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ADVICE ON TRANSPORT PROBLEMS

14th May 1965, Page 65
14th May 1965
Page 65
Page 66
Page 67
Page 65, 14th May 1965 — ADVICE ON TRANSPORT PROBLEMS
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Which of the following most accurately describes the problem?

New Look at Trade Associations : Contract Costing

ALTHOUGH "organization and method" is a term readily associated with efficiency, it does not ensure it. An organization which originally matched up to its function may have been left in non-controversial isolation by the tide of events. Democratic communities have an additional and persisting organizational problem— to resolve in a practical way the need to retain democratic principles while avoiding abuse of democratic procedure.

The motor industry—including the commercial-vehicle section—and the road transport industry have analogous problems. Similarly their trade associations, although individually concerned with the successive functions of manufacture, distribution and operation respectively, are all dependent on the road vehicle for their livelihood.

Accordingly the comments made by Mr. Frank Higham, director-general of the Motor Agents' Association, in an article published in the current issue of Finance Houses Association review Credit, are pertinent to a wider readership than those directly concerned with finance facilities and the future of the retail trade.

MAA Membership The MAA has a membership of 19,000 firms. It covers 85 per cent of the trade and is therefore mandated to negotiate with Government departments, suppliers, wages councils and other bodies. So in some respects its functions are similar to transport association's of comparable objects and size.

Recognizing the changing structure of its trade the MAA appointed Mr. Higham as director-general in January, 1963, with the function of studying the association and its part in industry. Indicative of the executive level of this appointment, Mr. Higham was previously director ot a large motor manufacturer.

In a report to the MAA he considered the association should shield members from some of the more difficult , aspects of their work and make use of its collective strength to do for the trader what he has little time or resources to do for himself. It should be an information bureau for the individual trader through his divisional office, which should be regarded as a branch of his own business and should engender good public relations. But it was most important that members should recognize their association as being the body that organized collective schemes for the training and education of the skilled employees of tomorrow.

So far Mr. Higham's comments could relate to any one of several efficient trade organizations. But based on a detailed analysis of his association's activities he then proceeded to make some critical and controversial remarks which may well have relevance elsewhere.

We live in changing times and one of the most significant changes is the revolution in the High Street affecting the marketing of consumer goods. This development springs from the growth of national groups. Year by year, more and more retail outlets become part of big public companies.... Against this background I feel it necessary, as an instructive criticism, to comment that in these changing times the association is being operated in a manner which can be described as too democratic, and that it is denying to its members the benefits which it should be able to provide by utilizing more sensibly the brain power which the trade assuredly possesses."

Becoming Outdated . . .

Continuing, Mr. Higham said he was deeply disturbed that the MAA was becoming outdated because it was not adjusting itself to reflect the increasing tempo of everyday business life. He felt that the large number of national meetings imposed a heavy burden on many business executives, to the detriment of their businesses, and prevented many other able men, with long experience and deep knowledge of the trade, from giving some of their time to the affairs of the association.

Accordingly he recommended that national meetings should be halved in, number and direct means of communication should be established with each member to B3I

avoid the necessity of council delegates visiting all sections to report on happenings. Additionally he suggested that the affairs of the association should be put in the hands of a management committee composed of elected council members and elected chairmen of the major committees of the association.

More Professional Approach Needed

Under the new structure it was likely, Mr. Higham claimed, that more members would find it possible to give time, either through formal committees or selected ad hoc panels, to produce the information and advice for which association members were waiting. These new adjustments had required a more professional approach by members of the staff, including a new approach to industrial relations, training and education.

The MAA was formed as long ago as 1913, and throughout that long period has always maintained its headquarters in Great Portland Street, London, WI. But despite this inherent tradition it is modernizing not only its organizational structure, but also its headquarters premises.

These changes, Mr. Higham implied, would be in keeping with the revolution ahead for the motor trade with the end of resale -price maintenance in this country. In the growing intensity of competition dealers were likely to became tied exclusively to one manufacturer, resulting in fewer but more lucrative outlets. The task of servicing vehicles was likely to fall on the independent garage owner without a franchise who could well develop a very considerable business by supplementing the. service arrangements operated by franchise holders.

Summing up, Mr. Higham insisted that service charges would have to increase, Moreover, service would be a most important factor in business in that it would ensure that the structure of a business remained viable. Sales would become more competitive against a background of financial security produced by service, but convenience to the customer and efficiency were bound to be the criteria of individual success.

Costs on Contract Work A southern operator has been approached to provide a vehicle on contract for a minimum period of one year and asks for an estimate of likely operating costs. The vehicle would be a platform-bodied 7-tanner and is expected to average 600 miles a week. In view of the fact that once committed the bargain struck would hold for 12 months, he says it is particularly important that the estimate of costs made should be as up to date as possible.

Dealing first with the five items of standing costs, expenditure on licence duties has recently been substantially increased following the Budget announcement on such duties. The former annual duty of £46 10s. for this size of vehicle—assuming an unladen weight of 3 tons 4 cwt.— is now increased to £69 15s., or the equivalent of £1 8s. 9d. a week.

In conformity with the procenre adopted in The Commercial Motor Tables of Operating Costs, only the basic wage payable for a 42-hour week will be allowed for as it is not practicable to relate a standard estimate of overtime to mileage operated. Accordingly the cost of wages to the employer is reckoned at £12 3s. 6d., inclusive of contributions to National Health Insurance, voluntary employers' liability insurance and an adjustment to permit holidays with pay.

Rent and rates in respect of garaging the vehicle are reckoned at £1 2s. 9d. a week, whilst vehicle insurance is estimated to cost the equivalent of £2 12s. Od. a week. Interest on the initial outlay of £1,409—an average cost for this platform-bodied 7-tanner--would amount to £1 19s. 5d. a week based on a rate of 7 per cent as currently applies. The total for these five items of standing costs is therefore £19 6s. 5d. a week, or 7.73d. a mile, still assuming an average of 600 miles a week.

Running Costs

Dealing now with running costs, it will be assumed OD: fuel oil is purchased by this operator in bulk at 4s. 7.1.d. a gallon and that an average rate of consumption of 15 m.p.g. would be maintained. This results in a fuel cost per mile of 3.72d. Lubricants add 0.28d. and tyres 1-54d.. per mile. This latter calculation is based on a cost per set of £185 plus the 4 per cent increase recently announced. A mileage life of 30,000 per set is assumed.

Maintenance, inclusive of washing, servicing and major repairs, is estimated to amount to 2.71d. a mile, whilst depreciation adds I-73d. per mile. The balance to be written off is obtained by first deducting the equivalent cost of the original set of tyres from the initial price of the vehicle, with a further reduction appropriate to the estimated residual value, which in this instance is reckoned as 10 per cent of the cost when new. This final balance is then divided by 150,000, being the estimated mileage life of the vehicle.

The total running cost for this 7-tonner is therefore 10.08d. per mile, or £25 4s. a week. With these amounts added to the standing cost already calculated, the total operating cost when averaging 600 miles a week is therefore 17.81d. per mile, or £44 10s. 5d. a week.

Overhead Costs

So far the figures given have been estimates of the actual cost to the operator of running a specific vehicle. Additionally— and inevitably —there will be overhead costs which are incurred in running the business of haulage as distinct from the actual operation of a particular vehicle. However, when a vehicle is hired out on contract over a considerable period then it would be reasonable to assume that there would be some reduction in the overhead costs which would apply if general haulage on a day-to-day basis were under consideration.

But even within the sphere of contract work, there can be considerable variation in individual circumstances. In many cases the haulier providing the vehicle would have no concern or responsibility as to traffic movement because the driver, although his employee, when operating on a Contract A licence, would take his daily orders from the trader to whom the vehicle was hired. In other cases some responsibility might be assumed by the haulier in this respect, even though the vehicle was supplied on contract. Accordingly there can be no hard-and-fast rule as to the amount of overhead costs likely to be involved in contract hire work. But if an addition of 20 per cent applied when general haulage was being undertaken then sonic reduction on this figure might be considered acceptable for Certain types of contract hire work.

Similarly, because of the minimum period of one year which is legally implicit in the granting of a Contract A licence, a lower rate of profit margin than is considered reasonable for general haulage might also apply in contract hire work.

Total Cost for Year

Based on the total operating cost already calculated, and assuming a 50-week year, the total cost for the year to the haulier himself would be £2,226, still assuming an average of 600 miles a week —that is, 30,000 miles a year. An addition of 20 per cent for overhead costs and 20 per cent for profit margin is recommended in The Commercial Motor Tables of Operating Costs where general haulage is concerned. Where this was applied the resulting addition of £893 on this account for the year would give a total annual charge of £3,119. But, as already explained in appropriate cases where contract hire work is under review, some scaling down of this addition to costs might prove acceptable.

FROM THE POSTBAG A reader understands that an independent study has recently been made of developments in Muhltenanee equipment and asks for details and the • SOH tre

This reader probably has in mind a recent publication with a title similar to the one formerly used for this series--namely, "Plan for Profit". It has been issued by the Garage Equipment Association, I I Ironmonger Lane, London EC2, and is based on studies by that association and the Equipment and Tool Institute of the USA.

This 20-page booklet, whilst primarily of interest to public garages servicing private cars, contains much useful information for commercial operators. First. there is a table of recommended major equipment for fast and efficient service. The main section of the booklet then follows, which consists of basic answers to questions about modern tools and equipment which are listed in alphabetical order. The four basic questions are: "What recent improvements in equipment have been made? What are thc economic reasons for replacement? What modern service requirements make new equipment desirable? What service life can be expected from new equipment? Finally, there is an index of garage equipment manufacturers.

MONEY MATTERS

BET Omnibus Earn More H[CHER profits and a raking of the distribution by B.E.T. OMNIBUS SERVICES had been expected by the market. And it was not disappointed. In the year ended March 31 last net profit jumped to £751,873 from £682,750 in the previous year. Out of these higher earnings the directors recommend a final dividend of 8%, which lifts the total for the year 1% to 11% tax free. These 10s. Ordinary stock units were dealt in at around 22s. recently.

The chairman of VICTORY TRANSPORT—Mr. C. G. Wise—has some encouraging things to say to shareholders about the company's prospects. • Gross revenue for the six months that ended on December 31 last was higher by 10% and net profits were as much as 12% better; all this in spite of ever-rising costs, especially fuel.

Mr. Wise comments that business during the current six months has been maintained at a satisfactory level. He warns, however, that the 50% rise in the road fund licence has to be met. But the directors are hopeful for a profits rise of at least 10% during the present trading year that will end on June 30 next. Should this increase materialize the board would hope to at least maintain the dividend at the 15% rate. These Is. Ordinary shares (quoted on the Birmingham Stock Exchange) have been a firmer market since the announcement and are around 2s. 101d. at the moment.

The go-ahead management of TRANSPORT DEVELOPMENT GROUP is in the throes of an endeavour to push its expansion a stage further. Negotiations are in hand for a take-over of Liverpool Warehousing Co. The basis of acquisition is expected to be a share exchange. Liverpool Warehousing possesses sheds and warehouses in Liverpool and Manchester that would be a valuable addition to TDG. Meantime, TOG 5s. Ordinary shares are priced at around 12s. 6d. ex the recent capitalization, at which price they yield 41% on the assumed dividend of 111%. I add my customary comment—they should be retained.

Quickly following the recent news of the good trading results for 1964 comes the news from the APPLEYARD GROUP that the current year has started well. "Trading results for January and February were very good ", the chairman—Mr. Ian Appleyard—states. But sales during March and early April were affected by a shortage of new vehicles.

The abolition of resale price maintenance, as well as the uncertain economic conditions, makes it impossible for Mr. Appleyard to predict the likely results of this year's operations. These 5s. Ordinary shares have been up at us. 941. recently, but are currently around 11s. 9d. ex dividend, at which they yield a useful 61% based on the latest 15% dividend (excluding a special payment) covered 241 times by earnings. At this level I consider they are reasonably valued.

Martin Younger

THE COMMON ROOM

Economic Terms and their Relevance to Transport 1. 'MONOPOLY'

MONOPOLIES abound in the road transport industry. Taxis. A-licensed vehicles and buses are each regulated and given exclusive rights by their licences to perform certain transport functions. In its literal and original sense a monopoly—whether it is the right to operate a lorry or to produce a certain commodity—meant that only one organization could perform the particular function. Only London Transport can operate stage carriage services in the special area of London. In many urban areas the municipal undertaking has exclusive rights of running buses on certain routes.

' The word " monopoly " has, however, developed its meaning and has also come to be employed where there is any restriction on the number of suppliers of a particular commodity. In road haulage an A-licensee would tit into this category, but not a C-licensee, as there is no restriction on the number of agencies allowed to transport their own goods.

The effectiveness of any monopoly depends on the closeness of the substitutes available for the goods or service monopolized. In the " pure " example of London Transport's monopoly, the Board faces competition from cars, mopeds, bicycles, taxis and, of course, walking. However strong a monopoly, it is always subject to some competition because in a sense all goods and services compete with one another for the consumers' favour.

In favourable conditions of time and weather, transport monopolies are strengthened. For example, taxis have a stronger monopoly of public transport late at night when buses have stopped running than they'enjoy during the daytime. In the same way, London Transport has a stronger monopoly when the weather is wretched and travellers are less willing to cycle or walk.

The so-called monopoly "problem " arises from the dilemma that monopolies are good only in part. Typically, any monopoly offers scope, on the one hand, for greater economic efficiency than competition—but, on the other hand, it presents dangers of consumer exploitation. One very important "economic efficiency" made possible by monopoly is the opportunity to spread the firm's fixed costs over an output which is bigger than would prevail under competition. Hence the importance of monopolies in transport, where fixed costs often form a large share of total costs. Another possible advantage of monopolies is the greater scope for governmental control where only a relatively few units are involved.

The vices associated with monopolies include the political power which they may confer and the absence of cornpetitive downward pressure on costs, profits and prices which they involve. There is the further possibility, too. that monopolies can foster vested interests, with the likelihood of these stifling fresh ideas.

By George Wilmot

Lecturer in Transport Studies University of London


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