Looking to the Future
Page 76
Page 81
If you've noticed an error in this article please click here to report it so we can fix it.
Though Elimination of Unnecessary Incidental Expenses is a Continuing Necessity, Provision for Retention and Expansion of Traffic Must be Made
LAST week I showed that, no matter how small an operator's fleet might be, it was not correct to claim that there were therefore no overhead costs. This, unfortunately, continues to be the attitude of many inquirers anxious to enter the industry. The ultimate result would be that, if this contention was persisted in, such an operator could undercharge his customers, with adverse repercussions on the livelihood of his local competitors.
Overhead costs are, in fact, inevitably incurred by every operator, although the number of items involved, as well as the total amount, will vary according to both the size of operator and type of work he undertakes. These costs can be conveniently grouped under nine headings. namely: Management, Office, Garage and Stores, Warehouse, Branch Depots, Sales, Professional Services, Auxiliary Fleet, and sundry items. Expenditure incurred under the first three grottos were dealt with last week.
Trade and industry increasingly require the transport operator to provide storage facilities for their goods, particularly where national coverage of several lines is required. Such buffer depots, when strategically sited geographically, can give substantial economy in overall distribution costs. But even the largest industrial combines are often reluctant to provide a complete network of depots themselves and prefer to hire such facilities, possibly to supplement their own depots. But to meet this requirement the haulier must be prepared for both initial and recurring expenditures.
Where the warehouse was of sufficient size, staff would have to be employed exclusively for that purpose and their salaries and wages allocated accordingly. In the simplest of accommodation some expenditure on equipment, such as trolleys, would be necessary, whilst a substantial amount would be involved in providing a modern and fully mechanized warehouse.
WHATEVER the type of warehouse envisaged, a recurring expense would be the quarterly or half-yearly accounts in respect of rent and rates, lighting and power, heating and water.
Where the agreement between the haulier and the customer provided for the haulier to keep stock records of the customer's goods currently in the warehouse, allowance would also have to be made for clerical labour, office accommodation and possibly stationery on this score. .
It is common practice for an expanding transport operator to make interworking arrangements with other operators, particularly where long-distance running is involved. In most cases it would be uneconomic for such an operator, in the early stages of development, to contemplate opening a depot at the extremity of his service to facilitate back-loading.
With the increasing size of the organization, however, the opening of one or more branch depots may prove to be a worth-while proposition. If such a policy is adopted it is important that the costing system throughout the company concerned allows for determining the profitability of each branch. When accurate records are not available any increase in gross revenue, and even net profit, may be misleading. Some depots may not be earning their keep, although this fact is obscured by the existence of highly successful branches. Particularly where a succession of branches has been acquired or opened, some abstraction of traffic from other branches may have passed unnoticed if separate accountability is not maintained.
A further advantage of ensuring • that separate branch accountability is maintained is the ready comparison which is then always available between the cost of operating a depot r36 and employing an agent. As with warehousing, expenditure on depots could be incurred on any of the same seven items listed 3 to 9 in the table shown on page 359.
Whether or not warehouse and branch depots are maintained, some expenditure, however .small, would probably be incurred by most operators on the remaining 25 items of overhead costs. Both stationery and postal charges, unfortunately, continue to increase from time to time and to a large extent are unavoidable, although, where regular services are maintained, some operators take full advantage of the opportunity thereby given to institute their own internal mailing system. But, even so, a substantial expenditure must inevitably be involved in stationery necessary both for the keeping of statutory records and for traffic control and accounting.
A SUBSTANTIAL item of expenditure for most transport rt. operators is the provision of a telephone, and.of branch exchanges where these are justified by the size of the organization. Faced with a formidable half-yearly telephone account, it is understandable that ways of reducing this amount should be explored, but in the majority of cases it has to be admitted that rapid communication is vital to transport operation.
To cite one example, a successful removal contractor told me recently that it was his company's policy that drivers should report back to headquarters by telephone, no matter where they might be after unloading, to receive further instructions, assuming, of course, that these have not already been given. It may well be that in the majority of cases they had to be told to return direct to base, but on the few occasions that a convenient and urgent return load was available to be collected, the revenue thereby obtained more than offset many apparently fruitless and expensive telephone calls.
Nevertheless, the total overall costs of the substantial amount of telephoning necessary to control transport must be allowed for when assessing charges.
In the larger organizations the items "Telephone and Communications" could include the expense of installing and operating the Post Office Telex Service, as now used by some operators. Similarly, the cost of installing radio control could also be included under this heading.
ITEM 34—Travelling Expenses—relates to fares paid for public transport, such as could arise when a driver is sent to collect a new or repaired vehicle or, alternatively, on returning home after making a corresponding delivery. Also, in some instances, it might prove less expensive to change over driving staff by this means or, alternatively, bring them home for the week-end, than by travelling in their own vehicles.
In passenger transport operation and some industries, such as food, staff uniforms are provided, when it is convenient to record the resulting expenditure as an overhead cost. This, incidentally, is a practice which is tending to increase, to the betterment of the status of the road transport industry generally.
As distinct from any mechanical equipment provided in a warehouse to facilitate unloading, transhipment and reloading of goods, some types of operation may call for the provision of external loading equipment, for which the resulting expenditure could be recorded under item 36. For example, during a sugar-beet campaign a large operator may find it more economic to provide his own loading equipment on the site to effect quicker turn-round of vehicles.
The next five items of overhead costs are grouped under the heading "Sales." It is an unfortunate mistake on the part of many operators to underestimate the need to sell a service, as distinct from a commodity. However excellent the service provided, it is of vital importance to an operator that his sales organization should he equally efficient. With increasing competition from both the railway and expanding C-licence_fleets. this is more than ever necessary.
In the smaller organization the manager will probably carry out the functions of both control and sales. With larger fleets, however, representatives or canvassers for traffic might be employed, with expenditure incurred both for the salaries and car expenses Such staff, relieved of any other responsibility, could concentrate on the varying traffic problems of their existing and potential customers, so as to be in a good position to bargain with the appropriate traffic managers. At the same time, even when regular traffic is passing satisfactorily to both parties, the courtesy call can have long-term value in maintaining the goodwill of established customers. Otherwise competitors would be only too glad of the opportunity to take the initiative.
Whilst there is no doubt that service needs selling just as much as a commodity, it must be admitted that the application of direct advertising and publicity to road transport presents considerable difficulty. But that is no excuse for a complete lack of any form of publicity.
THE attractive appearance and smart turn-out of the vehicles themselves must obviously contribute to the goodwill of the organization. The presentation of the advantages which road transport can offer, compa,red with other forms of transport. can usually be best handled at a national level by the appropriate trade association, such as the Road Haulage Association and the Passenger Vehicle Operators' Association, and also through the medium of the technical Press.
Within the operator's own area, some advertising would probably be taken either in the local Press or cinema. The cost of any leaflets detailing the various services a transport operator has to offer will be included in item 39 (advertising).
The next two items-40 (Entertaining) and 41 (Gratuities)— are debatable subjects. Wrongly used, such expenditure and payments can become little more than an oblique form of rate-cutting. Nevertheless, they have become an integral part of modern business. Most operators will find that they are involved in at least some expenditure on this account.
Under the group heading of " Professional Services" are the three items of bank charges, auditors' fees, legal fees and expenses, all three of which are virtually unavoidable for most operators.
When discussing various aspects of the actual operating cost of individual vehicles, the question is often asked how provision is made for the additional expense of providing for spare vehicles to take the place of those withdrawn from the regular fleet fot maintenance or other purposes. In arty sizeable fleet such provision is inevitable if regular services are to be maintained, The answer is that it is usually convenient to include such expenditure along with other items of overhead costs. since the whole will eventually be proportioned between the several vehicles of a fleet.
In addition to replacement vehicles, there will almost certainly he the cost of running at least one service van to be accounted for. Often such a vehicle becomes the king-pin of the whole organization when urgently required spares have to be procured or staff transferred at short notice, and when public transport would be totally inadequate. Whilst good planning should reduce these occasions to a minimum, the need for such an auxiliary vehicle will remain. Some curtailment in the cost of operating small vans is now available with the extension in the range of oil engines. An additional advantage in having a small oil-engined van is that in many cases its acquisition would then permit complete standardization throughout the fleet on this type of fuel. Alternatively, to have one petrol.cngined vehicle in a large fleet cotild prove inconvenient and expensive if bulk storage had to be specially provided.
-Despite the increased reliability of modern commercial vehicles, some operators. and particularly those engaged in urgent traffics such as perishable foods. find it economic to have their own breakdown recovery vehicle. Whether or not this has been reconstructed from one of their older vehicles, operators must still make provision for entering the expenditure incurred under the heading of overhead costs. As mentioned earlier in connection with advertising and publicity on a national level, excellent work is undertaken on behalf of operators by both the R.H.A. and the P.V.O.A., whilst the Traders' Road Transport Association provide for the needs of the C-licznee holder. It is in the interest of every operator to support his appropriate trade association so that, among other benefits, the value of the road transport industry to the nation can be adequately put at Ministerial and similarly influential levels. Members of such associations can also derive substan tial individual benefits through the legal and technical advice that can be obtained, and insurance and financial facilities which are also available.
T'THIS countrs is fortunate in being served with a comprehen/ sive technical Press. It is only through this medium that the busy transport operator could keep up to date with the variations and additions to statutory regulations, decision, reports and news of all kinds that can directlyaffeet the prosperity of his business. Similarly,. developments in the technical field, as well as advice on operational and costing practice, can be conveniently. obtained only through this medium. An annual subscription to The Commercial' Motor is one item showing a large return for a modest outlay.
So fat the several items of costs listed havenot been chargeable to any particular vehicle. Item 49—Dues (parking. weighbridge, ferry)—is an exception. But because the items are so small many operators will find it simpler to deal with this expenditure as an overhead cost.
Bad debts and sundries are entered under items 50 and 51.
The final four items—interest on capital, depreciation, maintenance, and insurance –are added here, both as a'reminder of such expenditu-e when incurred and also in the interest -of simplicity, particularly where the small operator-is concerned. These several costs do not relate to vehicles bin to the provision of -buildings and other fixed assets, such as those already listed here in the groin headings, i.e., office,, garage, warehouse and depot. In the larger organization it may be decided to subdivide the items 52 to 55 under the group headings.
It is obviously a far cry from asserting that "There will be no overheads" to listing 55 such items as are detailed here. It is appreciated that many operators will dot. .in-, fact, incur expenditure on several of these items but, nevertheless, this list provides a useful check to confirm that nci' expenditure has
been omitted S.B