FLAT RATES Can
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Flatten Revenue
Standard Charges Should Embody an Incentive to Customers to Speed the Turn-round of a Haulier's Vehicles
APOST-WAR development in road transport has been the increasing use of the eight-wheeled tipper. Despite its higher initial cost, the resulting lower rate per ton when full loads are available is proving increasingly attractive to operators. Simultaneously, the advent of the nationalized power industries in particular, has resulted in a growth of the type of traffic for which this vehicle is especially suitable.
Last week the operating costs of the popular 7-ton oilengined tipper were discussed, with particular reference to charging for varying short leads, and I will now work out comparative figures for the maximum-load rigid-frame vehicle. It is assumed the load carried would be 15 tons. Individual vehicles may be legally permitted to carry a greater weight, but may be limited by the cubic capacity of varying types of traffic. Fifteen tons is, therefore, taken as an average figure.
Increased capacity could in many instances. be obtained by the use of the newer types of maximum-load articulated vehicle. The operating costs and charges of the rigid vehicle are given here, however, in order to provide a direct comparison with those of the rigid 7-ton tipper set out last week.
Weekly Wages Taking the unladen weight as 8 tons 12 cwt., the annual licence duty payable would be £145, with a further £2 as a proportion of the A-licence fee. Allowing for two nonrevenue-earning weeks per year, this would amount to £2 185. 10d. per week, whilst, on the same basis, weekly wages would total £9 12s. 4d. The figure for wages includes an allowance for National Health and employers' liability insurance contributions.
Rent and rates are assessed at 15s. per week, vehicle insurance at £3 and interest at £3 Is. 2d., making the total standing costs £19 7s. 4d. To this must be added overhead costs, comprising profit margin and establishment costs, which in this instance total £7 17s. 6d., making a final standing charge of £27 4s. 10d., or 12s. 4d. per hour, assuming a 44-hour week.
Of the running costs, fuel is assumed to be purchased at 4s. 3d. per gallon and consumed at 8 m.p.g. at a cost of 6.38d. per mile. Lubricants cost 0.27d. per mile and tyres 3d., assuming a 40,000-mile life, Maintenance is estimated at 3.01d. per mile. Depreciation is based on a vehicle life
B22 of 250,000, an initial cost (less tyres) of £4,600 and a residual value of £200, giving a cost per mile of 4.22d.
A profit margin of 20 per cent. is added to the total running costs of 16.88d. per mile, resulting in a mileage charge of approximately Is. 9d.
Table I, showing charges for varying leads, is drawn up in the same form as the one published last week in respect of the 7-tonner. The travelling time is based on 5 m.p.h. for the first mile, 10 m.p.h. for the secOnd, 15 m.p.h. for the next eight miles and 20 m.p.h. for leads of 11 to 20 miles. In view of the use of mechanical loading and unloading gear, it has been assumed that the time involved, together with arty waiting time, would virtually be the same as for the 7-tonner—an hour.
In comparison with the charges per trip for the 7-tonner, those for the 15-tonner show an increase of approximately 25 per cent. • Coupled, however, with over 100 per cent. increase in the load carried, the resulting rate per ton for the one-mile lead is 41.4 per cent. less. Obviously, this applies only if maximum loads are regularly available, and
if operational conditions permit this size of vehicle to be employed.
Moreover, if the class of work for which it was being considered was only of comparatively short duration, more careful consideration as to its suitability for possible future contracts would, in view of its high initial cost, have to be given than in the case of the versatile 7-tonner. Nevertheless, referring to the medium lead—I0 miles—in Table I. it is significant that the 15-tonner could still almost break even, in terms of rate per ton, with the 7-tonner, if only an 81-ton payload were available on any occasion.
Whilst all vehicle operating costs are based on a combination of time and mileage, the customer often demands a rate in terms of mileageonly, or at so much per hour. If so, it is imperative that the haulier should frame his quotation to provide a ceiling above which an additional charge is raised for excess mileage, or for excess time.
However apparently attractive a flat rate may seem, it could prove disastrous to the haulier who has not realized all its implications. Once a flat rate has been agreed, there may be no incentive—and certainly no obligation—to the customer to provide the terminal co-operation that may make all the difference between profit and loss, unless that incentive is embodied in the charging system. The haulier should ensure that it is For example, to quote a charge per mile, with no reservations as to time, or to the, amount of mileage to be run over the period, would be commercially impfudent. So also would an inclusive charge based on time only, with no stipulation as to the maximum permitted mileage.
Whilst quotations have to be presented in the form the customer requests, it is advisable to avoid mileage rates when the distance covered per day is very small. It is preferable to charge by the hour, inclusive of a specified mileage, with an extra charge for additional mileage.
If only a mileage charge were made when in fact little mileage was covered, the vehicle would not be earning its keep, let alone making a profit, Whilst the customer might be dubious if it were suggested the contract was unsatisfactory because the mileage was not high enough. Negotiating additional payments is never an easy matter, but it would at least appear more reasonable to the customer to be charged by the hour, with additional payment for excess mileage, than to be charged extra because he did not use the vehicle enough.
Travelling Time
In Table 2 the charges per load, per ton, per hour and per lead mile are shown for the 15-ton tipper when operating under the same conditions as those applying to Table 1. The time shown in the second column is the total of the travelling time (Table 1, column 3) and terminal time, which in this example, is an hour. The subsequent rates per hour for each lead mile are calculated relative to the total time taken per load. The charges in Table 3 are similarly obtained in respect of the 7-tonner.
The data shown in Tables 2 and 3 show clearly the variation in charges between minimum and maximum leads. Whilst the rate per ton increases steadily over the range of mileage leads, the charge per hour raises rapidly in the early stages. In contrast, the charge per lead mile drops rapidly between the shorter distances before subsequently levelling out.
The rate per ton shown in the fourth column of Table 2 shows an even increase of approximately 4d. per mile in the charge over practically the whole of the table, namely, I to 20 miles. For this reason it would be unadvisable to quote a flat rate per ton over a wide range of lead miles,
because if there, were a preponderance of long journeys, the difference in the agrell charge and the average rate for work actually done might be large, and, moreover, to the haulier's loss Whilst the gradually increasing rate per ton, as the lead mileage rises will be readily understood, the variations in the rate per hour and per lead mile need more careful consideration.
Examining Table 2, it will be seen that the variations in the charge per hour between the short leads are substantial, becoming less for the longer leads. For example, the rate per hour for the one-mile lead is 14s. 10d., rising to 16s. 9d. for the two-mile lead, a difference of Is. I Id_ At the other end of the scale, the charge per hour is 31s. for the 19-mile lead, but only 5d. more for the 20-mile lead.
Loss of Money The significance of this fact is that the haulier, having once agreed on a rate with his customer, should accept later increases in mileage lead only if a higher hourly rate is also agreed, particulary on the short leads. Although it may semi to the customer that to increase the lead another mile or so should make very little difference in the cost, the table proves otherwise for the short leads. In fact, if the haulier were to allow two-mile lead trips to be included in a one-mile lead contract, he would be losing over half of his profit margin on each two-mile lead.
At the other end of the scale, however, it would be practicable to quote one rate to allow for some variation in lead mileage, within limits, as the difference in the rate per hour is now reduced to approximately 6d. per lead mile. Even so, there must be a fair balance of trips with mileages less than those appropriate to the lead to which the agreed rate is applicable.
Still referring to Table 2, in the last column the charge has been calculated per lead mile. It will be noted that the process is reversed compared with the charge per hour, the highest charge being for the shortest lead mileage. It ii similar to the hourly charge, however, in that the amount of differente between the various lead mileages is greatest for the shortest distances.
If a quotation is being made on the basis of lead miles, in contrast to an hourly rate, the haulier should now be reluctant to accept shorter leads than bargained for after the quotation has been agreed. This is because it is now the shorter leads which are the more expensive.
Shorter Trips
The rate per lead mile for the 16-mile lead, in the circumstances of this example, is 6s. and a haulier may well consider this a fair rate for the range of lead miles from 14 to 20. (Actually, the total variation in Table 2 is 6d.) Should such a contract be agreed and subsequent changes in operational conditions necessitate a few shorter trips of eight miles or so, it might appear at first sight that the haulier would be no worse off, or that he might even be better off. Reference to Table 2 shows that he would not only be worse off, but would lose the whole of his profit margin on every eight-mile trip he did.
Therefore, whether the agreed charge is by the hour or by the lead mile, the contract should not allow too great a variatipn in distances when dealing with short leads, although a wider grouping is 'possible for greater mileages. Nevertheless, there must always be an element of risk for the haulier when quoting flat rates unless he provides appropriate safeguards.
If it is not practicable to obtain a contract on the basis of a quotation that provides sufficient margin to meet all adverse eventualities, he should include a mileage qualification in his charge. If he is quoting by the hour, a maximum mileage ceiling should be stated. Alternatively, if a flat rate per mile lead i3 demanded, a minimum mileage lead should be stated, below which an additional charge will be made.
Accurate assessment—on the site—of operational conditions, particularly regarding probable terminal times, however, must remain the basis of sound, profitable quotations, whatever formula is employed.—S.B.