ADVICE ON TRANSPORT PROBLEMS
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Economic --by what standardP
REPEATEDLY in this series the implications of transport being a service industry have been considered. An immediate difficulty arises in this respect because the standard of a service is often not so readily definable as the quality of a commodity, nor can it be so readily related to price. Moreover, the demands of a single individual for a transport service in respect of a particular journey can vary with the occasion substantially and with that variation there can be a preparedness to pay differing fares or rates according to the level of service provided. The obvious example here is in the alternative use of a private ear, taxi or public transport for the same journey, dependent upon the urgency of the occasion.
Freedom to Decide
With no reason to assume other than that the individual concerned is a rational person and that freedom of choice exists, then it must first be admitted that only he has the necessary information on which, to make these alternative decisions. Assuming the alternative charges raised do in fact reflect the true cost, then the decision as to which service to use on which particular occasion is dependent upon an assessment of urgency and other factors associated with the standard of service relative to the charge raised.
Unfortunately, when the same principles are applied to the carriage of goods, the variations in the standards of service required can be considerable and the attitude that only one standard exists—namely, the safe movement of a consignment from A to B—is academic and ignores the practicalities of transport operation.
Variations in Standards To experienced providers and users of transport services this variation in standards and types of transport services to meet particular needs is daily practised and understood. But it is becoming increasingly evident that there is a mounting body of academic opinion which either ignores or is not aware of these variations in standards of service in relation to the cost of providing the service which they look upon as the predominant, if not sole, criterion.
A recent example in this respect is typical of the attitude adopted and is an ominous omen for the possible pattern of future transport if it were to become official opinion. This example is a paper given at the University of Munster entitled "Possibilities in organization and price policy for avoiding empty transport runs" by Prof. Dr. Hellmuth St. Seidenfus. It is intended as a contribution towards the striving for greater efficiency in the transport industry within the EEC and, indicative of this intention, the summary of this paper is printed in four languages.
It is claimed at the outset that the large number of empty runs made by means of transport is a special problem of the industry and the paper endeavours to examine the possibilities of solving the problem of empty runs in the light of increased profitability. But whilst the avoidance of empty runs would be accepted, as the paper claims, as a worth-while objective from both industrial and national economic viewpoints, such a statement contains a dangerous half-truth in that other factors are largely ignored.
Empty Runs a Special Problem It is maintained that for private enterprise the avoidance of empty runs through achieving an increase in demand means higher income but, as a rule, there are also increased costs. Particularly do these arise on account of the waiting times until a new load is found and also on account of the extra mileage as compared with• a direct empty run back to the starting point, which has to be travelled to pick up the return load. This quite rightly presumes that in the majority of cases the operator would
not be so fortunate as to pick up his return load virtually at the same point as the outward load had been delivered, unless of course an organized trunking system was in operation.
Increased Costs—Another Factor
But it is not correct to presume, as is implied in this paper, that the increased costs are limited to waiting time and extra mileage. It might be true to say that these are the two immediately discernible increases in cost. But another factor, although imprecise in cost if not actually intangible, could be of much greater importance. This is the absolute necessity that the second outward load from the same point as the first load was delivered should be collected at a specific time and subsequently delivered at a specific time. There are many ancillary types of operation where this is a predominant issue in arranging the pattern of delivery for the week, and it is often no solution to introduce a second vehicle into the costing exercise to make certain of that second outward delivery and at the same time permit the first vehicle ultimately to collect the return load. Obviously there are many occasions where the margin in collection and delivery time does in fact allow for the collection of return loads despite some rearrangement of schedules. But the fact remains that the tempo of trade and industry 'generally is quickening, so that the demand on transport operators to collect and deliver at precise times is likewise increasing with a lessening margin for waiting time arising from backloading.
The paper then states what is virtually axiomatic, that the cost of empty running can be reduced by centralizing the information about the nature, quantity and direction of the demand for transport services and about the geographical distribution of the available means of transport. Thus contacts between supply and demand of transport in the form of exchanges, freight allocation centres and so on could be organized by the forwarding agents, who by virtue of their comprehensive business connections would be particularly well suited for the task.
Movable Tariffs After describing the normal activity of forwarding agents, the paper states that a prerequisite for the operation of this kind of organizational structure is the existence of movable tariffs. With government-prescribed standard tariffs, the forwarding agents could not legitimately give the market the benefit of their services. Differential state tariffs for forwarding agents and for carriers break down on demarkation problems. If the flow of transport in opposite directions is unequal, this restricts the organizational methods that can be taken to avoid empty runs. If the density of flow of transport as a whole is considered, it is possible and economically useful, in contrast with the case of the individual carrier, to distinguish between outward and inward journeys.
It is then contended that prices for transport services must be related on the one hand to average costs and on the other to utilization of capacity. The average costs of inward and outward journeys should, it is contended, be put at different levels. For the inward journey the cost is that of a single journey. The average cost of the outward journey is the cost of the single journey plus the cost of the average extent to which vehicles have to return empty. Average tariffs should therefore be modified relative to the elasticity of demand, according to whether and to what extent deviations from these tariffs could give a better use of capacity.
Effects of Tariff Reorganization Furthermore, the effects that a reorganization of the tariff system in one form of transport would have upon other types of transport have to be considered. If in different transport sectors the stronger traffic flow moved consistently in the same direction, changes in the proportions of empty runs made by each sector which resulted from an equal application of the pricing principles mentioned would mean a better allocation of resources. If the heavier traffic flow over a given route moved in different directions for different transport sectors, the redirection of demand would also reduce the movement of vehicles whilst the transport services performed remained constant.
It is recognized in the paper, however, that although the proposed tariff arrangements could be regarded as optimum from the viewpoint of welfare economics, they do not fit in with private enterprise's aim of obtaining maximum profit. From the viewpoint of the individual carrier, it is more advantageous to relate the tariffs for outward journeys and those for inward journeys to the price elasticity of demand. Although the avoidance of empty running is limited by the geographically conditioned economic structure, it is important and timely as a means of raising the efficiency of industry as a whole. Transport costs affect the regional distribution of production capacity. Only when the real difference between the cost of outward and inward journeys is expressed in the charge, this paper claims, would the transport industry make its optimum contribution to the rise in productivity demanded by the Common Market.
Information Largely Axiomatic
Much of the information and argument expressed in this paper is, as already suggested, largely axiomatic and can be substantiated in a relatively narrow context—namely, the literal and direct cost of transport. But, unfortunately, what is becoming all too common in such dissertations is the failure to recognize the overall benefit to any national economy of speedy, reliable and prompt transport. Even though the charges made by road transport for the services it provides have certainly been competitive, many experienced observers of the development of the road transport industry in this country would give priority to the quality of service just mentioned rather than cost alone as the reason for its success. Because this cannot always be easily quantified—namely, the ability to deliver in a specific time, undamaged and with a minimum of packing--it is all too common a practice virtually to ignore what many would consider the prime asset of road transport.
But to exploit the asset of the good service he has to offer to the full, the successful transport operator knows that the ultimate objective is a satisfied customer, and if there is no other alternative then some proportion of partloading or even empty running may be necessary. Naturally, this is kept to the absolute minimum. But the existence of empty running is by no means the sole, or even major, criterion of any particular transport operation. All other factors have to be assessed before judgment can be made on the proportion of empty running incurred.
With the ever-increasing demand for quicker turn-round —resulting, in many instances, of specialized bodies for the exclusive conveyance of one type of traffic—empty running in the return direction often becomes virtually essential at the outset.
Urgency an Important Factor
Again, a substantial proportion of goods vehicles, particularly those in the medium range, say 5to 7-ton carrying capacity, are daily engaged on roughly circular delivery-and-collection runs with their original full load gradually decreasing,offset in many instances only by the collection of relatively lightweight empties. But if an analysis were made the accumulative proportion of partload running would be very similar to a full load in the outward direction (relative to half the circular mileage) and empty on return. Yet few, if any, would maintain that such runs are basically inefficient or badly scheduled. If any transport service is to fulfil its function it must meet not only the capacity and direction of load, but also its urgency in terms of collection and delivery times.
1965 PUBLICATIONS
Publications issued during 1965, obtainable from HM Stationery Office, of interest to those concerned with road transport operation
• "Transport Act 1962 (Commencement No. 2) Order 1964 ". No. 2025 (3d.).
"Traffic Signs (Amendment) Regulations 1964 No. 2069 (3d.).
"European Agreement supplementing the Convention on Road Traffic and the Protocol on Road Signs and Signals signed at Geneva on September 19, 1949 No. 2532 (9d.).
"Agreement on signs for road works amending the European Agreement of September 16, 1950 No. 2533 (6d.).
" Motor Vehicles (International Circulation) Regulations 1965 ", No. 329(9d.).
"Offices, Shops, Railway Premises Act, 1963. Abstract of Act and of Regulations prescribed by the Minister of Labour for the information of employees covered by the Act working in these premises ". List No. 49 (9d.).
"Transport Act 1962. Loans to Nationalized Transport Undertakings ", List No. 32 (Is. 3d.).
"Road Traffic. Protocol on Road Signs and Signals ", No. 2594 (3s.).
"Removal of Vehicles (England and Wales) (Amendment) Regulations 1965 ", No. 641 (3d.).
"Road Vehicles Lighting (Amendment) Regulations 1965", No. 870 (6d.).
Motor Vehicles (Construction and Use) (Amendment) Regulations 1965", No. 871 (6d.).
" Wages Regulations (Road Haulage) Order 1965 (R1.82)", No. 1073 (1s. 9d.).
MONEY MATTERS
Turner and Newall March On
L'OR more years than I care to remember the Ordinary / units of TURNER AND NEWALL have found a ready place on the investment lists sent out by a wide range of stockbrokers. This has been justified. And judged by the latest interim report put out by this leading group the practice seems likely to continue. During the first six months of the current trading year, that will terminate on September 30 next, group pre-tax profits jumped to 1844 m. from £7.55 m. during the same period the previous year. These figures are satisfactory by almost any standard. An interim dividend of 31% has been declared by the board. This is equivalent to the 5% interim dividend paid last year on the old capital prior to the subsequent scrip issue. Although the results are regarded as satisfactory by the board the accompanying statement adds: "Nevertheless, owing mainly to continuing increases in costs, and also to possible adverse movement in trading conditions, the profit for the full year may not be markedly different front that for the year ended September 30, 1964". The total for that year was E13-74 m. About Corporation Tax the statement comments that assuming this to be at 40% and that rates of taxation do not alter in those overseas countries in which the group operates, "the resulting additional taxation arising in future years from the group's overseas operations may not be of a major character". At around their present price of 38s. 9d. these E1 Ordinary units yield 51% based on the latest full year's dividend of iol% covered 1.6 times by earnings. They should, in my opinion, be held.
Main Ford dealers GODFREY DAVIS reported a useful rise in trading profit for the year that ended on March 31 last. This came out at 11,217,661 and compared with £1,046,779 the previous year. This was a good deal better than the market had expected after the interim statement put out last November. In that statement it was pointed out that while there had been a sizeable increase in turnover, profit margins were under stress and pre-tax profits for the year's first half were higher by a "modest" 5%. Earnings for the full year are only a little short of 6% higher. Out of these increased earnings for the year the directors recommend a final dividend of 121-%. This makes the total for the year 171% and compares with the equivalent of 14% the year before. The group is diversified and has achieved a good deal of capital expansion. Additional benefits should flow from this latter outlay. At their present price of 15s. (they have been a firmer market recently) these 5s. Ordinary shares return a useful 6% based on the latest dividend.
Martin Younger
IN YOUR OPINION
The editor is always pleased to receive letters on all aspects of the road transport industry. Contributors must include their names and addresses, though the published letter may appear under a nom de plume where specifically requested. Views expressed in letters published are not necessarily those of the editor.
A 24-hour 'Small-Lots' Service
I WAS most interested in Mr. Woodward's letter in your 1 issue of June 4. In my view his suggestions are perfectly reasonable. Indeed my company does operate a 24-hour delivery service between London and Glasgow (which is considerably beyond the 250-mile limit he mentions).
This service has been operating very satisfactorily for several years with a guaranteed "next day" delivery. Mr. Woodward's suggestion regarding redress in cases of nondelivery is excellent and presents a challenge which we are quite prepared to accept. If through any fault of our own we fail to effect the guaranteed next-day delivery, we are prepared to waive all charges in respect of the consignment.
London, E.9. R. W. C RONK, Sales Director, Tartan Arrow Service Ltd.
Long-term Wages Agreement?
IN your issue of May 28 a correspondent wished to know if the transport industry was going to get down to a longterm wages agreement.
May I take the liberty of informing him through the medium of your journal that there was a package deal giving annual increases, etc., which was signed between the Belfast North of Ireland Carriers Association and the Amalgamated Transport and General Workers Union in Belfast in April, 1963, covering the periods of 1963-64, 1964-65 and 1965-66. However, owing to the increased cost of living the Amalgamated Transport and General Workers Union invoked their escape clause, and further increases to cover the rise in cost of living had to be met from February. 1965.
Newtownabbey, Co. Antrim. U LSTERMAN.
Short Road to Ruin
A s a man with the interests of the small haulier at heart, I am very much concerned at recent developments in the transport field. You state in your leader of last week that "A Fraser foray to outstrip the Marples blitz will be seeking 130,000 captives at the roadside this year ". You also point out that "the plating and testing of all goods vehicles is inevitable" and warn that "over-restrictive plating, strictly enforced, could mean the difference between solvency and bankruptcy ". Many small hauliers, at the moment "enjoying." a somewhat precarious existence will, on reading these tidings, agree with the last remark and feel themselves that much closer to Carey Street.
'The suggestion that I've read in the Press that the Geddes Committee will report in favour of loosening licensing restrictions—and that control by licensing may well be replaced by control by vastly increased taxation of goods vehicles further increases my general feelings of alarm and despondency.
Presumably the Government realize that by striving to curb rates—as they are doing—and by enormously increasing overheads they will force a great number of small companies to the wall. What, I should like to know is the point of this? If it is to transfer goods from road to rail in the name of "integration it seems to me to be a heartless way of doing this. And why should many small companies be ruined because a. short-sighted Government holds to an ideal which. one understands, even one of its principal advisers, Lord Hinton, considers will not work. Can one please enlighten me?
St. Mary Cray, Kent. DESPONDENT.