Striking a Balance
Page 84
Page 89
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The Ability to Give Customers Immediate but Prudent Quotations Should be Allied to Road Transport's Inherent Flexibility of Movement
WHEN discussing the commercial aspects of transport in this series on October 20, the importance of selling a transport service as distinct from operating one was emphasized. Because his customers are invariably busy people, the haulier must do everything possible to obtain all the information he can concerning the peculiarity of any traffic likely to be offered to hint.
There are several reasons for requiring such information. First and foremost the haulier must obviously require to know whether he can physically handle any particular traffic, either in terms of the capacity to handle large quantities within the required pviod or, alternatively, in the form the customer requires; implying the employment of bulk vehicles.
If the right size of vehicle or, alternatively, a sufficient number of vehicles is not available, then presumably no business would be done. Although apparently of secondary importance, it may well be that prior information as to the available facilities for loading and unloading, or the susceptibility of a particular traffic .to subsequent claims for damage or complete loss, may ultimately be of more vital concern to the haulier. This is _becatis-e in this instance, the haulier may in fact do business with his customer as he has the right type and number of vehicles. Unfortunately, however, both the timetable as regards the quantity to be moved and the rate for the job may have been calculated on either insufficient or inaccurate information. At the other end of the scale, there is virtually no limit to the number of_ factors which could ultimately affect the operating costs of a particular job, and so its profitability to the haulier, • As an example of the complexity of charging, the review of the railway merchandise charges scheme before the Transport Tribunal lasted from July, 1955, to March, 1956, and the report comprised nearly 1,000 pages of foolscap. Further complications are added, when, as in the House of Commons last week during the debate on the Transport Bill, the social implications of transport operation were added to the purely commercial aspect.
T0 the small but efficient haulier who wishes to put his costing and charging system on a sound basis, the complexity of the whole subject as instanced in the examples just quoted may at first sight be discouraging. He should realize, however, that he possesses advantages which larger organizations do not. The imposing schedules attached to many comprehensive reports on charges schemes are inevitably the combined effort of a group of persons. No matter how skilled they may be individually, because they are dependent very largely on second-hand information, interpretation of the results obtained at each successive stage of the exercise is necessary.
Despite the best possible intention, misinterpretation is only too easy in such circumstances with the added danger, because of the several stages of development in formulating charges. of magnification of the initial error. Moreover, it would not be exceptional for those responsible for issuing such rate schedules to have no first-hand knowledge of either the vehicle. loading facilities or actual traffic.
In the majority of cases the smallor medium-sized haulier will have direct contact with his customers and will therefore more readily tend to look on each particular commercial relationship as a separate entity. Although this fact may not be recognized as such, it also implies the generally accepted requirement that each particular traffic should stand on its own
feet as regards profitability. In addition to the physica. ages of flexibility and door-to-door service which effici transport can provide, this mental approach of consider particular traffic as a separate entity also has a psycl advantage in engendering the individual service t conspicuously absent in other forms of transport servii
By maintaining this individual approach to separatr the road haulier will also avoid getting bogged claw] cussion on cross-subsidization. This is undoubtedly oi troubles which the railways are at present suffering a situation which road hauliers should do their utmost
NO matter how complex evaluation of the seven affecting charges may become, the starting point for transport operator must always be the cost of operatinE vehicle. When accusations of rate cutting are made, undoubtedly instances where they arc justified, but peobably many more where they are based on the misec of the factors involved. There may be special ream,' competitor may be able to operate at a comparatively which, nevertheless, provides an adequate profit mat may have larger or more suitable vehicles availabb depot may be More geographically convenient for the journeys to be undertaken.
Alternatively, in making the original assessment his of the value of the commodity to be carried (and cc insurance costs), its ratio of bulk to weight or its sus< to damage may justifiably differ, with appropriate rept on the quotations submitted.
As the operating costs of a road vehicle are fundi dependent on time and mileage, i.e., standing time, loading and waiting times, and the actual journeys un operating costs and subsequent charges must be expressed.
Dependent upon the type of work undertaken it is o to express these charges in alternative form, although they are dependent upon the same calculations. Thus can besubmitted purely on a time basis—per hour, year—inclusive of an agreed and fixed mileage.
As a variation to this arrangement, the charge can be submitted but with the addition of an agreed rate mileage. A common example of this method is to be the hiring of private cars, when it is more convenien parties to have a minimum mileage included in the has with a relative addition for excess mileage.
A third alternative is to make a straight charge per r is riot to be confused with the charge for excess mileag to in the previous example. Where a charge is made a mileage basis this must obviously include an allowan standing costs. Because of this need it will be apprec it will be inadvisable to submit a quotation solely on basis where it was known that the mileage comparatively small.
In such cases, and whenever information as to time and mileage involved in any particular job is in. non-existent, it would be prudent to submit the quot charge per mile plus a charge per hour. In this case, : per mile would be calculated directly in proportion t. fling costs per mile; and similarly the charge per In be based on the standing costs.
In the context of charging, the term mileage can al! (Continued on page 617) lead mileage and it is obviously necessary to ensure parties understand in which sense the term is being le particular advantage of referring to lead mileage is :lumber of relatively short journeys are to be made given radius, and it would be both tedious and timefor both parties to have to determine the actual ,etween a number of points.
ly one of the most misused and least understood terms n-mile which, in fact, has limited use in a charging Whilst it may give an indication—and no more than .tion—of the likely overall efficiency of a vehicle as I with another, it can be misleading in other respects.
■ ecause it is so dependent on all other factors being 'ore a fair comparison can be made. And in transport . such factors are so seldom equal.
`.o give a hypothetical example, when the appropriate 3f traffic has to be moved, 10 16-tonners would be non-iical than five 16-tonners and 10 8-tonners, In other e cost per ton-mile, when operating a fleet of 16-tonners ; this to he the' maximum available size), would be kri with any other combination. But for practical pur: number of occasions when just that amount of tonaid have to be moved between two points would be leed. Flexibility, rather than the lowest possible cost nile, would be by far the most important factor in : operation. Allied to this would be the haulier's assess the likely ebbs and flows in a customer's traffic past experience and so gauge—at 'least to some extent ige of flexibility required.
imple, but specific, example of the likely expenditure i to assess the comparative efficiency of two types of now give detailed costs of a 7-ton rigid and 10-ton h being fitted with oil engines.
g first with the 1-tunnel, it will be assumed that the weight will be 3 tons 4 cwt., so incurring an annual uty of £46 10s. It will also be assumed that both operate under A licence and with an appropriate for a proportion of the carrier's licence fee, the weekly cenees would be 19s. 5d. Wages are reckoned to cost 3yer £10 3s. per week. It is assumed that both vehicles I in a Grade I area as defined in the Road Haulage ouncil Regulations and that appropriate additions are contributions to.the Graduated Pension and National employers' voluntary liability insurance and holidays
nd rates in respect of garaging the vehicle are reckoned he equivalent of 12s. 11d, per week, whilst vehicle is assessed at £2 10s. lid, per week, based on an rernium of 1127 4s.
itial outlay on this 7-tonner is reckoned at £1,600 and harged at a nominal rate of five per cent, would add er week. This gives a total of £15 18s. 3d. for the five standing costs. Assuming 800 miles per week were averaged, this would be the equivalent to a standing cost of 4.77d. per mile.
Turning now to running costs,, it will be assumed that an average rate of consumption of 15 m.p.g. is maintained and that fuel oil is purchased in bulk at 4s. lid, per gallon. The fuel cost per mile would then be 3.32d., lubricants 0.25d. and tyres 1.49d. per mile. This latter calculation is based on a cost per set of £186 and an estimated tyre-life of 30,000 miles.
Maintenance is assessed at 2.46d. and depreciation at 2.006. per mile. The balance to be written off as depreciation is obtained by first deducting the equivalent cost of the original set of tyres from the initial price of the vehicle followed by a further deduction relative to the estimated residual value. Vehicle life is reckoned at 150,000 miles.
The total running cost per mile is therefore 9.52d,, giving a total operating cost per mile of 14.29d. The corresponding cost per week, still assuming a weekly average of 800 miles, would be running costs £31 14s. 8d. and operating costs £47 12s. 1 ld.
The five items of standing costs in respect of the 10,ton " artic " are estimated as follows: Licences £1 12s. 10d., wages (as before) £10 3s., rent and rates 14s. 8d., insurance £3 8s. 2d. and interest £2 8s. 7d.; total £18 7s. 3d., the equivalent of 5.51d. per mile.
Similarly the five running costs per mile for this larger vehicle are as follows: Fuel 4.526., lubricants 0.27d., tyres 2.08d., maintenance 2.48d. and depreciation 2.71d.; total 12.06d. Added to the standing costs this gives a total operating cost of 17.57d, per mile, or £58 I ls. 3d. per week.
COMMENTING on these estimates, it is assumed that the unladen weight of this "artic " is 4 tons 12 cwt. and, because of the increased outlay and carrying capacity, the annual insurance premium is raised to £170 8s. A rate of fuel
consumption of 11 m.p.g, is aSsumed, As explained earlier the term " ton-mile " can be misleading. Thus in these two examples the cost per ton-mile returned by the 7-tonner is 2.046. as compared, with 1.76d. for the 10-tonner. This comparison is purely hypothetical for most hauliers, however, since persistent 100 per cent, loading is seldom achieved in practice., If, for example, after operating a 7-tonner for some time a haulier were to purchase a 10-ton artic and then find that he was only averaging eight tons per journey, the cost per ton-mile on the larger vehicle would, in fact, be higher rather than lower, namely 2.206. than when he was running the 7-tonner. Even at 8i. tons the cost would be fractionally higher at 2.07d. per ton-mile and would only break even at around 8 tons 12 cwt., always assuming that the additional capital for the larger vehicle was in fact available.. The crucial factor in such' a situation is the haulier's ability to determine the extent of the ebb and flow of traffic and so choose the most economic compromise relative to type and size of vehicle.
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