Contractors Can Compete On Costs
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The Extent of the Weekly Mileage Covered by the Haulier's Vehicles Enables Him to Quote Favourable Rates to the Ancillary User for Short-period Jobs, Without there being any Suggestion of Rate Cutting
IN my previous article, published in last week's issue of "The Commercial Motor," 1 gave seine comparative
figures for costs and charges, cost of ancillary-operated vehicles, and charges to be made by hauliers for equivalent work on the assumption that the haulier is to make a profit. the examples already dealt with were related to such trades as the butcher, cabinet maker and timber merchant.
In these examples I am assuming that the hours worked per week by the haulier's vehicles are the same as those worked by the trader's vehicles. On that basis, it is apparent that the haulier cannot compete on price. This should be fairly obvious because, in the first place, his establishment costs are likely to be more than those of the trader and, secondly, the haulier must show a profit. I am now going to deal with some further examples,. andr in passing will apply the same principles of costing to passenger carrying, although in such cases the question of competition between carrier and trader rarely arises.
For my fourth example. then. I am going to consider the CaSe of a brickmaker who has been asked to deliver 4,000
bricks to a point 30 miles from his kilns. In this case the vehicle used is a tractor and trailer capable of carrying 10 tons, the-weight of 4,000 ordinary bricks. I appreciate that some classesof brick are heavier than that, but for the purpose of this example the figure of 21 tons per 1,000 bricks may be taken to apply.
I am going to assume that the bricks take 2 hrs. to load and the same time to unload. The tractor-trailer, com
bination is not a fast-moving vehicle, and I shall assume that the journey takes 21 hrs. each way. The time necessary for the complete job will thus be 9 hrs. . The standing charges of a vehicle of this kind amount to £g 18s. per week, which is equivalent to 4s. per hour fore 44-hour week. The cost for time only is thus £1 16s.
The running costs amount to Is. per mile, or £.3 tor 60 miles, so that the total cost to the brickmaker using his
own vehicle is £4 16s., and if I assume a further £1 4s. for establishment costs, it brings the total to £6, or El 10s. per 1,000 bricks.
Calculating the Haulier's Rate
If the haulier is to tackle this job, his costs will work out as follows:-The standing charges will be the same, £8 18s. per week, but his establishment costs will be greater. say £3 2s. pet week, making a total for fixed charges of £12 per week. On to that he will need to add £3 for profit on the basis of 25 per cent, on cost, so that he must budget for £15 per 44 hrs., which is approximately 7s. per hour.
He must also add 25 per cent. to the Is.-per-mile running cost and charge at the rate of Is.' 3d. per mile. His charge, therefore, must be made up of 9 hours at 7s. per hour, plus 60 miles at Is. 3d., a total of £6 Ms. for the job, or approximately El 14s. 6d. per 1,000 bricks.
I will now deal with some examples relative to passenger vehicle, and the' first will apply to the operator of a hire car. He has a 20 h.p. machine and has to make a charge to. take a party to a" town 15 miles away. He is to leaVe 'at 7 'pen:, to 'arrive at his destination at 7.45 p.m. to pick hp his party again at 11.15 p.m. and will arrive .13kk at midnight. He will be engaged. for 5 hours and Will cover, only 30 miles during that period.
His standing charges are £8 5s. 6d. per week and his establishment costs for that period are £2 4s. 6d., giving a total of fixed charges of £10 10s. per week. Adding profit. again at 25 per cent., which is approximately £2 12s., and we get a figure of £13 2s., which is the amount he must
earn -for time only exclusive of mileage. On the basis of a 44-hoar week, that will be 6s. per hour. His running cost per mile is 41d., and adding 25 per cent, to that we get 5fd. as the charge he must make per mile run. In assessing the amount he must quote, he must therefore take 30 miles at 51de which is 14s. 5d., and add to that 5 hours at 6s. per hour, which is £1 10s. The total is E2 4s. 5d.., so that he will probably quote at least £2 5s. for the job. He may even reckon that, as it is night 'work, he is entitled to a better return and wilt make his. fee £2 10s.
It frequently happens that a bus owner has to decide for himself whether there are any good prospects in the operation of a new service that is to run so infrequently as, perhaps, once or twice per day. In dealing with this problem. I have to assume that the operator has assured himself of the probability that he will get permission to run the service and is concerned only with the economic aspect.
Short-period Passenger Service He wants to know what the fares will have to be for that service if it is going to be profitable, and he may be in circumstances similar to those which I have been outlining in connection with goods haulage-that he has no accurate data which he can use as a basis fOr calculating cost and profit. Under such conditions the calculations, although somewhat similar to those that I have been making, will differ in certain important aspects as can best be illustrated by an example.
Take the case of the 32-seater bus. It occurs to its owner that a shopping journey to a town 12 miles away might, with profit, be run some afternoons of the week. To meet the circumstances of this case he decided that the bus should leave at 2.15 p.m., that it Will arrive ia the shopping area at 3 p.m., start on the return at 4.30 p.m., and arrive back home at 5.15 p.m., having been employed for just 3 hours and having travelled 24 miles.
First of all, he wants to know what is going, to be' the cost to him of each journey. This part of the calculation is much the same as those which have gone before. The standing charges of a bus of this capacity amount to 115 18s. 3d. per week, and the tstablishment costs £5 Is. 9d., making the total fixed charges £21 per, week. That makes the cost per hour of a 44-hour week to be 9s. 3d. The running costs is 9d. per mile.
The actual cost of the journey will be that of 3 hours at 9s. 3d. plus 24 miles at 9d.. a total of £2 5s. 9d. I must emphasize that that is cost only, no allowance for profit...
The railway company, let us presume, issues half-day cheap-return tickets at Is. 6d., and the bus owner realizes that he has that competition to meet. There are two aspects of the matter to be considered. How many, passengers are likely to use the service, and what shall the fare be? These two considerations are interdependent. If the average number of passengers to be carried be low, the fare will have to be increased accordingly in order to make a given profit.
• Suppose we consider what will happen if the charge be made the same as the railway farels. 6d. return. Thirtytwo passengers will bring in a total of £2 8s., which is only 2s. 3d. profit per journey, which is obviously insufficient. It is probable that the operator will not think it, worth while unless he can make at least 15s, per journey, and that means he must earn 13 per journey, and the fare, on the assumption that the average number of passengers is 30, must therefore be 2s. Obviously, therefore, he cannot compete with the railway company on cost, but where he
will have the advantage will in all' prObability bC. fifst, that he will' have a -moreconvenient picking-up •phsce, and secondly, that he will be able to set the passengers don' right in the centre of the shopping district.
Generally speakin'g, too, his bus will be more comfortable than the train and the journey more pleasant. It rather seems as though he will have to do some trial jottrneys, to discover what are the prospects of profit. He will have to bear in mind that at a 2s. fare, he needs 23 passengers to cover his costs. Rut it may be thatif he 'has a Nis that -would otherwise stand idle, he may thinkit •worth while to run the service so long as he can get a minimum of 23 :passengers. In that caSe, such a service would help him to pay the standing charges and overheads on his vehicle, thus making it more profitable for him during the rest of the week.
The coach owner is more nearly; akin' to the 'general hanlier, so far, as--conditions of operation are concerned. He _is usually, interested in finding a _full. week's work for his-coach for As many weeks In the -year _as. possible. He may, at any tirne, wish to know,what a. particular trip or tour should bring in. as revenue, sO ,that. he, may decide whether a contemplated series of such trips would be profitable: Here, again, 1 have to assume that the operator can obtain permission from the traffic authorities to run such trips, as.1 am confining myself only to cost and profit.
Stippose, for example, that he has in mind a trip to a seaside town 60 miles away. Let me assume, in the first plate, that this is to be Completed after lunch, so as not to interfere with a morning journey for which purpose the coach is already needed, I am also taking it for granted that in making these calculations the operator takes a 44-hour week as the basis.
This vehicle, too, is a 32-seater. The standing charges are El I Gs. 3d. per week, and the establishment costs £4 13s. 9d., making the total of fixed charges £16. That is equivalent to 7s. 4d. per hour; the running costs are 10d. per mile. The trip starts at 2.30 p.m.. the coach arriving at the seaside at 5 o'clock, and returning at 8 o'clock to arrive home at 10.30 p.m.
,Profit-30 per cent. on Cost
The GAM time involved is 8 hours, of which, however, 4 hours are overtime. One way to calculate the charge is to assume that only 4 hours are to be debited with fixed costs. For only the other 4 hours need the driver's overtime-account be considered. The total cost is therefore made up of 4 hours at 7s. 4d.,. 4 hours at 3s, 6d.. and 120 miles at 10d., making a total of £7 35. 4d.
Thirty passengers at 4s. 8d. each will just clear expenses,
as also will 24 at 6s. If, therefore, the operator considers, as in my view he should, that his minimum profit for work of this kind should be 30 per cent. on cost, then, if he expects an average of 30 passengers per trip, he must charge not less than 6s. 3d., and if he expects to average only 24 passengers he must charge 8s.
To take another exampIN.of coach operation. We will assume that the same journey is planned, but that il is to occupy a full day, starting at 9 a.m. and returning at 7 p.m.
The total time is 10 hours. Assume that the driver takes his lunch-hour. as .usual, then he can debit only 9 hours to the job. For that he will be paid the ordinary rate at 8 hours and overtime for the 1 hour. The operator in calculating his own cost should, therefore, according to the
method used in the previous.example, take 8 hours at 7s. 4d., phis an hour's overtime at 3s. Gd., giving a total of £3 2s. 2d. To that must be added 120 mi!es at 10d. per mile, so that his total cost will amount to £8 2s. 2d
If expects to carry an average of 30 passengers, then the cost per passenger is 5s. 5d. On work of this kind it is customary to add 30 per cent, to the cost in order to arrive at the correct minimum fare, which thus comes to 7s. 3d., which will probably be interpreted as 7s. '6d: On the basis of 24 passengers per trip, the cost per -passenger is 6s. 9d. and the fare should be not less than 9s.
1 will now revert to the costs and charges for the carriage of goods, and make good my promise made in the previous article to demonstrate that there is more than an even chance of the haulier being able to compete on price with
the-. trader.
Computing the Haulier's Rate It will, be recalled that in all the cases in which 1 compared the trader's costs with those of the haulier. I assumed that the standing charges and the running costs were the same, and further, and this is the important point, that the number of hours worked by the vehicles were also the same. 1 shall deal with only one example, that of the butcher
He was using a 30-cwt. van, the standing charges of which were shown to be £6 13s. per week, and the running costs 41d. per mile. It was assumed that the butcher had the vehicle in use for 44 hours per week, and the running cost was based on 300 miles per week.
Neither of these hypotheses is really justified by the facts. It is more than likely that the van will be in use for only 30 hours per week, and that the mileage will fall short of 200. On that basis the standing charges per hour become 4s. 5d. and the. running costs will be 4.1d, per mile. The particular journey which was taken as an example, involved the use of the vehicle for 2 hours, and a total distance covered of 20 miles. On that basis the time cost is 8s. 10d., and the mileage cost 7s. 11d., a total uf 16s. 9d.
The vehicle which the haulier uses for the job will most likely be one which is in profitable employment for as many as 56 hours per week. That is a usual period for haulage contractors' vehicles, and it is more to theliking of the driver than the basic 44-hour week.
The haulier's costs comprise the standing charges of £6 13s. per week, plus El 15s. per week overtime payment to the driver, making £8 8s. His establishment costs will be unaffected, and I can take the figure previously used, that of £1 2s. per week. His total of fixed costs is thus £9 10s. He will probably be content with 20 per cent. profit, which means that his profit on the time-cost will be El 18s., and his total time-charge El I 8s. per week.
That means that his charge per hour should be 4s. His vehicle runs not 300, but probably more than 500 per week, and his running costs per mile will correspondingly diminish to 31',d. per mile. His charge per mile, to cover a reasonable profit, will be 41d. For 2 hours, therefore, he must charge 8s.. and for 20 miles 7s. Id.; he can thus do the work for 15s. Id. as against the traders's own cost. of 16s. 9d.
It could similarly be shown in respect of the other goodscarrying examples, that the haulier, because he cams find work to keep his vehicles fully occupied, can' compete on costs and thus still make his services worth While to the trader.