Making a Start?
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WHEN dealing with hauliers' problems, I have often thought that many newcomers must have been appalled at the apparent heavy expense to which they were put in running vehicles. If, for example, the query is one which calls for a brief reply, giving the cost per mile and the charges which the haulier must make to earn a reasonable profit, my reply may run something like this:— The operating cost per mile is Is.; the contract for which you are quoting involves running the vehicle for 360 miles per week, so that the total expenditure per week is £18. Your establishment costs will amount to about £2 10s. per week and I assume that you wel require a profit of about £5 10s. per week. YoUr total revenue per week must thus be £26 so that your charge must be, in round figures, Is. 6d, per mile.
Now, if the inquirer happens to be a man fairly well established in busineis, he will have a fairly good idea as to what this statement really means and how he stands in respect of weekly outlay. He will not therefore be disturbed at the prospect but will make such use of my information as circumstances may allow. He will get the best price he can, having in mind that if he can get is. 6d. per mile run he will make a profit of £5 10s. per week, but that every penny less than that figure per mile means a loss of profit of 30s. per week.
A Month Before Payment On the other hand, if the inquirer is one of those who is just considering the purchase of a lorry—with no experience whatever—he will be prone to consider the matter in this way. He will realize that he will have to wait at least a month before he gets any payment. He will imagine that in running the lorry he is actually going to be involved in an outlay of £20 10s. per week, that being made up of the £18 operating costs and the £2 10s. per week for establishment costs. He adds to that his domestic expenditure which, for the sake of argument, we will assume to be £5 per week, and is thus brought to the conclusion that he will have upwards of £25 10s. per week to find for some four or five weeks in order to get going on this particular contract.
If he can, without difficulty, put his hand on extra capital, he will not worry but will get ahead with his contract and, with good luck, will, in the course of a month or so, be more or less firmly established in his new business.
This, however, rarely happens. As a rule, a man who is just starting in road haulage writes to me stating that he started life as a driver and, having saved a small sum, has been fortunate in his bidding for a British Road Services unit. He has made use of the hire-purchase facilities which A36 are available. When he has paid the initial instalment on the hire-purchase transaction, his Road Fund licence, insurance premium and certain additional payments which arise, he has exhausted hi g financial resources and is looking to the profits of his business to develop it and to keep his home going as well.
To such a man, a brief and unqualified statement of expense such as that which I have given is almost enough to turn him away entirely from his intention to enter the haulage business. That may not displease some of his contemporaries who are already hauliers, but is not much help to him. It seems therefore as though a general amplification of that statement is desirable, and I propose to amplify it accordingly.
Outlay Per Year 1 will take a buyer of a used 5-tonner for which he is to pay £400. The deposit or " down payment" as it is called, will be £100; the monthly payments, assuming that they are spread over 18 months, will be £18 2s, 6d. The insurance may be £30 and the annual Road Fund tax the same. The levy will be £6 15s. I will assume that the initial price, £400, covers all extras incidental to a first purchase, so that the total amount to be paid in the first case, assuming that the tax is taken out to cover a year, is £166 15s.
Now we want to know the actual outlay per week. if, as I have already assumed, the intending haulier has a contract upon which he will commence work immediately and keep the lorry running for 360 miles per week, the establishment costs will be low, certainly lower than they will subsequently be. A telephone should be installed and a few bullheads, designed to do duty also as notepaper, should be purchased. The total outlay should not exceed £5.
The vehicle is going to run 360 miles per week. On the assumption that it is in reasonable condition, it may be that with care the owner-driver will be able to get 12 m.p.g. Oil consumption may reasonably be taken as 600 m.p.g.
For a week, then, he will need 30 gallons of petrol and about 4 gallon of lubricant. If he pays 4s. 2d. per gallon for his petrol, his expenditure per week will be no more than £6 5s. for petrol and 3s. for oil, a total of £6 8s. That will be all in the way of running costs, for nothing will be needed in respect of the other items, maintenance, tyres or depreciation, the other three items of the total of five. The washing, cleaning and the routine maintenance operations will be cared for by the owner-driver himself.
So far as standing charges are concerned, there is only one item to be considered, namely garage rent. This may be anything from nil to 15s. per week, according to circumstances. A man living in the country will probably have a shed or some sort of outhouse at his disposal, and will not have to spend anything further than he is already spending in the way of house rent. He has already paid his tax, his levy and his insurance; interest is, as I have so frequently pointed out in these columns, a negative expenditure--none the less important because of that, but, still negative--and for the moment I am assuming that I am dealing with an owner-driver, so that in the beginning he will have no wages to pay. He has still to find money to keep his household going and to pay the instalment on his hire-purchase account, 118 2s. 6d.
If these items are totalled, the sum, including £5 per week for household expenditure, comes to ill 8s. a week. If I allow 10s, for garage rent, the amount is 111 18s. per week. It is necessary to include the garage rent because it may well be that, in the absence of premises of his own, that rent would probably be an actual payment during the early weeks of the business. That is about £51 12s. per month.
The initial outlay has been shown to be £166 15s. so that the haulier will need a minimum of £218 7s. to carry him to the end of the first month. If, as is likely on entering into the contract, he has been able to come to some arrangement to facilitate payments by the customer, this £218 7s, will be all that is essential, for at the end of the first month he will receive approximately one month's pay, which will amount to £104, out of which he will easily he able to carry on. If he reckons that in the second month his direct outgoing will be no more than the £51 12s. calculated abovecle will appreciate that he will be able to put a large 'portion pf the first month's
payment in the bank. He will be able to add to reserves month by month, less actual outgoings as specified.
It is when this stage is reached that the average beginner in haulage makes his first real and serious mistake. Having run for a month only and finding himself with over £50 to put in the bank, a man is apt to imagine that that £50 is all profit from a month's work and that he is going, by the end of the year, to have an amount of about £600 clear, except for his income tax.
That is entirely wrong, and it is chiefly to prevent hauliers from falling into that error that I am always careful to include every single item in making an estimate of cost, and then to impress upon the haulier that he has to take out of those savings so much money to meet expenditure in the future.
Sound Reasoning Necessary
The main thing in this aspect of the matter is to persuade the haulier to think the matter over carefully so as to get a sound and reasonably accurate idea of what are his real profits. To that end, he should try to imagine what is going to be the state of his vehicle at the end of a year or so of work. He should also try to calculate what expense is going to be involved in keeping it on the road.
In the first place, consider the mileage. If the vehicle covers 360 miles per week, that is 18,000 per annum, allowing for a 50-week year. It is possible that by that time it may be needing a new set of tyres. There would in that case be need for expenditure amounting to about £90. Let us hope that the need will not arrive as yet and that the vehicle may operate for another year without the necessity of purchasing a complete set.
Thus we arrive at the end of the second year of operation. By this time the haulier has £1,200 in the bank. It will be wanted, soon at that, for more serious purposes. The £1,200 is not by any means all profit.
If the vehicle is still on the same contract, it will have run
at least 36,000 miles and probably more, if the operator has been fitting other profitable runs into his schedule. There will have been need for a new set of tyres in that mileage, and other things as well such as decarbonizing, a minor engine overhaul, new brake facings and the purchase of sparking plugs.
The First Two Years
These things become important during the second year of life. It may be that this operator is one of those who write to the makers of the vehicle setting out proof that the machine has cost nothing in its first 50,000 miles or so. The early check-up of the engine may not be absolutely necessary but, in case of doubt, it will be cheaper to have that work done rather than carry on and perhaps have to pay the cost of several minor overhauls when sonic real breakdown occurs as the result of neglect. During the two years, tnere will be sundry expenses brougnt aoout rout time to time in the ordinary routine care of the vehicle.
It will have to be cleaned and polished, a touch-up of the paintwork may be necessary. Several lamp bulbs, a dozen or so small parts would have had to be bought. All these things, as well as the overhaul, come under the heading of maintenance, and although the cost per mile under these headings may not be as much as is stated in The Commercial Motor' Tables of Operating Costs," that will be because the lorry is only in its first two years of life, when such expenses are expected to be small. Each item, especially maintenance, grows larger as the vehicle ages, until there comes a time when the actual cost of maintenance per mile is greater than that given in the Tables.
Then again, the lorry is now two years old. It will not go on for ever and it will not go even as long as the haulier expects his business to continue, so that provision mist be made for its replacement. That is depreciation. There ought to be a sum of 2d. per mile set aside for buying a new vehicle. If the owner had put that aside, he would now have 1300. But that £300 is part of the sum which has accumulated in the bank, another warning that it is not by any means profit.
Licence and insurance premiums have to be paid. Many owners forget about these until the demand or warning note comes, and then but for this little hoard in the bank would probably have a difficulty in finding the money. They certainly will be in that unfortunate position if they have used all that money for Purposes other, than those I have prescribed.
Finally there is the item of driver's wages, but that opens up a subject so controversial that it had better be left to be dealt with on some future occasion. I think I have at least indicated that the initial expenses of a haulier's business are
• not very great, and have shown that there is nothing in the seemingly high estimate of weekly outlay which need affright those thinking of making a start in road haulage. S.T.R. A39