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A BUYERS' MARKET

S OLVING THE in Road Haulag( P ROBLEMS OF Brings a Return to the Pre-war Evil of THE CARRIER Rate-cutting and the Problem of the

Back Load

D0 you remember the days of cut-price cigarettes, when the manufacturers tried every way of preventing supplies• reaching the cut-price merchants? Do iou recall the times when no one everthought of paying the list price for a car or a lorry until he had tried every

. Possible method of getting a Jake-off—and he usually succeeded? Do you recall when hauliers used to quote, or gladly accept, rates which were actually below the bare cost of operating their vehicles? '. .

• Nowadays, smokers are glad to . get cigarettes at the standard price, and those Who. want mo(or :Vehicles. will readily pay "over the odds" to obtain them. There is,' with these and many other commodities, no sign of a return to the Old practices. But , what of haulage? With many• hauliers it is already "quite like old times."

rhe cigarette manufacturers had got on top of. their . problem before 1939. Thee rocUor trade was struggling hard to solve its own, but was handicapped' by the fact that there .

. were so many ways of covering saleS at below list prices.' it is .ironical that to day the motor trade is .strugglingAnSt'j

..•as hard to prevent irmieq-firt-ii, prOtiteerint .in-.,tIte..,Wei,ofused cars by selling tbcrottiprices exceedini tin:A-et-Rioted , ' in the lists: ' The haulage industry, waS gradually succeeding On part„ I . hope, as the result of the COMO-MOUS effOris'ofthe writer). in making the majority of operators cost—and " reasonable•rate

• .

.--conscious, when war conditions temporarily solved that problem by making it possible for every operator to obtain all the traffic with which he could cope, without there being any need, real or fancied, to cut rates to-get it.

The Part-exchange Menace The biggest difficulty with which the motor trade had to contend in the fight to stop price-cutting in cars and lorries was the part-exchange deal, whereby the buyer almost always had a second-hand machine of some sort .10 offer to the trader as part of the transaction of purchasing a new vehicle. If the intending buyer was without -a second-hand vehicle he was always able to obtain one from the scrap heap for 4 fiver. He invariably expected anything from £50 to £150 for it in part-exchange.

' The haulage industry had a similar problem—the return load. That problem is on its way back, and when it does really return in earnest it will be aggravated by the conditions which will then prevail in the free haulage industry, namely, the compression of that industry into circles of 25 miles radius.

The ruin of the haulage business, in anything like normal tines, has always been the man with the empty lorry; the man-who finds himself with a lorry a' journey's distance from home and with the cost of the run home paid, or at least partly paid in his charge for the outward load, He sees in a return load—at any price—a revenue which, in the condi'lobs then existing, is all, or nearly all, profit.

• . If the haulier be properly paid for the contract upon Which he is engaged, which may merely consist of loads in . one direction only, then obviously anything which he may

. . obtain for a return' load is net profit. Further, if his contract be not such a profitable one--if it be one on which he has already been engaged in the practice of rate-cutting—then every penny from the return load goes towards making that

. , contract profitable, so that it is rarely the case that there is no profit on a return load. • it16 The trouble is, of course, that the prices accepted for ttk: return loads tend to become the highest prices which en tomers will pay, and the effect on the haulage business t a whole is disastrous. Return loads are almost invariab taken at reduced rates, hence the unfair competition.. The man with a load to offer having once experience the advantage of giving it to a haulier who is looking for return load, looks again for that advantage when he h: another load to offer and, consequently, is apt to be scornfi of the prices which are tendered by haulage contractors wh are on the Spot and, tberefare, quoting for an outward foal As this return load bogy is not confined to any one local i the evil spreads.

25-mile Radius and Return Loads it might be thought that when hauliers are limited in the ' scope to an area 0E25 Miles radius there will be a tendert( fcir this habit to decrease, for the reason that the distanc( -are-so-short that return loads will not be worth While. Ttu not appear to be the case, if I may judge by an exam!). Whieh has been brought to my notice. Those limited COI

,

.clit ions. admittedly, have not yet arrived, but this example one .which relates to short-distance haulage and is then fore, the' sort of thing which is likely, to happen.

. Before going into the matter I should like to make it die: that I am fully alive to the importance and the effect a fundamental law which applies to dealings in any con modityand I include haulage service under the ten commodity—when a freely competitive market exists, I a: referring to the inexorable effect of the law of supply an demand, admirably and tersely summarized by the late Lot Bearsted when, in reply to criticisms of the risng prk . of petrol, stated that "the Price of any commodity is wh. it will fetch."

This same law is nowadays more commonly referred t by the use of the terms "Sellers' market" and "Buyer market." I have, in self-defence, to let it be known di;

• . 1 am acquainted with the law because, in that way, I ca answer in advance the criticism which so often comes m way: "it is all very well for you to tell us what we shout

• charge, but pay us a visit and try to get thkise rates you self."

Know Your Costs do know that there are times, hard times I call then when operators find it difficult to get the rates I recommem Nevertheless, 1 knOw that those rates are reasonable an

• the lowest compatible With the earning of a fair proti • What I try to do is to make the operator fully aware c his costs, so that if he feels that he must cut a rate i order to get a job (the times when that really needs b done are Much less frequent than is thought to be th case) he does it with his eyes open. I feel that, with th,• knowledge at the back of his mind, he will not be so liabl to go so far with his cutting as he might otherwise do.

Now for my problem. It came to me in the form of letter from art owner-driver. He wrote to me once befor4 about two or three year ago. At that time he was abot to start a parcels collection and delivery service in a markt town. The route he had io mind was ,a short but promisin one; six miles long, through a residential area, and terminal ing in a village that distance from the market town.

He asked me to give him a schedule of rates for th carriage of parcels up to 2R lb. in weight. He said tha most of his traffic would be small consignments, collected from the local shops for delivery to the residents along' the route. He thought that the majority of the parcels would weigh less than 7 lb. The length of the round trip would be 14 miles, and he hoped to do two trips a day on most of five days a week. His weekly mileage would thus be about 120.

I sent him a copy of the schedules widely in force, and told him that he should on no account cut those rates. His success, I said, would depend on his obtaining sufficient traffic to make the job pay.

I also gave him some figures for cost. He was proposing to use a three-tonner. I advised him that his standing charges a week, making full allowance for the driver's wages in those accounts, would approximate to £7 5s. and that his running costs would be about 54d. a mile, or £2 15s. a week of 120 miles. His total cost per week would, therefore, amount to £10, or Is.. 8d. per mile. To that I added 4d. a mile for establishment costs, making 2s. a mile.

2s. 6d. a Mile Needed

He must make a revenue of not less than 2.s. 6d. a mile before it could safely be said that the business was paying its way. At that his weekly profit would be £3. There was always the possibility that he would be able to make more than that and I hoped he would; 2s. 6d. per mile was the minimum for the job to be worth while.

A recent letter from the same correspondent informs me that there is another owner-driver in the area, with headquarters in the village at the outer end of my friend's route. In that village there is a factory and this man has been hauling the products for the factory from the village to the railway station in the market town. Apparently he has been doing that job for about as long as my friend has been in operation. He, too, has a three-ton lorry and he has been carrying the traffic for 8s. a ton. Quite recently, however, he has, it seems, discovered that the traffic is not bringing him so much profit as he thought it would.

He has been doing a regular two trips a day of 12 miles a trip. On the basis of a five-day week, that, too, is 120 miles a week, so I can assume that his costs are the same as those of my friend, namely, £10 a week operating costs, plus an allowance for overheads and contingencies of, say. £2 a week. His revenue, for 10 loads of three tons a load thirty tons in all at 8s. per ton-is £12, just the same as his costs.

It can readily be understood that, for a couple of years or so, he would seem to be making a profit. Now, he finds he must spend money on tyres and repairs and he discovers that he has not been making the profit he thought he was. What is he to do? Get some return loads, of course. And in looking round for those return loads he has cast envious eyes on the work being done by my friend.

. Business at Halved Rate

My correspondent tells me that his competitor has cut the rates in two and is getting quite a lot of the business, enough already to bring my friend's income below the margin of 2s. 6d. which I set for him-a margin which he has for some time been able quite easily to pass. He asked me what he should do.

I advised him to hold on; above all, I told him, he must not cut his rates. In the long run, I wrote, you are bound to come out on top, for one very good reason. Your competitor cannot give the service you do; he is handicapped by having to devote his energies to the factory and the traffic he gets from there. That will prevent him from making any calls on the way into town, which you are in the habit of doing. In the end, those of your customers who have been relying on you for good service will have to come back to you and, once they have returned, they will never go to him again.

In giving that advice I was, in effect, dealing with the matter in the fundamental manner: service, rather than rates, will tell, in the long run. In this case I am sure my advice -is right.

A point arises from my treatment of the costs and rates aspect of the above problem. It will have been noticed that, for parcels carrying I took a rate per mile as the basis, I told the inquirer that, for success, he must earn at least 2s. 6d. per mile. The more orthodox way of calculating revenue, of course, is to take the earnings for a week, a month, or even a year, as the standard. Or again, in this special case, probably the most favoured way would .be to take the revenue per journey.

Undoubtedly the surest indication of the degree of success which is being achieved comes from figures extending over a long period taking at least a month, or six months, or preferably a year. On the other hand, even six months is too long for a small operator to go Without some knowledge of the progress he is making. I have always recommended that a check be taken at least once a month. In this particular case, however, I chose the mile, in preference to any other period, because that is the most readily understood figure.

For a rate per mile to be practicable, however, the weekly mileage must be almost constant as, of course, it was in this case. When the mileage-or the work to be donefluctuates from week to week then that way of calculating rates is not applicable.

For the jobbing haulier, and the majority of shortdistance hauliers come under that heading, the best way is undoubtedly to use figures for time and mileage. But now I am going to depart from the standard. Time and mileage figures are given in "The Commercial Motor Tables of Operating Costs," and they are the 'rates which the haulier should charge per hour and per mile, adding the two together in order to arrive at the proper rate for any job.

For example, taking a three-ton lorry, which has been the subject of this problem, the rates given in the Tables are: per hour, 5s. and per. mile (over 5 m.p.h.), 6fd. 11, therefore, a haulier gets a job to do for a local farmer and the time taken is three hours, the mileage being 25 in all (out and home), he should charge the farmer three times 5s., which is 15s. plus 25 times 61d., or 13s. The total is £1 8s. That covers all the vehicle operating costs, the establishment charges and shows the operator a reasonable minimum profit.

Actually, for an odd job, he should get not less than £1 10s. My departure from the standard is this. I would recommend the haulier not to assess his rates directly according to the time and mileage figures in the tables, but to keep his own figures for cost of tithe and cost per mile and use them to calculate his costs and to add a profit according to the job.

Two Examples

Here are a couple of examples to show what I have in mind. First, to find out what these figures are for cost of time and mileage. We have the basis for them already in this article, insofar as they relate to the operation of a three-ton lorry. The standing charges per week I gave as £7 5s. For establishment charges I am going to take the amount I actually use when calculating the charges in the Tables, namely, £1 18s. per week.

The haulier's total expenditure per week, apart from running costs, is thus E9 3s. That includes, as I have stated, wages for himself as driver at the standard rate. His time charge must-be calculated on the basis of a 44-hour week so that I must now divide that £9 3s. by 44 to get the rate per hour, that is, 4s. 2d. The cost per mile I will take again as 51d.

Suppose a local farmer rings him up and asks him to collect some machinery from the station and deliver it to the farm which is six miles away. The haulier's depot is two miles from the station. Here is the job.

It takes 10 minutes to go to the station. There is some difficulty in getting the machinery off the railway wagon so that the time spent on loading is 35 minutes. The run to the farm takes 25 minutes and there, because the farmer has no help to give, there is more time lost and the haulier does not get away until a further 45 minutes have elapsed. The run home to the garage, a further four miles, takes 20 minutes.

The total time is 2f hours. The distance is not, as must be carefully noted, the six miles from the farm to the station, but 12 miles-the distance covered while doing the job. The cost of 21hours at 4s. 2d. per hour is 9s. 5d., and the cost of 12 miles at 50, is 5s. 6d. The total cost is thus 14s. 11d.

Now what is the operator going to put on for his profit? In my opinion, for jobbing haulage, doing work of which the foregoing is an example, the profit ratio cannot be less than 33f per cent. which, in this case, is equivalent to 5s. The charge should therefore be £1. S.T.R.