The Ton-rniie Recurring
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The Owner driver Can Easily Give Below-cost Quotations Through the Omission of Certain Fixed Charges in Estimating Costs
I4 IMITATIONS of space prevented my finishing with the letter from a correspondent who drew attention
to the evil of rate-cutting, especially in the haulage of road stone and similar materials for local authorities. I concluded the previous article with a statement of a particular problem of that kind, which the writer of the letter asked me to discuss.
The contract was for the haulage of road-making materials over a lead of eight miles. My friend told me that he quoted 4s. 11d, per ton, and did not care whether he secured the work or not, as he was aware that the profit margin at that rate was extremely narrow. A competitor, he learned, quoted 4s. 9d., and another 4s. 6d. None of them was successful and it was generally understood that the tender accepted was 4s. per ton.
The Time Factor Let me consider, first, some times. Remember, in this connection, that it was understood that two men were to be employed, one to assist the driver in unloading. On that basis, taking half-an-hour each way as travelling time, and 11 hours for loading and unloading combined, the total time required per load is 21 hours. In that event, three loads will be carted per day (in that calculation there is a margin for time lost). The weekly "output" can thus be taken to be 16 loads, three on each of five days and one on the Saturday. The weekly tonnage will therefore be 96 tons, the vehicle being a 6-tonner.
Now for the cost. Certain figures were given in the previous article which will again apply. I do not propose to repeat them here. The running cost was shown to be 6.88d. per mile. The standing charges I shall have to go over again, because in the previous figures, which totalled £18 per week, I was reckoning on 50 hours per week and the wages of the driver and mate were assessed on that basis. This time there should be no difficulty in getting the work done in the 44-hour week.
Taking the standard week as a basis, the fixed charges per week will now be: Licences, 15s. 6d.; wages, driver, £5 6s.; mate, £4 13s.; allowance for insurances and holidays with pay, £1; garage rent and rates, 7s. 6d.; insurance (vehicle), 15s.; interest on capital outlay, 10s.; and overheads or establishment costs, £2 13s. The total is £16.
A Fair Profit In covering 16 jciarneys of eight miles each way per week, the weekly , mileage will amount to 256, and 256 miles at 6.88d. per mile cost £7 6s. 9d. The total operating cost per week, which is, the sum of the fixed costs and the running costs, is £23 6s. 9d. A minimum rate of profit on this class of work should be 20 per cent, on the cost and that is about £4 13s. 3d., so that the weekly revenue, to show a fair profit, must be £28. To earn that sum, the rate per ton must be 5s. 10d. "• Even if I assume only 15 per cent, profit margin, the rate quoted is still much less than it should be. A profit of 15 per cent. on £23 7s. is £3 I0s. 2d., so that the weekly earnings, even on so low a margin, should be £26 17s. 2d., and to earn that amount the rate per ton will have to be 5s. 7d.-not a great deal nearer to the maximum quoted rate of 4s. 11d.
The revenue from 96 tons at 4s. Ild per ton would have been £23 12s. Deducting £23 6s. 9d. leaves only 5s. 3d. net profit for a week's work with a 6-ton lorry and two men.
In the circumstances, it is obviously not worth while to calculate the returns from the other quoted rates. They will all show a loss. The question arises, however, as to what becomes of the operator who quoted 4s. per ton and, presumably, got the job ? I think the answer must be that he
was an owner-driver working in co-operation with his brother as mate; or he may Have been an owner-driver employing another man at statutory wages as mate. Let me review the . figures for cost on that basis.
The running costs of the vehicle may be reduced a little, because that type of operator does his own maintenance work on Sundays. Instead of 6.88d, per mile we may well take 6id. The total of running costs per week of 256 miles will then be 16 13s. 4d., as against £7 6s. 9d.
The fixed .costs per week will be much reduced; first, because they do not include the wages of the two men and, secondly, because there is a big difference in the overheads or establishment costs. It is likely, too, that this operator would insure his vehicle against third-party and fire risks only, but I will ignore that possibility and let the amount for vehicle insurance stand as before. What is certain, however, is that in his costing figures, this operator would make no provision for the item, "interest on capital outlay."
Fixed Charges With the above points in mind, we may take it that the weekly fixed charges of the owner-driver or the owner-driver and brother will be approximately as follows:-Licences, 15s. 6c1.; garage rent and rates, 7s. 6d.; insurance, I5s.; overheads, £1 3s.; total, £3 Is. In this case the total expenditure per week amounts to only £9 14s. 4d.
The revenue from the haulage of 96 tons of material at 4s. per ton is £19 4s., so that there is left an apparent profit of £9 10s. 8d. to be divided between the two men. Even if the owner-driver pays his mate the full, statutory rate of £4 13s, and buys the insurance stamp for him at 4s. 2d., he still has £4 12s. 4d. for himself. He probably reckons it to be more than that, for he will be most unlikely, to make any allowance for depreciation, tyres or future expenditure on maintenance. At an absurd and ridiculous rate he can be quite satisfied.
What is to be done about him and his like? I used to have the idea that the only possible way was to ignore him, taking the line that there were so few of him, in proportion to the rest, that his incursions into the market could do no appreciable harm. A talk with one of the area secretaries of the Road Haulage Association convinced me otherwise. He told me that the percentage of owner-drivers, at least in his area, was high--in the neighbourhood of 80 per cent., I think. Obviously, one cannot ignore the depredations of 80 per cent. of the operators in an area. That was before the Transport Act was passed. I should imagine that, when all the long-distance operators are taken out, the proportion of owner-drivers will be greatly increased.
More Confidence Needed Grouping, as I mentioned in the early part of the previous article„ may be the solution, or at least the first step 'towards it. What is wanted is an infusion of confidence into these small men, so that they will trust their local competitor's not to undercut an agreed rate. At present, an operator such as we have in mind will always have the feeling that, no matter what agreement may be reached at any meeting he attends, those who agreed will not abide by it After they have left the hall. He therefore makes no attempt to observe it himself and considers that he is bound, When quoting, to take advantage of all the particular benefits he enjoys in the way of cost reduction. Otherwise he may have his lorry idle and his entire income gone. if he has lost the first job through sticking to his bargain and not undercutting the agreed rate, he "will not make that mistake again for a long time. That is the attitude which the aroups will have to eradicate. Now here is something which is entirely different from the two subjects so far dealt with in this article. The figures for fixed costs give me au opportunity of refuting a complaint which is sometimes made, that operators who continue to charge the flat rate per hour when the vehicle concerned is working overtime are making fat profits from that circumstance. The idea behind the .criticism is that the hourly rates are based on a 44-hour week, during which period most of them are refunded. . It is, according to these critics, manifestly unfair for the operator to continue to charge Ids customer that same rate per hour for the time worked in excess of 44 hours. He should, they say, charge for wages only.
Not Much Difference
Let me work out the figures in relation to the two totals of fixed charges per week that 1 have been using in these two articles. In the previous article, the total fixed expenditure for a 50-hour week was shown to be £18. In this week's article, the figures relate to the standard 44-hour week, bbt, apart from that difference, everything is the same. The fixed costs! have set out at £16. For the 50-hour week the cost per hour is 7s. 2sid.; for the 44-hour week it is 7s. 4d. The difference is only lid, per hour. There are usually incidental expenses which arise in connection with overtime work which will easily account for that lid.
That concludes the discussion of my friend's letter on rate-cutting. Now turn to the subject of several letters that I have recently received. The ton-mile question has occurred again.
The trouble about the ton-mile is that, as an expression, it seems to. be doomed to be misunderstood, certainly in its relation to the problems of the carrier. Whenever it occurs in correspondence, it is more than likely that the writer does not know what he wants; it is seldom the tonmile or the cost or rate per ton-mile that is the burden of the inquiry.
I would not mind if readers merely wrote to me to ask me what the, term meant; I could deal with that direct and certainly would not deem the subject worthy of open discussion in these columns. The problem, however, is rarely as simple as that. The sort of letter I receive is from hauliers who think they want to know the cost per ton-mile of operating a given type and capacity of lorry. Sometimes they ask what they should quote per ton-mile. In nearly every case I find that if l were to give the information asked for—and I rarely do so without further inquiry—it would 'not serve the inquirer's purpose.
Not Quite The Same
In practically every instance I find that the writer is quite wrong in putting his inquiry in that form. He does not really want to know how much it costs to run his lorry per ton-mile, but how much it will cost him to carry one ton for a given distance or series of distances and what he should charge for that service. Those two questions arc seldom similar.
A request for a quotation for haulage based on tonmileage is, in my experience, rare. • Even on those rare occasions I have usually found, on further investigation, that the request was made in error. Haulage contracts are' usually simple, involving the use of a lorry for a given number of miles per day, week or month. With a knowledge of the running cost per mile of the lorry, and the standing charges per week or per year, overhead costs and the number of miles the vehicle will cover per week, the calculation of the total cost is a matter of simple arithmetic. All that remains, in order to discover what the charge should be, is to add a percentage of profit to that cost. The term "ton-miles" does not appear.
Further to clarify the matter, I propose to take from my files some examples of the sort of inquiry I have recently been receiving from hauliers. I can thus show how unnecessary the term "ton-mile" is in nearly every instance.
The first to come to hand relates to the operation of a 6-ton lorry with which the owner is running, or proposes to run, a daily service for miscellaneous packages between two towns situated in the Midlands. The distance is less than 25 mites, so that he comes within the definition of a free Muller. He wants to know how he should arrive at his charges.
My answer to him was that, as his mileage would be n16
400 per week, on the .basis of two round trips per day, the total cost of operating the vehicle, according to •!' The Commercial Motor" Tables of Operating Costs, would be £17 2s. per week. His overhead charges would be at least £4 10s. per week, some of which would be spent in advertising and paying commissions to tradesmen and collectors in the two towns. That makes a total cost of £21 12s. per week. I recommended a profit ratio of 25 per cent., which is £4 8s., so that his revenue must be £26 per week.
To earn that sum he makes 10 journeys (he is operating a five-day week), so that the income per journey must be £2 12s. The ton-mile does not enter into the calculation.
Paper Transport
The next letter is from a man who is offered a contract to bring paper from a place some 20 miles outside London into Fleet Street. He is going to carry full loads of 10 tons at a time and his quotation must, be per ton of paper for the full distance. Here the method of arriving at the proper price is to ascertain the cost of operating that 10-ton lorry out and home, to add a proportionate profit and thus to obtain a figure for the charge per 10-ton load. Divide by 10 and the answer is the price per ton. Again, there is no need for reference to the ton-mile.
Another letter I have turned up in this search for a reference to the ton-mile is from a haulier who is discussing rates generally. This communication is of especial interest, as it is from a concern of much experience. The writer is pointing out to me that prices which are current in his district compare unfavourably with rates which I have been recommending him to charge. (This might be from the man whose letter has been the main subject of this and the previous articles. but it is not.) It is, nevertheless, also a case of contracting for the carriage of road-making materials for given distances.
The point that concerns us here is that in all cases the quotation is given per ton for the distance named. For example, one contract concerns the haulage of road metal over a distance of 23 miles. The price quoted is 9s. 6d. per ton. That is the usual method of quoting for the haulage of such traffics; a price is asked per ton over a stated mileage.
Another popular method of contracting is to offer the use of the lorry, complete with driver, all supplies, maintenance and so on, at a quoted figure per week. There is clearly no need to consider the cost per ton-mile in that case.
Another class of haulage contract which is of considerable interest to free hauliers is what is popularly known as "council work." A typical example of an inquiry of this kind involves the use of a 4-ton lorry• on the haulage of miscellaneous materials for a town council, urban district council, and so on. Here, again, the quotation must obviously be per day or per week, and certainly not per ton-mile.
The Problem Case Perhaps the most difficult type of problem of all those put to me (excepting those asking me to state what parcelcarrying rates ought to be) is that of which the following is an example: "We have a job offered to us to cart tarmacadam in 5-6-ton tipping lorries, the loading to be from a chute. We are asked to quote on tonnage, from one mile to 10 miles radius. What should be charged?"' Even in a difficult problem such as this, with considerable variations in lead distances, there is no suggestion that a quotation per ton-mile would be acceptable to the concern inviting the tender. A price per ton is required. If there be a case in which it might be useful to calculate the rate per ton-mile, this is one. Neither my correspondent nor. myself was given that option. However, I will return to this particular problem again a little later to see whether it may be solved more easily by reference to ton-mileage than
otherwise. S.T.R.