PLANNING RATES TO MEE EE RAINY DAY
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Solving the Problems of the Carrier
RCENTLY I took the opportunity to attend a weekly meeting of a " group" as organized in connection with the war-time distribution of petrol.
The location was " somewhere in England," and the object of the meeting was the distribution of petrol vouchers for the ensuing period. Opportunity was taken, by the group organizer, to say a few words about forthcoming developments, to pass on whatever information he had received from the District Transport Officer, concerning fuel conversion and other matters of current interest. All the members of the group were present.
What I have particularly in mind at the moment, however, is the complete success of a:scheme, instituted by the group organiser, whereby each of the members of the group helped the others whenever the need arose, either in respect of petrol supplies or in division of work. The group behaved, in these respects, as one would have expected a model community to act. The com munal spirit was almost rampant. There was no bicker ing, not the slightest suggestion of discontent, no hints that any member of the group was getting more than his fair share of the benefits available, or that any one was shirking his share of the work that had to be done to insure complete success of the scheme.
I wondered why this should be. I recalled the number of times that attempts had been made to get hauliers to work together for the common good, to implement some scheme for, say, the standardization of rates and conditions of haulage.
I am afraid I came to the conclusion, not very complimentary to my haulier friends, that the reason for their agreeableness was that the " something " which was being done was so plainly beneficial that none was w blind as not to see it. On those other occasions, whilst the benefit was appreciated, the results were not likely to be so immediately realized, so that enthusiasm, when it was kindled, had waned long before the time for realization arrived.
I wondered, also, if something might be done with regard to some of those other much more important matters, whilst hauliers are in this get-together mood.
The time for lifting rates and fares on to an economic level is certainly now. There is a widespread acceptance of the fact that rates must be increased because of current conditions. Why not take advantage of that amenable spirit to put rates where they really belong?
I recalled, too, that in the case of another group with which I have been in touch, the group was being used as the shield for the operator in putting up his prices to a legitimate level. Not, mark you, putting them up so that tiley are exorbitant, but to -figures which really show a profit. In that case, the group took the respon-.
sibility for fixing rates and advising customers accord. ingly.
There is a diffidence amongst hauliers in taking the -initialstep lest the customer should retaliate after the war, by withdrawing his custom, saying "No, you put. your rates up against me when I couldn't help myself. Now I am going to take my business elsewhere," In this case, the group having advised the customer of the increase, the haulier can go to him and say; "Very sorry, but these rates have been fixed for me. If I don't adhere to them I shall get no petrol." I considered as well, that the time was ripe for putting into effect a project which I have had in mind for some while.
I refer to the need for making provision, in all but, perhaps, one department of the haulage business—trunk services—for fluctuation in trade. Most departments of haulage are liable to fluctuation of one kind or another, due to a variety of causes.
• Where Seasonal Fluctuations Occur • In sonic cases as, for example, sand and ballast cartage, haulage of agricultural produce, conveyance of particular kinds of merchandise, the fluctuation is seasonable. In others, such as long-distance haulage (as distinct from trunk service) it arises from the normal ebb and flow of activity "in the industries which the haulier habitually serves. In the latter case, the fluctuation is not reasonable or in any way regular, and is thus much more difficult to guard against.
This is the trouble that arises from that condition. Haulage rates are assessed, where they are assessed on any rational basis at all, on a scale which provides for a minimum profit derived from the conveyance of these goods. That profit is calculated on the assumption that the vehicle is regularly engaged throughout the year. The margin of profit is small, and leaves nothing for emergencies; the haulier is unable to build up any reserves with which he can tide over the slack periods.
The consequence is, that, when a slack period does arrive, he finds himself short of cash with which to meet current expenses. In order to get over the difficulty he takes whatever traffic he can find at whatever rates are offered. That means, inevitably, that he carries at an uneconomic rate, and, what is worse, probably spoils the traffic for a brother haulier who, hitherto, has been taking it at a rate which, whilst it may not have been particularly profitable, is yet sufficient to earn something for him. The cut rate, as always, immediately becomes the standard rate for that commodity.
My point is, that in all cases of traffic which is liable to fluctuate at all, the stabilized rate ought to be sufficient to show a profit throughout the year. In other words, it should be such that the profit earned while the traffic is flowing should be sufficient to enable the haulier to pass through the slack times. It would enable him to -take the stand that he will accept no traffic at less than rates which are known to be current for that traffic. Rather than do so, he will allow his vehicles to stand idle.
The fact that his own standard rates are really sufficient will enable him to face that with equanimity. In so doing, he is providing against a cut in his own rates, which would otherwise arise because some other haulier, slack whilst he is busy, will cut in on his rates merely. "to cover his overheads."
• A Simple Example to Prove a Point •
It will, perhaps, help if I illustrate the principle by means of a simple example. Before doing so I should remind readers that I have always stated in The Commercial Motor Tables for Operating Costs, and in these articles, that, unless otherwise stated, the rates quoted are on the assumption that the vehicle is fully employed throughout the year. They cover the average weekly mileage referred to in the quotation or in the conditions which have been set out as the basis of that quotation.
As an example, then, take the case of a 7-ton petrol lorry, engaged throughout 40 weeks of the year on work which involves 600 miles per week. It is earning is. per mile run, so that the weekly revenue is 2,30. The vehicle operating cost is 9d. per mile, which is equal to 222 10s. per week; overheads total 22 10s. per week for the vehicle, so that the net profit is 25 per week. During the 40 weeks, therefore, the profit totals £200. That is not by any means an exorbitant amount, and, in the case of a small operator, the money is probably spent as it comes. Part of it, in many cases, will go in paying off hire-purchase instalments.
At the end of the 40 weeks a lull comes in 'trade. The operator is told that, for the time being, there is no need for his services. He still has those hire-purchase instalments to face, and other expenses as well, perhaps. He cannot, therefore, face several weeks with his vehicle idle. He manages to obtain a little 'traffic, involving 200 miles per week, at a cut rate equivalent to 10d. per mile. The operating cost of his vehicle, at that weekly mileage, is 15d,, per mile, so that he is losing 5d. for every mile run, which is 24 35. 4d. per week. His overheads are still 12 10s. per week, so that his total loss per week is 26 13s. 4d.
During the 10 weeks that he is "on slack time," therefore, he loses £66 13s. 4d. Deducting that from the 2200, which he had made during the busy part of the year, we arrive at his net annual profit, which is thus only £133 6s. 8d. That is a very meagre return for the operation of a 7-ton lorry over a mileage of 26,000.
The proper way to calculate the rate is to take the mileage covered during the busy period; 600 miles per week for 40 weeks is 24,000 miles per annum, an average of 480 miles per week. Rates should be based on that, which would mean that, during the 40 weeks, the earnings would be at the rate of Is. id. per mile.
The extra profit would thus be 24,000 times Id., or 2100, enough to tide over the slack period and eliminate the need to cut rates, merely in order to cover overheads. Those overheads, plus the standing charges of the vehicle, including wages, would be, for the 10 weeks, 290. I mention that lest some hauliers think that the £100 is much too big a margin. S.T.R.