Chain Reaction of Delay Costs
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TERIVIINAL delays are increasing in frequency and duration. Both at docks and elsewhere this is the alarming trend with which road transport operators are having to cope with as best they can. As stated in this series last week, terminal delays—within reason—have always been an occupational hazard of transport. The resulting additional expenditure in each and every case has seldom, if ever, been costed, still less added to the rate for the traffic concerned.
Such an acquiescent attitude towards increases in costs can no longer be accepted. Additionally, it is becoming more than ever apparent that the traditional absorbing of the cost of delays into an overall charging system indirectly penalizes those customers who provide adequate terminal facilities and does nothing to persuade others to mend their ways—rather the reverse.
But having accepted that some charge will in future have to be raised to compensate for the cost incurred by excessive detention of vehicles, the operator is still faced with the problem of first determining the total cost of the delay. Even then the difficult exercise remains to be completed of making a fair allocation of that cost between the customers concerned, bearing in mind that a full load for collection and delivery to one terminal point is the exception rather than the rule.
Commercial Expediency
If, in fact, some charge is to be raised then this latter exercise is likely to be the more contentious of the two. In the final resort, whatever allocation is made—and, indeed, whatever proportion of the total cost is recovered collectively from all the customers concerned—is more likely to
be governed by commercial expediency rather than cost accountancy.
The actual circumstances of a delay to which such a costing exercise might be applied are, of course, legion. Last week two random examples were quoted. On Monday, November 16, a 10-ton artic first reported to a London dock and was ultimately unloaded the following Tuesday week. In another case, after three days of wasted journeys to and from the docks, the haulier had to deliver the load to his own warehouse 10 miles away, where it remained whilst the customers obtained fresh shipping instructions.
Similarly, where a haulier is providing a distribution service, including warehousing, a serious delay at one of perhaps 20 deliveries scheduled for a driver's working day could have repercussions all along the line. Part of the load may well have to be returned and a second attempt made the following day. This could be on the same vehicle, another vehicle in the haulier's fleet, or even a hired vehicle. However the delivery was finally made, there would be an appreciable addition to costs.
But that would not be the only repercussion. In an efficiently organized distribution system there must be an even flow of goods—first, in bulk from manufacturer, followed by the handling and any sorting required within the haulier's warehouse and, finally, delivery to retailers or other customers. Excessive delays must obviously cause disruptions in that flow, with direct increases in the cost of delivering not only the particular consignment which was the cause of the original delay but, indirectly, to all goods passing through the warehouse. For example, if in a fleet of 30 vehicles the equivalent of one-fifth of the total tonnage sent out on a particular day was returned the same evening, there would be a " loss " of one-fifth of the fixed costs of the warehouse. This is because the whole of those costs would have to be carried by the reduced throughput of 80 per cent.
Cumulative Losses It may well not be a practical exercise to cost a specific " loss" of this nature and, likewise, raise a specific surcharge against the offending traffic. Nevertheless, at least the revenue-earning potential of the warehouse—as well as the vehicle—is reduced. At worst, recurring delays could lead to cumulative losses. Meanwhile, the operator's prime function of providing a transport service is disrupted, customer relations suffer and still another loss—though seldom quantifiable—is thereby incurred.
Where, despite excessive delays at terminals, throughput is nevertheless maintained and the traffic returned undelivered the previous day is sent out again, this time on hired vehicles, delivery costs are likely to be greater than with the operator's own vehicles. There will be the inevitable non-productive mileage between the depot of the sub-contractor and the warehouse of the operator before and after collection and delivery is effected.
Additionally, because of the legal limitations imposed by the Road Traffic Act, 1960, on the maximum number of hours a driver may work, the amount of time a hired driver is actually engaged on productive work will usually be less
than a staff driver. Moreover, the hired driver would not be as familiar with a particular round of deliveries as the regular driver. In such. circumstances a London operator who provides a comprehensive distribution service in the Home Counties considers that, overall, he gets little more than half the work out of hired vehicles as compared with his own.
Apart from the operator's own problems of rescheduling yesterday's undelivered traffic and dealing with the additional cost as best he can, the national problem of road congestion is aggravated, If this distributor's experience is typical, then in aggregate a total of three vehicles—the original vehicle which failed to deliver the goods and subsequently two hired vehicles—will be occupying road space where one should have sufficed if reasonable facilities for loading and unloading had been available at all terminal points. And this uneconomic ratio is made still worse if the deliver), is not effected even at the second attempt, as could well occur.
Distributor's Problems Recent trends in trading are also adding to the distributor's problems just at a time when road congestion and terminal delays are increasing alarmingly. Thus, it is now common for retailers to expect three or four deliveries a week—virtually daily except for the statutory half-day.
closing. The quantity delivered is to son-i extent con
ditioned by the price mechanism of the manufacturer. If his graded prices are grouped for, say, 1 to 50 and 50 to 100 units, and so on, a small retailer will find no advantage in ordering 10 instead of five. So he continues to order oddments to suit his convenience, to the disadvantage of manufacturer and distributor alike.
A trend which at first seemed likely to benefit road transport operators has been bulk buying by groups of grocers and other retailers, in part resulting from competi tion from supermarkets and multiple stores. But after a few months many such groups often come back with a request to the transport operator for the goods they purchased in bulk to be distributed on a retail basis, so adding to the haulier's problems.
In endeavouring to determine the amount of additional expenditure incurred by terminal delays, the operating costs of the vehicle concerned have first to be examined. Taking, as an example, a 5-ton goods vehicle fitted with oil engine, the following costings are extracted from the current edition of The Commercial Motor Tables of Operating Costs appropriate to this vehicle.
At 600 miles per week the operating cost per mile is shown as 14-85d. per mile. If, however, delays reduce the weekly mileage to 400, then the cost is increased to 18-31d. At 200 miles per week the cost per mile becomes 29.10d.— double the original cost.
A Crucial Factor
A crucial factor in estimating operating costs is a realistic assessment of the mileage the vehicle concerned is likely to average each week. On the basis of this assessment subsequent charges will be raised. Thus, in this particular case, 100 miles per day for a six-day week (or its equivalent) would be appropriate to this size of vehicle. But if delays did, in fact, reduce the useful work done during the week to one-third—the equivalent of 200 miles per week then the actual cost per mile to the operator (29.10d.) would be much more than the recommended charge to the customer of 20-79d. when 600 miles were ave raged.
However, even if only 200 miles a week were averaged
and—an unlikely event—all the customers concerned paid the correct charge for that mileage, there would still be a loss of potential revenue caused by under-utilization.
Reverting again to the Tables, the total cost per week to the operator for this 5-tonner is shown to be £24 5s. at 200 miles per week and £37 3s. at 600 miles per week. Allowing for overhead costs (20 per cent) and profit margin (20 per cent), the corresponding additions to costs are £9 14s. (200 m.p.w.) and £14 17s. (600 m.p.w.). So even if the full charge were met for the 200-mile week there would still be a reduction of £5 3s. in the contribution that vehicle would have made to overhead costs and profit margin if 600 miles had been averaged and appropriate charges raised.
Similarly, if a 10-ton artic which normally averaged 800 miles a week had this cut to 400 because of excessive delays, the contribution to overhead costs and profit margin would be reduced from £24 14s, to £16 15s.
Accordingly, it is obvious that the cost of a terminal delay is likely to be much more than the immediate cost of a25 additional overtime or reduced deliveries within the same time. In the latter event an unfortunate result is that often the customer at whose premises the excessive delay occurs nevertheless has his goods delivered, whilst customers towards the end of the day's run (and possibly with reasonable terminal facilities) have to wait until the following day for their goods.
Another consequential loss stemming from the cumula
tive effect of delays concerns maintenance—another topical subject. Where an efficient preventive or scheduled maintenance system is in force the rival claims of the engineering and traffic departments will already be finely balanced. When excessive delays occur some servicings may be either postponed or omitted altogether. The repercussions in terms of ultimate cost, as with other consequential losses, may not be ascertainable, but they could well reduce the standard of service provided and so revenue earned in the future.