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The High Cost of Small Services

19th July 1963, Page 79
19th July 1963
Page 79
Page 80
Page 79, 19th July 1963 — The High Cost of Small Services
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Which of the following most accurately describes the problem?

THE extent to which transport is a service industry is well exemplified in the operation of small vans. They are employed to provide a very wide range of services and in many cases the size of the load carried is little or no indication of the value of the service being performed. An obvious example would be a maintenance engineer of a utility service such as gas, electricity or water, proceeding to the scene of a breakdown with some small but vital replacements, and on which repair a large proportion of the population in the area might be dependent. In contrast, but of equal importance to the individual concerned, the delivery of a small but important consignment might well justify a special journey on the basis of customer-relationship, although such a delivery would be totally uneconomic in terms of cost per ton-mile.

Whilst there are fleets of small vans—say in the 10-l5-cwt. range—for the most part this size of vehicle is commonly operated singly, as in the case of the local trader, or as a maid-of-all-work vehicle providing to the needs of a fleet of larger commercial vehicles. Unfortunately, because of this situation, it can be too readily accepted that as the service provided is paramount to its use, assessment of the true cost of operation is scarcely justified, at least in any detail.

Nevertheless the necessity that the service must continue to be performed by a small van is no reason for omitting to make a periodic assessment as to the true cost of current operation. Particularly does this appear where the demands on such a service are relatively spasmodic in the initial stages, as changes in such demands might well justify •a new approach to the problem. Alternatively the reverse process might apply with increasing periods of standing time for the vehicle concerned. In either event the facts will only be revealed by periodic comparisons of current costs of operation.

The small trader's delivery van, when efficiently operated, is an excellent example of a transport service being completely ancillary to the trade it serves. In. many ,cases the van driver is primarily a salesman, and the driving of a .motor vehicle is considered a secondary, additional duty only. Whilst this

• attitude is understandable and can promote sales, it can too often result in the cost aspect of providing such a service being either largely ignored or, at best, given only cursory attention.

OPPOSING CLAIMS When a fleet of commercial vehicles is large enough to justify the employment of a transport manager, one of his most persistent problems is to reconcile the opposing claims of the sales department for more frequent and comprehensive services with the operation of his fleet at a reasonable cost. But such conditions do not apply to the majority of the I m. small commercial vehicles, constituting a national outlay of around 1400m. Expressed in such national totals, it becomes obvious that any inefficiency in the operation of small commercial vehicles must in similar national total represent an appreciable sum, although comparatively insignificant to individual traders with only a single vehicle.

Examination of operating costs by such a trader can provide not only a total figure as to the overall cost of providing such a service, but can give guidance as to whether alternative forms of providing the service might be more economic_ For example, the demands on the service might be so spasmodic that the occasional hiring of vehicles might prove a better proposition. Conversely the administrative time increasingly diverted from a trader's main preoccupation to the persistent problems of running commercial vehicles—however small— might be having an adverse effect on the business as a whole. Here again comparison as to the alternative of hiring vehicles cannot be usefully made until the cost of operating one's own vehicle is known.

Additionally a trader would be well advised to make a re-assessment at intervals as to the cost of maintenance in relation to the time when his van was not available for service because of repairs. Such data could then be considered in relation to the higher cost of depreciation if a policy of more frequent replacement was adopted. Dependent upon the urgency of the services provided by individual traders, it might well prove that the greater potential productivity of a van -because of reduced maintenance time might more than offset the increase in the cost of depreciation incurred by more frequent replacement. Additionally there would be in the intangible but nevertheless real benefit when such a policy was adopted in a reduction in administrative time and worry involved in making the necessary re-arrangement to delivery schedules' previously necessary as a result of break-downs and delays, however minor.

COSTS INVOLVED The operating cost of a 10-cwt. van, fitted with petrol engine, and a I5-ewt. van in oil-engine version, will now be given. In addition to providing the basic principles on which such operating costs can be derived, the effect on costs of the relatively low mileage normally incurred by small vans will be examined.

Dealing first with the 10-cwt. van it will be assumed that the initial outlay is £470. With an unladen weight of 18 cwL the relative annual goods vehicle excise duty will be £18, giving an equivalent standing cost in respect of licences of 7s. 3d. a week.

It is convenient to segregate the total cost of operating a commercial vehicle into 10 items, separated into two groups of five items each—namely, standing costs and running costs. Standing costs are incurred whether the vehicle is operating or not. It is therefore appropriate to express standing costs in terms of time; thus per year, per week or per hour. When expressed as a cost per week it is considered appropriate to divide the yearly total by 50, and not 52, so as to allow a nominal two weeks per annum when the vehicle may not be available for service due to major overhaul or driver's holidays.

It will be assumed in both these examples that the vans are driven by adult drivers .and though commonly operated under C licence, the basic wage rate as laid down under the Road Haulage Wages Regulations R.H. (74) is adopted. Although such wage rates are not directly applicable to the drivers of C-licensed vehicles, there is nevertheless a fair wage clause which in practice results in C-licensed drivers being paid similar rates to those applicable to drivers employed by professional road hauliers. To the basic amount payable for a 42-hour week in respect of a commercial vehicle of this carrying capacity will have to be added the National Insurance contributions for which the employer is liable, together with an adjustment to permit holidays with pay. Whilst employers' contributions under the former Workmen's Compensation Act

no longer apply, many operators do contribute to voluntary employers' liability insurance and allowance is also made on this account. The total cost of the item of " wages " to the employer is therefore reckoned at £10 13s. 1 la. per week.

Rent and rates in respect of garaging this vehicle are assessed at 13s. a week and vehicle insurance at 8s. 11d, a week. Allowing a-nominal rate of 5 per cent as the interest charged on the capital outlay of £470, interest charges would amount to 9s. 4d. a week, giving thc total of £12 12s. 5d. for the five items of standing costs. Assuming, in the first instance, that the average weekly mileage, taking one week with another throughout the year, was 100, the standing cost per mile would then be-significantly-30.29d., the basic cost of providing a spasmodic service.

Dealing now with the five items of running costs, as their name implies such expenditure is incurred only when the vehicle is actually operating and consequently is expressed as a cost per mile. A major item in this group is, of course, fuel and it will be assumed that the trader buys fuel in bulk at 4s. Id. per gallon. Normally a rate of consumption of 27 m.p.g. would be assumed to be maintained by this 10-cwt. van. But because the comparatively low mileage implies short journeys and largely local stop and start work, an increase of 20 per cent in consumption will be allowed for, giving a fuel cost per mile of 2-07d.

Lubricants are reckoned to add 0.19d. and tyres 0-41d. per mile. This latter calculation is based on a cost per set of tyres of £34 and an assumed mileage life of 20,000. Maintenance is reckoned to add 2-00d. per mile.

Special consideration has to be given to the cost of depreciation in this instance. Throughout this series of articles, and in " The Commercial Motor" Tables of Operating Costs, the cost of depreciation is calculated on a mileage basis, with the exception of staff cars when annual replacement is assumed. But when only a comparatively low average mileage is maintained, some adjustment is necessary to offset probable obsolescence, which here will be reckoned as an addition of 50 per cent. This provides a depreciation cost per mile of 1.87d. The total running cost is therefore 6.54d. per mile, which when added to the standing costs gives a total operating cost per mile of 36-83d. Expressed as a cost per week-still assuming a weekly average of 100 miles--running costs amount to £2 14s. 6d. giving a total operating cost of £15 6s. lid.

The 15-cwt. van, with oil engine, is assumed to cost £605 and have an unladen weight of 1 ton 9 cwt. This incurs an annual licence duty of £24, the equivalent to a standing cost per week of 9s. 8d. Wages remain as before as £10 13s. lid. per week whilst rent and rates and insurance are slightly higher at I4s. and 9s. 7d. a week respectively. Because of the higher initial outlay, interest charges now amount to 12s. ld. per week giving a total standing cost of £12 19s. 3d. a week or 31.11d. per mile, again assuming an average of 100 miles a week.

It will now be assumed that fuel oil is purchased in bulk at 4s. 20. a gallon and that an average of 33 m.p.g. is maintained. The resulting fuel cost per mile is therefore 1.52d. Lubricants are now reckoned to cost 0.22d, and tyres 0-44d. per mile, based on a cost per set of £46. Maintenance in inspect of this oil engined van is assessed at 1-96d. per mile and depreciation 2-39d. per mile, calculated on the same procedure as beim This gives a total running cost per mile of 6-53d. and a toti operating cost of 37.64d. per mile, or £15 13s. 6d. per week.

There is a substantial reduction in the operating cost pe mile when the average weekly mileage is increased to 201 which figure would still be considered low for any but th smallest commercial vehicle. At this increased average mileag the operating cost per mile for the 10-cwt. van becomes 20-74c (compared with 36.83d. at 100 miles a week) and corresponding' 21.12d. a mile for the 15-cwt. oil-engined van (compared wit 37.64d. at 100 miles per week). In many instances there wool be neither possibility nor object in endeavouring to increas the mileage run by small service vans precisely because they ar provided solely to deal with emergencies. Nevertheless sue comparisons of operating costs per mile as shown here d highlight the real cost of spasmodic use of small vans an could usefully initiate re-appraisals as to whether alternativ methods of providing such a service might be more econornit

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