The C Hiring Margin
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INmy previous article I discussed some of the legal differences between the use of a vehicle on a contract-A licence and on a C hiring Margin, and gave some cost figures relating to each type of use. It may be of interest to refer to some more examples.
One inquiry"came from an operator who had been offered a contract under a -C hiring margin at a certain price. He asked me for my. opinion as he was rather worried whether the figure quoted.would give :sufficient profit. The hirer wished him to supply a 3-ton van on a C hiring margin to run 300 miles per week and offered.to pay 7.d. per mile run. I replied that it wái obvious that the amount offered was instifficient and that the contract wouldnot be worth having at the price quoted. I didnot. 'set out all the estimated operating costs in order to prove my case, I gave the inquirer what I regarded as the elementary facts. I should point out that I was not making any attempt to suggest a price. All I was doing was exposing. the economic weakness of the contract as it was offered to my correspondent.
"At the very least," I wrote, "your petrol and oil will cost you 3id. per mile, your tyres will run to lid. per mile, and depreciation will be at least lid. The total of these is 6d. per mile, and that is for running costs only. Do not take any of these figures for granted; work them out for yourself on the basis of your own knowledge.
Loss Would be Made
"For your standing charges you have the following: Licence. 12s. per week,. insurance and sundries, 18s. The total is £1 10s. and that is without any provision for garage rent or for interest on capital outlay. Spread that £1 10s. over 300 miles and you get very nearly lid. per mile. Out of the 70. per mile which is offered to you; 7d. is needed to meet only the operating cost of the vehicle, without any provision for overheads which, as you ought to know, are bound to -be snore, in connection with a contract of this kind that with a vehicle in normal use. Nothing, therefore, can prevent you from operating at a loss." •
Another inquiry related to a contract to supply a 5-6-ton platform lorry, witha body length of not less than 16 ft., to deliver 'manufactured goods from a certaia town to various places in Great Britain. The contract was for five years and the„, inquirer was anxious that his initial quotation should show a reasonable profit.
It was estimated that the weekly mileage. would be about 500 and that a 44-hour week would be worked. As a safeguard, however, it was agreed that an additional charge should be Made for any excess over 44 hours, or over 500 miles. Notwithstanding that this vehicle was on a C hiring licence and that the hirer was to pay the driver's wages, it was arranged that subsistence allowances and similar expenses should be paid by the haulier and charged extra -in the account made out to the hirer.
A36 The insurance of the goods to be carried was to be taken out by the customer, the Contractor was to take out an ordinary comprehensive insurance policy. As is usual in all Such contracts, the haulier agreed to supply a replacement vehicle in case of breakdown or when the regular vehicle was undergoing overhaul.
In replying to this letter, I referred the inquirer to "The Commercial Motor Tables of Operating Costs. I pointed out that it was necessary to make certain corrections to the figures in the current issue, which would bring the cost per week for a 5-tonner running 500 miles per week from £22 18s. to about £27. From that, however, £6 had to be deducted on account of the driver's wages, leaving £21 as the net cost to the haulier for operating this vehicle.
I recommended that an addition of £3 per week should be made to cover establishment costs and a further £1 per week td cover the cost of providing a spare vehicle. That brought the cost to £25 per week. Adding 15 per cent. for profit would make the charge t28 10s. I recommended him to quote that, or possibly £29 if he thought the job would stand that amount. • Another inquirer had been asked to quote for a contract relating to a 5-ton sided lorry. The work to be done was mixed. On two days each week the vehicle was to be used locally for conveying loads of cattle food and artificial manure from the docks to warehouses. There would be two or three loads per day and the total daily mileage for that work .was not expected to exceed 20.
Two Loads Per Day
For the rest of the week the vehicle would be collecting produce front farms within a 30-mile radius of the headquatiers of the hirer and delivering it to the local warehouse and retail shops. Here, again, an average of two loads per day was expected, but the daily mileage would approximate to 120.
Having in mind these conditions, I thought it advisable to recommend the haulier to quote on the basis of 400 miles per 44-hr. week.. The vehicle cost per week would be roughly £24 (this is the figure taken from "The Commercial Motor" Tables of Operating Costs and corrected on account of the increases in drivers' wages, fuel and oil and tyre costs which have occurred since the current issue was published).
From that £24 I deducted £6 for the wages of the driver, which left a figure of £18. To that I added, as in the previous case, £3 per week for establishment costs and £1 per week to cover the cost of supplying a substitute vehicle, making the cost figure £22. I added £3 10s. to that as being approximately 15 per cent, for profit and recommended the inquirer to put in a quotation for not less than £25 10s. per week with excess charges .of 3s. for each hour and Is. for each mile over the stipulated figures, 44 hrs. per week and 400 miles.
In passing, it may be worthwhile to reconsider these three examples, making the assumption that instead, of using petrol-engined vehicles the operators decide to employ oilers. In the first example, instead of petrol and oil at 3fd. per mile, an appropriate figure would most likely be 2d. to cover fuel and lubricating oil. The revised figures would thus be, fuel and oil 2d., tyres lid., depreciation lid. Total 41d.
Insufficient Margin Remains r
The figure for standing charges would remain as before, 30s. per week, approximately lid, per mile, so that the total cost per mile to the operator would be approximately 6d., leaving a margin of lid. per mile between his vehicle operating costs and the offer made to him by his prospective customer. If the mileage be 300 per week, that margin would be no more than 450d. or £1 17s. 6d.,' which is still insufficient to provide for establishment costs and profit. My advice to this inquirer would remain the same, even if he were proposing to use an oil-engined vehicle.
As regards the second case, the vehicle running 500 miles per week on delivery from one particular town to a variety of destinations, the corrected figure for vehicle operating costs per week taken from the Tables would now be £25. Deducting £6 on account of the driver's wages, etc., we are left with £19. Adding E4 to cover establishment costs and provision for a substitute vehicle we get a total of £23.
What the operator should do here depends upon circumstances. If he be fairly confident of getting the contract, he can leave his quotation as I suggested it should be, namely, £29, and pocket the extra profit made because he is using fuel oil instead of petrol. Alternatively, he may reduce his price by £1 to £2 per week if there be keen competition and he wants to make sure of the contract.
In the third case, practically the same difference can be shown, namely £2 per week, in favour of the oil-engined vehicle and the inquirer's procedure could be as described above.
Onerous Responsibilities
One thing which a haulier who is entering into this class of business is apt to overlook is that if. there be a sign,ed contract in connection with the business, he is Rely to undertake responsibilities much more onerous than those to which he has been accustomed in his ordinary jobbing haulage. I mentioned some of these responsibilities in the previous article. There are others, however. which he should keep in mind, and of these the most important is the one that the contractor binds himself, if the vehicle on contract be unavailable, to provide a suitable replacement.
The annual cost of fulfilling this condition can easily be estimated. In the first place, it is often the case that there is a clause in the contract providing that the vehicle shall be revarnished or repainted at yearly intervals. That means that the vehicle will probably be put of commission for at least one week for that purpose alone. During the year, another week may be expended in separate days while the van is undergoing sundry small repair or maintenance operations such as decarbonizing and brake refacing, and possibly a further two weeks as the outcome of accidents.
In all probability, it will be necessary for the haulier to find a substitute vehicle for four weeks in the year. If he has a vehicle of his own available for the purpose the extra cost may not be much, but if his other vehicles be fully engaged, he must hire from some other operator. In this case he may be involved in expenditure of from £40 to £60 per annum on that account. That is the reason why I allow £1 per week as an addition to the. establishment costs to cover that item.
Menr.ers of the Road Haulage Association can obtain from the Association a copy of a formal agreement for contracts of hire quite cheaply. This form was originally drawn up to meet conditions of a contract to be operated under contract-A licences and its terms therefore include provision for the haulier to supply the driver. I have been looking through a copy of that form to see how it could be modified to apply to the C hiring margin Clause 4 of the agreement relates to payment to the driver on account of overtime, night work and so on. That coridition should be deleted as the expense will not fall on the contractor. That part of Clause 5 which states that the contractor shall supply the driver can likewise be deleted.
Clause 8 states that the contractor, undertakes to wash and clean the vehicle, but should the hirer undertake to garage the vehicle, the driver is to be allowed a reasonably sufficient time every day in which to clean,, lubricate and generally attend to the mechanical parts. I should imagine it would be better to leave that clause in.
Clause 9 is rather long with several sub-paragraphs, but it does apply almost entirely to the conditions under which the driver may be engaged. It states in the first place that the vehicle shall be driven only by a driver licensed and qualified to drive a vehicle of 'he description hired. That should stand. Next it states that the driver shall be supplied and paid by the contractor or hirer. If the words, "the contractor or" be deleted that would satisfy our present requirements.
Contractor Approves Driver
It goes on to specify that where the driver is supplied and paid by the hirer, that driver shall be approved and authorized by the contractor. That part of the clause I think should remain. Also the next one, that the driver should comply with the rules and regulations for the time being in use by the contractor in relation to and governing the conduct of the contractor's own drivers.
The next sub-clause should also be retained. It states that the driver, although in the employ of the hirer, should pass the contractor's standard driving test if required by the contractor to do so.
The next sub-paragraph relating to payment for expenses and subsistences might probably stand. The final subparagraph which states that nothing in the agreement shall bind the contractor to supply more than one driver per vehicle per day can be omitted.
Clause 10, which refers to sundry matters affecting the employment of drivers, would have to be rewritten some. thing like the following:'--- "Thecontractor will effect a policy of insurance indemnifying the hirer in respect of claims by third parties arising out of damage to property or death or personal injury whether the same may occur in a public thoroughfare or on private property.
"If at any time before or after the signing of this agreement any driver employed on the contractor's vehicle shall be or become uninsurable, the contract shall terminate without prejudice to any claims that may have accrued to the contractor under it and/or damages for breach of contract.
Excess Premiums
"Furthermore, if at any time either before or after the signing of this agreement the driver shall for any reason be insurable only upon payment of an additional premium in excess of the premium usually paid by the contractor, the hirer hereby agrees to pay such excess premiums as aforesaid in addition to the contract charge. Further provided always and it is hereby agreed that in the event of any accident arising while the vehicle is under the control of the hirer's driver, the hirer shall immediately give notice to the contractor, whose insurers may thereupon act accordingly."
Paragraph 15 provides for alterations in the agreed charges in the event of increases in wages of the driver. Obviously this clause does not apply as the hirer pays the driver.
Clause 16 does not refer to the driver at all. It states that it is agreed that the fulfilment of the agreement by the contractor is contingent upon his obtaining and retaining the necessary carrier's licence from the Licensing Authority. I think it would be advisable to retain that clause, but only if it referred to the hirer obtaining and retaining the necessary licence because the contract cannot be fulfilled unless the hirer applies for permission to hire of a vehicle without driver. S.T.R.