Rate charging for Municipal Haulage
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IN an article entitled "A Contract but no Work," which appeared in "The Commercial Motor ".dated July 29, I dealt, to some extent incidentally,with rates for the haulage. of sand and gravel over lead distances of from i to 12 mites.. I say incktentally, because the article was really written to point out how insecure certain types of municipal haulage contracts are likely to be.
A good deal of interest has been Shown in this article, and amongst other inquiries I have received, is a number asking me to deal with the subject of rates per hour on somewhat similar lines. • • To take a specimen inquiry, 1 have been asked to help a haulier who has been invited to quote hourly rates for 2, 3, 4, 5 and 6-ton tippers and for a 6-ton drop-sided lorry. To incrtase the general interest, and to widen the scope of these notes, I propose to deal also with drop-sided lorries of from 3/4 to 6 tons capacity.
I will take a 5-ton tipper as the first example, as this is the most popular size of vehicle employed on this work, and is thus likely to interest the majority of readers.
first of all, how much will the vehicle cost? The price may be £620, £800 or £1,000. This variation in initial outlay would seem at once to put us in a quandary. On the face of it, it would seem difficult to suggest a standard of rates which would be equally satisfactory when. the cost of the vehicle to be employed on the work may differ by as much as 50 per cent. There is, however, no real problem in this as we can safely assume that the operator, as a general rule, gets. value for the money he pays for his vehicle.
Depreciation and Capital Interest
in any schedule of operating costs, there are two items which are affected by the price of the vehicle concerned. They are, depreciation and interest on capital outlay. Taking depreciation first, the initial step in assessing that item is to reduce "first cost "to a basic figure. To do that it is neeessary to deduct the cost of tyres and what is called the residual value, which is an estimate of the amount that the vehicle will be sold for, when the time comes for it to be replaced by a new one,
In the case of the £620 vehicle, it may safely be assumed that the tyres are 32 in. by 6 in on the front, and 34 in. by 7 in twins on the rear. The cost is thus £22 5s. for the former, and £60 10s for the latter, making a total of £82 15s. Calling that £83 and taking it from £620 there is c_.537 left. Probably £37 is all that will be obtained for the vehicle when it is due for, resale; so that £500 is-the basic cost on which depreciation must be calculated.
The vehicle costing, approximately. £.800 will no doubt be equipped with 34 in. by 7 in. tyies all round, at a cost of £90 15s. or, say, el. Deducting this from the cost of the vehicle we get £709. Assume a residual value of 159 and we tome to the conclusiot that 1.650 is the basic figure on which to calculate our depreciation.
Higher Residual Value On the £1,000 vehicle the tyres will probably be 35 in: by 71 in. all round, or possibly 15 in. by •71 in. twins on the rear. and 34 in. by 7 in. on the front. Taking the latter as meeting the circumstances of our case, the total cost will be £101 15s. which I propose' to regard as £102. Deducting that from the £1,000 we get £898: The residual value of a vehicle of this class will be proportionately. higher than in the other cases', and I propose to assume a figure of 198. I am thus left with £800 as my basic figure.
A brief digression is necessary to discuss the subject of depreciation. In a recent article I dealt with this subject at some length and more or less established that, in dealing with estimates of operating costs depreciation was, as a rule, best assessed on a mileage basis. In work of the kind we arenow considering an exception must be made. The annual mileage is so low that it is impracticable to consider depreciation as a running cost; it must be dealt with as a standing charge.
Now to explain what I meant by stating that the operator usually gets value for money whether he buys either a lowpriced vehicle or a high-priced one. In assessing depreciation in these cases, due consideration must be paid to the arduous work which tipping vehicles are called upon to perform. They depreciate rapidly and, as I shall have occasion to mention later in this article, are more costly to maintain than other machines. The vehicle costing £620 will be ready for replacement after about three years.
The basic cost is £500, which means that depreciation per annum is at the rate of £167. The second machine is likely to last four years at least; anyhow it can safely be depreciated over four years, and as the basic cost is £650 the amount to be set aside annually for depreciation most be £163. In the case of the third machine it Would be perfectly safe to assume a life of five years, and on a figure of £800 that gives us £160 per annum for depreciation.
As regards capital outlay, which 1 said was affected by a variation in the price paid for the vehicle, this is calculated at the rate of 3 per cent, per annum on the initial outlay. For the first machine the amount is £18 12s., for the second £24, and for the third £30.
It may have occurred to the operator that, for the purposes of this article, it would be convenient to take the mediumpriced machine costing £800. The annual depreciation is thus £163 and taking 50 weeks to the year as is usual, that represents £3 5s. 2d. per week. The weekly interest allow ance is 9s. 7d. In dealing with the remainder of the operating cost I propose to refer to " The Commercial Motor "Tables.
As regards the annual licence, the amount quoted in the Tables is 12s. per week. That assumes that the unladen weight of the vehicle is under 3 tons. With the added weight of the tipping mechanism, it is rarely possible to keep the weight under that limit, so I am going to assume that the next stage in taxation is reached, and 1 shall put the amount down as 14s. per week. For wages the amount is £5 12s. per week. The basic rate for a worker in a Grade I area, driving a 5---tonner, is £5 2s. per week. The additional 10s, is ta cover payments on account of National
Insurance,. workmen's Compensation (which still requires to be paid if the employer is be covered from risks of action by his .
employees under Common Law), and provision for holidayswith-pay.
Next comes rent and rates, and for that I have taken the figure of 9s. direct from the Tables. As regards insurance, the amount quoted in the Tables is 7s. per week. This, as is emphasized in the introduction to the Tables, covers premiums payable on account of ancillary users' vehicles and requires to be more than doubled in its application to hauliers' vehicles. I shall take 15s, Depr&lation we have agreed at £3 5s. 2d. per week and interest at 9s. 7d. There still remains the overhead costs for establishment charges and here again I take the figure of £3 2s. per week as given in the Tables. The grand total of these items is £14 6s, 9d. per week.
In the matter of running costs some fairly considerable amendments have to be made to the figures given in the Tables which, as I have always emphasized, are average ones, and are always subject to modification according to
Load capacity .. .. . .. .
Running cost per mile .. .. ..
Running cost per 5 miles .. .. .
Standing charge per hour* . ..
Total cost per hour .. .. .
Profit margin .. .. ..
Charge per hour.. . .. . .
conditions. As regards fuel costs, in the Tables this item is given as 2s. lid, per mile, Petrol consumption on'a tipper is unusually heavy and is further increased by the fact that the engine has to be run in order to provide power for the hydraulic tipping gear. An increase of 25 per cent. can be expected, which makes the figure 2.64d. per mile. Similarly with lubricants the consumption of which, under corresponding conditions, increases in like proportion to that of petrol. Instead of 0.17d. we shall have to take 0.21d. Tyre cost can.
be taken to be at least 50 per cent. higher than average. Therefore, instead of 0.80d., we shall have to assume 1.20d.
In considering maintenance (d) this -.covers the amount expended on keeping the vehicle clean, on repainting it a n d on general :greasing and oiling. On the assumption that theoperator is 'determined that his vehicles shall always look respectable and be a credit to the name that they bear, expenditure on this item will be increased compared with the-average.
Instead of 0.65d. it is reasonable to estimate that the =cost will be 0.97d. 'Finally, there is maintenance (e) which relates to expenditure on general upkeep of engine transmisilon. tipping gear and bodywork. For this we most expect an increase of 50 per cent, over the average and put down 1.83d. instead of 1.22d. The total of these running costs is 6.85d. per mile.
The quotation for which we are asked is to be per hour, and the reduction of the foregoing figures to a cost-per-hour is therefore the next step to take. First as to the standing charges. The total of £14 6s. 90. has to be divided by 44, and that gives us very nearly 6s. 7d. per hour.
It is usual to assume that the vehicle travels five miles
during each hour it is at work, and the expenditure on running costs will therefore be five times 6.85d. which is 2s. 101d. The total cost is -the sum of these two items,' making 9s. Sid. per hour. This is cost only, and is subject to the addition of not less than 20 per cent, profit in ordet to arrive at the charge which the haulier must make. Twenty per cent. profit on 9s. 51d. is is. 10d, so that the charge should be Its. 4d. per hour. •
If the quotation calls for provision for mileage in excess Of five miles per hour, then the operator should ask for not less than 84. per mile for excess mileage.
I have applied the foregoing principles in making the calculations which have produced the accompanying Tables.
For vehicle prices I have taken about average, and have, assumed them to depreciate over four years. I have made the same corrections to average cogs of operation as I did in the case of the 5-tonner which I took as an example.•