Costing a Parcels Service
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How the Figures in "The Commercial Motor " Tables of Operating Costs can be Applied to a Specific Case—that of a Large Operator of Vehicles on Local Distribution IHAD a long chat recently with a London operator of a large fleet of vehicles engaged on local distribution. His company also has depots in the provinces so its experience cover, a wide field. This operator had been endeavouring to check the costs of operation of his fleet, using "The Commercial Motor Tables of Operating Costs" as a standard of comparison, In so doing he had encountered a number of difficulties.
"First of all," he asked, "do the figures in 'The Commercial Motor Tables of Operating Costs' relate mainly to vans or to trucks?" "They are not specifically based on any particular form of vehicle," I replied, "but as the data is collected from users in general it follows that they will relate in any particular size and load capacity to the kind of vehicle which predominates in that category.
" According to that," I continued, "it is fair to say that the figures in The Tables relating to machines up to 2 tons capacity inclusive are more specifically concerned with vans for the reason that the majority of vehicles of that capacity in use is vans. Above that size most of the data relates to trucks. At any rate those items which are determined according to the initial cost of the machine do actually refer to trucks rather than vans."
Fitting the Tables to the Facts
"Now that,. is important," he commented, because my company operates vans exclusively. I take it, therefore, that for vehicles of 3-ton capacity and over it will be advisable to make corrections in applying the figures from The Tables to allow for no only the increased initial cost of the vans as compared with trucks but to provide also for some additional expenditure on maintenance."
"Precisely," I said, "but have you any large vans such as would necessitate you taking this matter into consideration: I thought from what I had seen on the road that they were mostly of the smaller delivery van type."
"We have quite a number of large vehicles," he said, "and we have a rough classification for them. We call them large furniture vans, small furniture vans, ordinary parcel vans and special, very small vans. By large furniture vans I mean the articulated type of vehicle of a capacity of upward of 1,500 cubic ft. A small furniture van would be one of 800-1,000 cubic ft. Ordtnary parcel vans might he anything in load capacity from one to two tons and the special vans are 5-cwt. and 7-cwt. machines. Incidentally, we have a few electric vehicles amongst our parcel vans.
"I would like to know," he continued, "if the figures from which you have compiled these Tables included those from retail delivery concerns such as ours."
"A few, but not many. It would not materially affect the average figures of which The Tables are comprised."
Effects of Distance" on Costs "Then would it not be correct for me to assume," he went on, "that there would be a considerable difference in operating cost between a van delivering parcels within a comparatively small radius and a vehicle operating over medium to long distance straight runs with one collection and one delivery."
" Undoubtedly," I replied. "The cost of operating the first would be above the average: the cost of operating the second might be a little below. We all know," I continued, "that when vehicles are engaged on work which involves frequent stops and starts, petrol consumption per mile run is much greater and so also arc maintenance costs.
"In your case," I added, "these conditions would be made worse so far as those two items of costs are concerned owing to the fact that for a large proportion of the time
the machines are operatint in congested areas, in dense traffic, involving additional stops and starts, not provided for in your schedule of collections and deliveries."
"What proportional difference do you think would be made in the figures for petrol consumption and maintenance for vehicles engaged on this class of retail delivery work and the average figures which you quote?"
"It is difficult to say, but I should imagine that an increase of 15 to 20 per cent, in cost of petrol and 10 per cent. in cost of maintenance insofar as your provincial vehicles are concerned, and 20 to 25 per cent, in petrol and 10 to 15 per cent, maintenance insofar as the figures apply to your London depot, should be allowed."
"That," he said, "is a fairly close approximation to what our own figures indicate."
He then turned to the question of wages. "I see that in your introduction to The Tables, you mention that the wage rates are based on those which apply in Grade I areas."
"Yes," "is it not a fact that as an ancillary user my company is not legally compelled to pay these wage rates, which I understand are enforceable only in respect of Aand Rlicensed operators ?"
C-Licensees and Wages
"Yes and no. It is true that the Road Haulage Wages Act, 1938.. makes it compulsory for Aand R-licensed operators to pay their drivers on the scales laid down. On the other hand, there is an obligation on C licensees, in effect, to pay wages on the same scale.
"Such operators as yourselves are expected to pay wages and observe hours of labour not less favourable than those which in practice prevail amongst good employers in the trade in the district where the work is carried out. Although to a certain extent you might claim that the work which your vehicles do is not precisely the same as that of vehicles operated under A and* B licences in the district, it would not be difficult to demonstrate that there was such a majority of operators engaged on work sufficiently similar in nature to justify the claim that wages should be the same. In any case, you would not be able to obtain good drivers for less than the standard rate of wage."
"No, I can see that," he said. "But here is another point. In the provision you make for the item Wages in the Tables, do you make any allowance for sick pay ?" "No," I said, "but I should like to know exactly what you mean."
Paid for Short Absences
"My company pays a man wages if he happens to be away a couple of days, which, of course, is not long enough for him to get a certificate and be covered by National Insurance."
"Obviously I could not include that," I said. " In the first place because it is such an indeterminate amount and, secondly, because the custom of your firm is not one which is universally adopted, although, of course, most good employers would take that view. Actually, as is stated in the introduction, the employers' contributions under the National Insurance Scheme are included in the figures for wages set out in the Tables."
"Stilt, on this question of wages," he said, "I have seen it stated somewhere that the average number of vehicles owned by haulage contractors in the country is two and a fraction. That must mean that there is a considerable number of one-man, one-vehicle concerns as well as many which have only two vehicles. That would probably mean in the first case that the operator is also an owner-driver, and that in many of the others he would drive one of the two vehicles and employ a driver for the second. Do you make any provision fbr conditions such as that in your average figures?"
"1 have always assumed that if a man drives a vehicle he pays himself a wage as driver and includes that sum in his assessment of the cost of operating his vehicle. I am aware that there is quite a number of small operators who do not adopt that practice but their attitude is one which I have always discouraged and from time to time done my best to eliminate."
He then turnedlo the question of provision,for depreciation.
" In a large concern such as ours," he said, "and. this applies particularly to-day, having in mind the difficulty of obtaining new vehicles, there are several machines still under operation which have been, in effect, written off. In any case, the price which was paid for their purchase is so much less than that which would have to be paid for a corresponding vehicle to-day that the amounts to be allocated for depreciation, if not actually nothing at all, Nust be considerably less than what you recommend. Have you any comment to offer on that ?"
Depreciation Practice
"Positively," I replied. "I hold rather strong views on that point. According to my theory and according to the practice of any far-seeing operator of commercial motor vehicles, the amount quoted for depreciation is to be regarded not necessarily in relation to the first cost of the vehicles to which it applies but must have regard to the probable cost of 'replacing that vehicle. In any rational system of costing, therefore, the calculation of depreciation should be based on the current cost of new vehicles. Actually, I regard depreciation as provision for replacement of rolling stock, in which case obviously must be enough to make it possible to acquire a new vehicle with the fund thus accumulated when the old one is past its work. if the depreciation be calculated on a pre-war cost of a new vehicle that condition would not be met for the accumulated funds would be half, or possibly less than half, the amount required."
"In making your assessment of depreciation do you take into account the allowances made in respect of income tax whereby the purchaser. is allowed, in the first year, to set off as business expense one-fifth of the purchase price as an initial charge as well as 25 per cent, per annum depreciation calculated, each subsequent year, on the falling value of the vehicle 7,"
"No. From the point of view of assessing cost of operation that is not practicable. Depreciation, as understood here, is an actual wear-and-tear allowance and is, therefore, assessed on the mileage run and not on a time basis."
"But is it not a fact that many operators, especially concerns such as mine, which take a pride in the appearance of their vehicles and like to have up-to-date machines, dispose of them and buy new before they have covered the mileage which the vehicles could run before they are actually worn out ?" .
You mean what provision is made for obsolescence." " Yes."
Mileage and Depredation " There is appropriate provision for that in the Tables. In the case of vehicles covering a small annual mileage the allocation for depreciation is stepped ,up to allow for that factor. For example, take the amount allocated for depreciation in Table I for a 2-ton van. In the case of a vehicle running 100 miles per week it is 1.90d., or almost 2d. per mile, whereas, if it be running 500 miles. per week the amount will be only 1.10d.—just over Id. per mile."
"1 see you reduce your figures in all cases to a total cost per mile or per week. Figures for cost per mile are not of much use to us. What we really want to know is cost per parcel. I quite see that it would -be impracticable for you in a publication such as this to quote average figures for cost of delivery of parcels on the basis of a cost per parcel, but I wonder if you could suggest a means whereby we could arrive at some comparable figure for cost per parcel."
"It should not be difficult," I said, "if the number of parcels delivered per week be readily astertainable and can a36 be averaged over a period. I take it that you already have data to show the average number of miles covered per week by each vehicle?"
"Yes, we have that,"
"Then if you refer to the Tables you can obtain the average figure for cost per week. of operating a vehicle• running any given number of miles per week. You will naturally correct that after the method already suggested in respect of petrol donsumption, maintenance costs, etc., and if you divide that amended figure by the average number of parcels per week you will get a figure for cost per parcel."
"En your figureslor cost of fuel, do you take into consideration the fact that many operators such as ourselves buy petrol in bulk at a cost lower than that at which the small operator can obtain it?"
"Yes. You will note that petrol is taken aS costing is. 11d, per gallon. That is, as a matter of fact, an average figure lying more or less Midway between the retail price of 2s. lid. and the bulk price which varies considerably but is around Is, 9d. or Is. 10d."
"On the subject of maintenance (d), we arrange for our drivers to do washing, polishing and greasing, and presumably that would affect the amount which we should allocate under that heading." •
Maintenance for the Small Man
"As a rule I recommend in the case of a small man who does his own washing and greasing that maintenance (d) be left out of his costs. On the other hand, if the maintenance staff does that work, maintenance (d) must be included."
in calculating this cost, how often do you assume washing, polishing, etc., to be carried out?"
" On an average of twice a week for washing and once a week for greasing." .
"I don't think our vehicle are washed anything like so frequently.' I think they are washed when they seem to be dirty: there is no hard and fast rule. The frequency too depends on the pride which the driver takes in his vehicle."
"I am rather surprised to hear you say that," I answered, "because within my experience haulage contractors in • London who 'operate vehicles for companies such as yours, "wash the vehicles every day."
" As-the result of war damage, our repair and maintenance depot was put out of commission and now, therefore, we have no central, well-equipped repair shop of our own. In consequence, a good deal of the repair work has to be placed outside. Would these circumstances be taken into consideration in the Tables? Do the figures allow sufficient ' to cover work done by outsiders in that way or not?"
"I have data relating to all varieties of procedure in respect of maintenance and all of them are taken into account. Broadly speaking I should say that the cost of maintenance should be slightly less than the average figures shown if the operator has the work done in his own maintenance department. It is liable to be rather more than the average, however, if all the work has to be done outside."
"What standard of maintenance do you have in mind, and have you in your figures taken into consideration the fact that there is a majority of old vehicles on the road, the maintenance cost of which must necessarily be comparatively high?"
kntique Vehicles Excepted "The standard of maintenance is assumed to be reasonably high: I cannot vouch for it because I get figures of all sorts of users. M regards the second part, wherever possible I try to eliminate. particularly old vehicles, as the Tables are presumed to apply to machines not more than six or seven years old at the most. In pre-war days the limiting period was five years."
" What about management expenses and overheads: are they provided for in the operating costs?"
"Not at all. The salary of manager, wages of clerical workers and so on, are not vehicle operating costs. They are to be considered separately and they are usually referred to as establishment costs.
" There is provision for those in the figures for charges which a haulage contractor must make. Average amounts for establishment costs and. profit are added to the vehicle operating-costs in order to arrive at those charges."