What Idle Time Costs
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Further Advice to a Potential Entrant to the Haulage Industry on How Charges Should be Varied if a Vehicle is not Fully Employed Throughout the Week; The Advantages of Overtime Working are Discussed
IN my previous article I dealt with a problem submitted to me by a reader who was preparing to use a 12-tonner for the conveyance of traffic from London to the industrial areas of the north. I used the figures in "The Commercial Motor Tables of Operating Costs" direct and without paying sufficient attention to the problem as a whole. In his letter he mentioned 1,000 miles per week as the distance the vehicle would run and in dealing with his problem I used the figures for cost and rates on the assumption that the vehicle actually covered that distance.
Friends of mine drew my attention to the matter, not by criticizing my methods of dealing with it, but by challenging the rate. When, in answering the criticisms, I discovered the real basis of my error, I realized, first, that no 20 m.p.h. vehicle could cover that distance in a week so long as there was only one driver, and he the owner of the vehicle. I revised my figures accordingly and in so doing arrived at conclusions which to all intents and purposes were similar to those drawn by my critics.
I have frequently been asked to provide in the Tables for the fact that in carrying out maintenance time is spent off the road. I have turned that suggestion down, but nevertheless agree that it is a real factor in calculating rates.
I go part way towards meeting the basic trouble, that no vehicle is on the road and working 365 days per annum, by dealing with the standing charges as though there were only 50 weeks in the year. Thus, in dealing with a 5-tanner on which the tax is £30 per annum, I enter on the Table which gives cost per week, not one fifty-second part of that amount but one-fiftieth, 12s. per week, and so on through the total of standing charges. The Road Haulage Association, in the interim report of their rates and charges committee, published shortly before the war, provided for a period of 250 working days per year which, reckoning on a five-day week, is also 50 weeks.
Uneconomic Rates Actually, the Tables provide for 44 hours per week and the assessment of the standing charges, as used to ascertain the haulage rates, is based on that figure. The point I should like to emphasize is that if the vehicle on any week does not work for the full 44 hours, the rates recommended in the Tables or worked out on the basis of the figures given in the Tables will be uneconomic. Moreover, that 44 hours per week must prevail for every week in the year. Overtime in any one week may not of necessity cover the loss on the short week or indemnify the operator for that loss; loss of time is irremedial.
The simplest and most direct way of calculating what the rate should be so that there should be no loss on account of occurrences like short-time working, is to assess the hourly rate on the average number of hours the vehicle is going to work per week, per month, or per annum. As an example, let me take the 12-tonner which was the subject of the calculations made in the previous article. The standing charges totalled £13 per week; £3 per week was taken for establishment costs. The owner budgets on a profit of £6 per week. These items total £22 per week. Ultimately, after some careful planning, the mileage covered per week was 800. In this case I am going to assume that no overtime was worked and that the weekly a24
mileage was 300 to 400, depending on the traffic available at the time.
The time charge per 44-hour week can be shown to be 10s. per hour. The mileage charge is Is. Id. Now assume that, after a time, it is discovered that the vehicle is not being worked for 94 hours per week but only 37. It is necessary to reassess the rate, as the hourly charge is insufficient. The customer, instead of using the vehicle for 44 hours per week at an agreed and properly calculated charge of 10s, per hour, £22, is using it only for 37 hours, but is still paying for only that short time and the operator receives only £18 10s. per week as his time charge. But his expenses, and the profit he expects from the job, still remain at £22. The cut is in his profit which becomes now only £2 10s. per week instead of the expected £6.
The mistake arose from the fact that when making his calculations he took it for granted that the vehicle would be working 44 hours per week whereas it is running for only 37 hours. If he had taken the trouble to go into the matter more thoroughly he would have realized that the time necessary was only 37 hours. Dividing his total of £22 per week of costs and profit it is seen that his hourly charge must be Its. 10d., which can be taken to be 12s. per hour, instead of 10s.
Charge Unaffected The mileage charge remains unaffected at is. id. per mile. If the vehicle in one week runs 300 miles, the charge for mileage is £16 5s., and the total charge £38 5s. If the weekly mileage is 400, the charge for mileage is £21 13s. 4d., and the total charge must be £43 13s. 4d.
Here is the method I adopt when dealing with a reader's inquiry. Much depends on the amount of information supplied and whether it is sufficient; usually it is insufficient, in which case I fill in the blanks myself, advising the inquirer what I have done so that he may, if necessary, amend my calculations accordingly.
First of all I want to know whether the job concerning which information is required is the only work on hand and if it is sufficient to provide work for the vehicle for a full 44-hour week or more. If the hours worked are quoted, I calculate the rate in the way I have just used in the example of the 12-tanner. In so doing I usually provide for an ample profit, so that there is something for contingencies; in other words to cover any omissions in the calculations brought about by lack of adequate information.
If the contract referred to in the inquiry is the only work the vehicle has to do, as in the last case, the haulier must earn the £22 just prescribed, comprising his standing charges and the whole of his expectation of profit for the week. That is to say, £13 for standing charges; £3 for establishment costs and £6 for profit. To that must be added the revenue due on account of the mileage run per week at Is. Id. per mile and for 300 miles, that is £16 5s.
If the haulier thinks he can get the traffic at that price then good luck to him. If not, it may be advantageous to try an alternative method of assessing the rate.
First of all, how many hours of the operator's week will be taken up by the job? Suppose the minimum is 10 hours. In that price there is provision for a total of two hours for terminal delays. Eight hours are need for travelling. (That is the time given to .me. On investigation I found that the
inquirer meant eight hours each way and a total Of 18 hours per journey.) The charge I recommended was based on the intimation that there was no other work available which could be carried out concurrently with this particular job: in other words, the operator, if he is to make the profit he had budgeted for, must debit the work with a complete week's cost and profit. The revenue must be £22 plus 116 5s., £38 5s., plus £1 to cover the expenses involved in the driver being away from his own home one night while he is doing the job.
If, as has been shown to be the case, I am in doubt about the information supplied, then with my covering letter I advise him accordingly. I advise him to cheek my figures for loading and unloading, also my figures for travelling time, etc. I suggest that he checks over the time allowed for travelling for, as some of the journey is to be through the congested areas of Lancashire and Yorkshire, the speed and the price may be affected correspondingly.
I am getting letters from would-be buyers of British Road Services' vehicles, many of them asking if I will be so good as to advise on the price which should be paid for a unit I have to reply that I am not that good. I note, too, that the R.H.A. is taking the same attitude as I am. I hasten to add that there has been no collusion about the matter. 1 would say that the Association are probably reasoning on the same lines as I am, that much of the value lies in the granting of the special A licence which is presumably included in the purchase price, and I would not for one moment entertain the idea of attempting to value a licence of that kind.
There is no basis for the logical calculation of such a licence, for what the vehicle has been doing recently for the B.R.S. is in no way a guide to what the vehicle may do in The handsof its new purchaser. The only man who can judge with any certainty is the potential buyer who knows what he can do with the vehicle and what he can earn. And he knows a good deal more than I do. He is too, in all probability, the man who will get the unit, because he knows what its value can be, if it comes into the right hands, and that must inevitably be more than any other operator can know.
The value of the vehicle is only secondary; so far as I can see very little note is taken of that, at least by bidders who know what they want; it is the licence and not the actual vehicle which is to be valued. I have still to meet a potential buyer who is much concerned with the value of the machine.
The direction which is being taken by many of those who are contemplating the purchase of units is in a way indicated by their inquiries. The question of overtime and the way in which to provide for it when making a quotation is one line of thought. It looks as though they are expecting that the work they are anticipating will fall to their lot will involve overtime work and corresponding pay.
The case .quoted in last week's. article involved a lot of overtime and it may be that when writing it I unconsciously hit upon an aspect of haulage which was puzzling some of my readers. Overtime benefits both drivers and employers: it is obvious that the driver benefits, the amount can be calculated. The case for the employers is not so clear. The tendency is to overcharge the customer; it is done unintentionally, but is still done.
In the article which appeared last week the driver worked for 60 hours, that is 16 hours overtime. The wage for the overtime worked out at £3 7s. 6d. The operator, charging by time and mileage, should assess: his revenues on the basis of £22 per week of 44 hours which is 10s. per hour. If he charges for 60 hours at that rate he will get a return of £30 instead of £22, which means that his profit is, first £6 per week as provided for in that £22, plus the extra charge of £8, the difference between £22 and £30. The only thing which may be set against the extra £8 per week is what is paid for the driver in overtime, which is the sum of £3 7s. 6d.
The point to grasp is this: the whole of the week's standing charges, including establishment costs and profit, is included in that figure of £22 per week. The number of hours worked, 60 instead of 44, makes no difference to those items; they are the same whether the vehicle is worked for 8 hours per day or 11. Let me quote another example to illustrate this point.
A vehicle, say this six-wheeled 12-tonner, averages 58 hours per week. It is on a special job,,and works 50 hours from Monday morning to Saturday night and eight hours on Sunday. Provision must therefore be made for six hours of ordinary overtime at time and a quarter and eight hours at double time. The basic wage is £6 12s. per week. The overtime payments comprise the amount due for six hours at " fime-and-a-quarter " at 3s. 9d. per hour, which is El 2s. 6d., plus the overtime payment of double time, eight hours at 6s. per hour, which is £2 8s. Total, £3 10s. 6d. per week. Payment for the use of the vehicle has already been calculated as being 10s. per hour and is. Id.. per mile run. The weekly mileage was, in the beginning when the rates were calculated, 240 and was charged at Is. Id. per mile, £13 in all. The total charge was £35.
As the job grew, and the number of both hours and mileage increased becoming, after a time, 58 hours and 480 miles per week now current. The operator continued to assess his charges at the rate of 10s. per hour and is. Id. per mile run. That made his revenue £29 for time plus £26 for mileage, 155 in all. His expenditure was actually £16 for time plus the overtime payment of £3 10s. 6d. We must bring in the mileage payment to make the picture complete although it does not actually enter the story. The difference in profit made is that between the time payment, £29 and the above £19 10s. 6d.—£9 9s. 6d.