks out of the 52. It is practically certain that on the average the spare vehicle would be required for one month in every year.

Further particulars of the prospective contract were given in the course of correspondence. The work involved falltime use of the vehicle for six days per ireek, during which more than 450 miles would be covered. Readers should note the probable mileage and that servicing operations

would have to be, carried out on Sunday at double rates of pay.

The price quoted-1 have it in black and white before me —was £10 per week. It needs no consideration by any experienced operator to show that the price is ridiculous and that neither party can derive eermanent satisfaction from the contract. The amount quoterl is insufficient to cover the bare operating cost of the vehicle, without making any provision for establishment costs, which would be heavier in this class of work than ordinarily. That such an offer should be made, however, is proof that there are still many in the industry who need guidance as to the rates they should quote.

To demonstrate the hopeless inadequacy of the proposed rate, I will first assume that everything is in favour of the contractor, and then take a more common-sense view.

The petrol-consumption rate is not likely to approach 25 m.p.g., but I will, assume that figure as a basis, also that the fuel is purchased at Is. Rd. per gallon. The cost per mile for petrol is, therefore, 0.80d. per mile. For lubricating oil I will assume a consumption of a gallon for ROO miles and that the price is 3s. 6d. per gallon. I must apologize to the oil companies, for assuming that a good quality lubricant is obtainable at that price and that extra expenditure on maintenance is not likely to result from its use. On the basis of those figures, at any rate, the lubricating oil cost per mile is 0.05d.

A set of tyres for this size of vehicle at to-day's prices will cost approximately £.18. If I make the optimistic assumption that a set will cover 18,000 miles, the cost of tyres is 0.24d. per mile. For maintenance, having in mind the special requirements of the case, I should ordinarily expect an expenditure of at least 0.60d. per mile. I will assume that this haulier, as the result of exceptionally fortunate conditions, can reduce that expenditure to 0.40d. per mile.

In calculating depreciation, I will assume that the initial cost of the vehicle, painted and lettered, is £318. Deducting the price of a set of tyres, the net cost is £300. After a life of 80,000 miles, which, incidentally is much too great, the residual value will be £30. Depreciation is, therefore, to be calculated on £270, and equals 0.8Id. per mile. The grand total of running costs is thus 2.30d. per mile, and, at 450 miles a week, amounts to £4 6s. 3d.

Standing charges, at a modest estimate, will total £5 18s. per week, comprising tax, 6s.; insurance, I2s.; garage rent, 5s.; interest on first cost, 5s.; driver's wages, including insurances and holidays with pay, £4 10s. The bare cost of operating this vehicle must, therefore, be at least £10 4s. 3d.

Loss Inevitable The foregoing is merely the bare cost of operating the vehicle. There is no provision for establishment costs. In considering the amount to be allocated under this heading, I still argue on absurdities, and assume that the establishment costs amount to no more than £1 per week. The total all-in cost cannot thus be reduced below £11 4s. 3d. per week, as against a quotation of £10 per week.

Now I think it is worth while to devote a little time and space to considering the real costs. Running costs per mile are more likely to approximate to the following estimate:— Some comment on these average figures may be advisable. In the first place, the work for which a 10-cwt. van is usually required involves frequent stops and starts and travel in congested area-.. In those circumstances, to expect even 20 m.p.g. is optimistic.

I have always found that oil consumption is largely pro rata to petrol consumption, so that whereas in the former case I assessed the oil-consumption rate at 800 m.p.g., it is reasonble to expect that oil consumption will be 600 m.p.g. For tyres I have taken 15,000 miles, as against 18,000. For maintenance I have gone back to the average figure of 0.60d per mile which I mentioned in an earlier part of this article

Depreciation is calculated in the same way as formerly except that, instead of 80,000 miles, which I have already stated to be an excessive figure, I have taken 60,000. Most light vans covering 450 miles per week will be due fot renewal a that period and the cost of depreciation will dm, be I.08d. per mile.

The total running cost per week, on the basis of 3.07d. per mile, is £5 15s. lid. 1 will assume that the standing charges are as quoted before (£5 18s.). For establishment costs I propose to take £1 10s. per week as a minimum. I have already pointed out that at the !east the operator will have to find a spare van for a fortnight in the year, and it is much more likely that the average will be four weeks.

£15 a Week a Fair Charge

Now, as I shall shortly demonstrate, the proper rate of hire for a vehicle of this description is £15 per week. If we deduct the driver's wages, the operator will still have to pay £8 to £10 per week for a replacement van, while the one hired is out of service. In a year he will pay £40 to £50 for hire, or approximately 16s. per week as part of his establishment costs. Consequently, I am certain that £1 10s. per week for establishment costs is irreducible.

That sum brings the total cost to £13 3s. lid. per week. The profit ratio in contract work I have always stipulated— and I find that most experienced operators agree—as 15 per cent., and in this case equals nearly 12. The appropriate hire charge is, therefore, about £15 3s. per week. Referring to "The Commercial Motor" Tables of Operating Costs, I find that the figure recommended for an 8-l0-cwt. vehicle travelling 400 miles per week is £15 and one travelling 500 miles per week is £15 18s., so that on that basis

the average charge will be £15 9s. a week. S.T.R.

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