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Part-Loads CAN Pay

18th April 1958, Page 66
18th April 1958
Page 66
Page 69
Page 66, 18th April 1958 — Part-Loads CAN Pay
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Which of the following most accurately describes the problem?

if Hauliers Carry More Small Consignments Because of New Railway Charges, Rates Must be Appropriate to the Traffic. Intensive Working Reduces Cost ALONG-STANDING bone of contention between many providers and users of transport is the carriage of part-lots or. alternatively, smalls traffic. Both parties— from opposing viewpoints—consider such jobs too expensive. The customer sees no reason why a ton should not be carried for half the amount of 2 tons, or at best he is reluctant to be

persuaded otherwise. .

The operator, particularly if he has acquainted himself with costing principles, well knows that the basis of costing relates to the vehicle as a whole. The difference in cost between carrying 5 tons or a full load on a 7-tonner would be negligible and certainly insufficient to justify a vatiation in the rate on that score alone.

Possibly because of the influence of the railway rates structure over the course of many years, it is unfortunate for the haulier that his customers are to some extent mentally conditioned to expect low rates for part-loads. In contrast, in the passenger field, the private-hire customer tends to accept more readily the charge based on the vehicle as a whole, and if for some unexpected reason the full complement of his party did not travel it would be understood on both sides that the charge would remain the same.

Apart from there being little or no reduction in operating costs when a goods vehicle is not fully foaded, there is little or no effect on establishment costs, as the documentation and traffic organization involved in collecting a one-drop 5-ton load could be the same if it were a 7-ton-capacity load.

Coupled with his complaint about rates for such traffic, the customer often considers he receives poor service in response to his request to move part-loads. Either they are collected later than promised or, at the worst, not at all.

The whole matter revolves on the balance between service and cost, as exemplified previously in this series when discussing C-licence operation and empty running. Whilst it is readily accepted that one cannot have a taxi service at bus fares, only too often that is precisely what is expected from hauliers.

Unavoidable Inefficiency

In considering the cost of carrying part-lots, there is a distinction between the owner-driver or small operator running tramp services and the larger concern engaged in trunk operation • involving transhipment. In the former case, and as set out in " The Commercial Motor' Tables of Operating Costs," the haulier can identify the operating cost of the particular vehicle which conveys each consignment. Against this advantage of simplicity the owner-driver or small operator is limited in his ability to provide an economic size of vehicle for any particular job. It is not always true, however, that the larger concern can do this as often as is supposed, despite a wider range of vehicles. The right • vehicle may be in the wrong place. Consequently, there must inevitably be an element of unavoidable inefficiency, when compared with optimum conditions.

Although academic economists may complain of waste of, national resources on such occasions, it is not necessarily the result of bad organization, but merely the inevitable consequence of day-to-day ebb and flow of traffic with which every transport manager has to contend and yet still deliver to the customer's time-table.

Whilst undertakings such as the railways, British Road • Services and the larger private-enterprise operators publish comprehensive tables of rates for this type of traffic, into which are introduced as many variable factors as is practicable, this is obviously not practicable for the small operator. Indeed, there is no simple solution of his problem, particularly because his business is of a personal nature and extra consideration must be given to such intangible factors as maintenance of a28 good customer relationship, as well as calculation of the actual operating cost involved in the particular job concerned.

As with other aspects of management, such Occasions demand a sense of salesmanship and business acumen if the haulier is to show an overall profit. It is only common sense to oblige the customer, whether the load is a special urgent delivery or an unprofitable small lot that cannot be married with other traffic without unduly delaying delivery.

The danger to the haulier, however, is that an exceptional delivery made in such circumstances may too easily create a precedent, so that a similar standard is expected, if not demanded, more and more often in the future at normal rates. It is, therefore, essential that the newcomer should know precisely what it is costing him to carry such traffic and to inform his customer accordingly.

Having been told the real cost of making such a delivery, the customer may decide that the delivery is not so urgent and could go by slower and cheaper means. But unless the haulier points out the expense, it is only natural that the customer will insist on the highest standard of service so long as the rate remains the same. Only when it touches his own pocket will he consider whether the urgency is as great as was first considered.

Holiday With Pay

The small haulier can obtain some guidance as to charging for small lots by consideration of the operating costs of two popular types of vehicle-5-ton and 7-ton platform oilers. The smaller vehicle costing approximately £1,350 with an unladen weight of 3 tons 1 cwt. would incur an annual duty of £38 15s., or 16s. 4d. per week on the basis of 50 weeks per year. Wages in accordance with the current R.H.(62) for Grade I areas would be £8 1 Is. 6d. per week, which includes an allowance for two weeks' holiday with pay and National Health and employers voluntary liability insurance contributions.

Rent and rates are assessed at 10s. per week and vehicle insurance at £1 14s., whilst interest based on 3 per cent, would amount to 16s. per week. Thus, the five items of standing costs would total £12 7s. 10d.

The major item of running costs—fuel—would total 2.50d. per mile, based on a consumption rate of 20 m.p.g. Lubricants are assessed at 0.21d. per mile, tyres at 1.44d. per mile and maintenance at 1.86d. per mile. Finally, depreciation is calculated at 2.07d. per mile, assuming a vehicle life of 120,000 miles and a residual value of 10 per cent. of the original cost price. The total of these five items of running costs is 8.08d. per mile, or £16 16s. 8d. for a 500-mile week and £30 6s. for a 900-mile week.

Where 500 miles are operated during the week with the 5-ton oiler, the total operating costs (standing plus running costs) would be £29 4s. 6d. To this sum must be added establishment or overhead costs, which will be assessed at £5 per week, although it must be admitted that of all costs these are the ones most subject to wide variation between operators. To this total of 134 4s. 6d. is added a profit margin, which in this instance I will place at 20 per cent., giving a final figure of £41 Is. 4d.

If 900 miles were covered during the week with the same vehicle, running costs would amount to DO 6s. and, allowing for the same establishment costs and profit margin, the final. total would become £57 4s. 7d.

For the 7-ton oiler, corresponding standing costs per week would be; Licences, 17s. 10d.; wages, £8 18s, 7d.; rent and rates, 10s.; insurance, 12 10s., and interest, £1 2s., totalling £13 18s. 5d. Similarly, the five items of running costs per mile would be: Fuel, 3.13d.; lubricants, 0.24d.; tyres, 1.60d.; maintenance, 2.20d., and depreciation, 2.93d., making a total of 10.10d. per mile. For 500 miles, running costs would be £21 Os. 10d. and for 900 miles £37 17s. 6d.

Total operating costs for the 7-tonner when operating a 500-mile week would be £34 19s. 3d., to which I will add an arbitrarily up-graded establishment cost of £6, which, together with a 20 per cent. profit margin, gives a final figure of £49 3s. id. By similar process, where 900 miles were operated, the final figure would be 169 7s. Id.

If a small haulier, operating a 7-tonner which averaged 500 miles per week, was asked to deliver 5 tons of urgent traffic 150 miles away with no prospect of a Teturn load, the proportion of overall costs chargeable to this journey would he £29 9s. 9d., Of 15 17s. 10d, per ton. Obviously, unless there were most exceptional circumstances, such as a commodity in which the transport cost formed a very small proportion of the overall costs, traffic would be unlikely to pass at this rate.

Realistic Rate

When, however, the haulier was operating his vehicle to a greater extent and making three regular trips on that route each week involving an average weekly mileage of 900 and bulking part-lots into full loads, he would be in "a better position to offer his customer a more realistic rate. As distinct from the odd job, he should be able to organize back-load traffic. Assuming that on average his lorry was 75 per cent, loaded in both directions, this would give a weekly tonnage of approximately 31, where the optimum was 42 tons resulting from six single trips of 150 miles.

As the overall costs for the 7-tonner for 900 miles are £69 7s. Id., the 31 tons could be profitably carried at a rate of E2 4s. 9d. Even if there were no back-loads, so that the weekly tonnage was reduced to 21, the rate would then be £3 6s. Id., or a little more than half the rate required if the haulier were making a special journey with a limited weekly mileage.

If the flow and urgency of traffic did not readily permit 7-ton

loads to be made up. the operator with a variety of vehicles would be able to Offer a more competitive, yet still profitable, rate. As for a 900-mile week the overall cost is only £57 4s. 7d. for the 5-tonner, a full load could be carried in one direction at £3 ,16s. 4d. per ton, which compares favourably with rates possible with the 7-tonner. With an overall average of 75 per cent, loading, this figure could be reduced to £2 17s. 4d.

Although the carriage of part-lots and smalls traffic has tended to be avoided by many operators in the past, others have built up successful businesses on such traffic. -In so doing they have proved that it is not necessarily unremunerative, provided the right rates are quoted and obtained. There has always been a demand for this kind of service and many traders complain that it has not always been fully met.

Railway Competition

Both newcomers and existing operators might seriously consider what the position will be in their own areas if the declared intention of the railways under the new charges scheme becomes fact. Only recently a railway official stated that they were thoroughly enjoying telling one large concern that unless they got a higher proportion -of their full-load traffic they were going to withdraw their exceptional rates, presumably for the small lots which they already carry.

If, despite the present decline in their traffic receipts, the railways continue to be snore discriminating in the future in the type of traffic they accept, then, however much trade and industry try to bulk traffic in their own interest, there will still remain a large balance of part-lots to be carried by one means or another. If the railways are no longer going to carry such traffic below cost to maintain customers' goodwill, there seems no good reason why hauliers should not find such traffic profitable, provided that their organization is efficient and their rates are appropriate to the cost of the traffic. S.B.


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