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Differences in Country and Town Costs T HE coneentration of free-enterprise

1st June 1951, Page 60
1st June 1951
Page 60
Page 63
Page 60, 1st June 1951 — Differences in Country and Town Costs T HE coneentration of free-enterprise
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Which of the following most accurately describes the problem?

hauliers into zones of 25 -Mita radius is bringing many problems in its . :train; and not least of these is the differentiation in expenditure between onei and another. One result is likely to:bia'differenee of opinion between town and country orieratars as to what should cOnStitute a stabilized ratefor thehaulage of 'any commodity.. "SO long as trafficsare plentiful, it should be fairly easy to

.. .. .. agree. upon a rate to suit conditions of the town, and to

persuade the country operator to work to those rates. After all, if he -can' get the -same rate as the townsman and his ekpenies are less, he should not Worry. When traffics becorne searceand competition becomes keener; there can be nd doubt that the country-based haulier will, be the more inclined to cut rates So as to get business. I.hRve.'-in mind a class .of 'traffic upon rates for which there has been agreement for some years. These rates have been widely publicized and are known .tO every haulier who is interested in the traffic. They have not for some time been subject to rate-cutting to, any considerable extent, 'Here and there, perhaps, the odd operator. has been foolish, but there have not been enough to. jeopardize the chances of those

who stick to the agreed rate.

It has struck me that-it may be of interest to discuss these differences in costs of operationWhich apply in particular to the biggest items, namely, wages and establishment costs. The suggestion has been 'made that such differences as there are cannot justify any great drop in rates. My answer is given below in figures which present the facts. The subject is important, because it relates to the laudable efforts to come to agreement on rata on 'the basis of cost phis profit, making any such rates of countrywide rather than merely local

application. .

It may be of interest at this juncture to hark back to prewar. It was then claimed that rate-cutting was prevalent because of differences in wages which, until 1939, were not statutory. It was hoped and believed that by enforcing wage schedules,. much of the ability to cut rates would be eliminated. Experience has shown that hope to be false.

Maximum Fluctuation I prefer' not to indicate the class of traffic which I have in mind; there are reasons_why it might be unwise to direct attention to it on this occasion. I must, however, state that k is in the main agricultural. The work may be carried on both in rural and industrial areas and the costs are therefore liable to the maximum fluctuation.

Most of the work is done-by 6-tonners of the 30-m.p.h. class, and in order to speed up loading and unloading it is usual to employ two men per vehicle. Typical rates are: 10-mile lead, 7s. per ton; 20-mile lead, 10s. 6d. per ton.

Working overtime up to a total of 60-64 hours per week, it is reasonable to carry 24 loads per week over the shorter lead and 18 loads over the longer. The revenues are, therefore, £50 8s. per week for the 10-mile haul and £56 14s. per week for the 20-mile haul (24 loads at 6 tons each amounts to 144 tons and that, at 7s. per ton, is £50 8s.; 18 loads at 6 tons tdtal 108 tons and that, at 10s. 6d. per ton, is £56 14s.). Now let me assess the costs of operation, taking first a case of an operator in an industrial area. The fixed costs per week would approximate to the following: licence. 14s.; wages of driver (64 hrs. per week), £9 4s. 11d., and of mate £8 Ils. 10d.; provision for employees' insurances, together with provision for holidays with pay, £1 per week for the two men; garage rent, 10s.; insurance, £1; interest of capital

A34 outlay on the vehicle, 18s.; establishment costs and overheads, £3. The total is £24 18s. 9d. per week.

The running costs per mile will approximate to the following:-petrol, 3.I5d.; oil, 0.20d.; tyres-, 1.41d.; maintenance and repairs, 1.66d.; depreciation, 2.08d. The total is 8.50d. per mile. Making 24 journeys per week over a 10-mile haul, the vehicle covers 480 miles per week, and that mileage of 8.50d, represents an outlay of £17. The total costs-therefore comprising this amount plus the fixed costs per week of £24 -ISs. 9d., are £41 18s. 9d. The margin of profit left is thus £8 9s. 3d. That is fair and reasonable, but not excessive. It is about 20 per cent. of the expenditure, and that is the percentage of profit I should have recommended.

Over the 20-mile haul, covering 18 journeys per week, the mileage is 720 and the total running costs are £25 10s. Add the fixed costs 424 18s, 9d., and the total expenditure is seen to be .£50 8s. 90., as against a revenue of £56 14s., leaving a margin of profit of £6 5s. 3d.. This is much less than what I should have recommended and rather seems to show that the rate for the 20-mile haul is not quite what it should be.

Corresponding Figures

• Now take the corresponding figures of costs as they are likely to be in a rural area. Thefixed weekly costs will be:licence, 14s.; wages (again taking a -64-hr. week), driver £8 18s. 5d., mate £88s.; insurances and holidays with pay, 19s. 6d.; garage rent, 5s.; vehicle insurance, 18s.; interest of capital outlay, 18s.; establishment costs, £1 /Os. The total is £22 10s. 11d.

The running costs per mile are also less in rural areas. They will be something like the foilowing:-petrol, 3.15d.; oil, 0.20d.; tyres, 1.41d.; maintenance and repairs, 1.36d.; depreciation, 1.88d. The total is 8d.

The cost of maintenance and repairs is less in the country than it is in the town because the garage proprietor incurs lower costs and, as a result, is content with a lower margin of profit. I allow less for depreciation, too, because the factor of obsolescence does not enter so largely into the calculations in connection with vehicles operated in rural areas. The customer is not greatly concerned with the look of the vehicle which serves him, and its owner can keep it in commission longer than a townsman who has appearances to consider.

Now to assess the total costs. In connection with the 10-mile lead, the, total running costs will now be based on 480 miles at 8d. per mile, instead of 8.500, per mile. The figure is thus £16, and adding £22 10s. I Id. for fixed charges, the total expenditure is not more than £38 lOs. lid., leaving a profit margin, out of £50 8s. per week (which remains unchanged), of £11 17s Id. Over the 20-mite lead, the costs for 720 miles are £24 instead of £25 10s., and the total costs per week amount to £46 10s. lid., instead of £50 8s. 90. The profit margin is now £9 13s. Id.

Over the 10-mile lead, a reasonable minimum profit for the town operator is £8 7s. 9d. (calculating profit at 20 per cent. of cost); he actually makes £8 9s. 3d. The man in the country should receive a net profit of £7 14s. 2d.; actually he gets £11 17s. Id.

Over the 20-mile lead, a reasonable minimum profit for the operator in an industrial area is £10 Os. 9d., as against an actual net profit of only £6 5s. 3d. The man in a rural area should have a calculated profit of £9 6s. 20., actually he receives £9 13s. Id.

Of course, there is yet another way in which costs may be reduced. That applies particularly to vehicles which. as in this case, are doing anything from 480 to 720 miles per week. Oil-engined vehicles may be used.

Let me just run quickly through the figures for a man in a rural area using an oil-engined 6-tonner on this job. His standing charges would be precisely the same, except as regards interest on first cost, which will increase by 2s. per week. The total will thus be £22 12s. lid, instead of £22 10s. lid.

The running costs will be less and in a rural area, making the same provision for diminished cost of maintenance and depreciation as I did in the case of the petrol-engined vehicle, I should sum up the running costs as follows: fuel, 1.75d. per mile; lubricants, 0.20d.; tyres, 1.41d.; maintenance, 1.16d.; depreciation, 2.28d. Total 6.80d. Over the 10-mile lead, running 480 miles per week, the total of running costs will be £13 12s., and adding that to £22 12s. 11d, for fixed charges, I get a total of £36 4s. lid. In the case of the petrol-engined vehicle, the total was £38 10s. lid., so here is a further increase in profit of £2 7s., to the nearest shilling.

In the case of the 20-mile lead, the running costs total would be £20 8s., and the total of operating costs for the week £43 Os. lid. The previous figure was £46 10s. 11d., so that now there is a further saving by the use of the oiler of £3 10s. per week.

Another factor, one which may possibly seem strange to the townsman, is that the haulier in the rural areas does not desire as much profit as the townsman, let alone be given the opportunity for making double the amount. A profit of £7 10s. per week for a vehicle of this type would seem to many of them to be reasonable. Although I do not suppose it will be believed by many, it is a fact that there are hundreds of small operators, especially among those living in the country districts, who would be ashamed to make as much as £15 per week net profit from the operation of a single vehicle. If he discovered that at the agreed schedule of rates he was making a profit approximating to £15 per week, he would in all sincerity declare the rate too high and lower it. No deliberate ratecutting would be intended, his action arises from the honest belief that his customer is being charged more than he should be called upon to pay.

It may be of interest to check back, assuming a profit of £7 10s. per week, and see what rate the rural operator would need to earn that profit. Over the 10-mile lead, the revenue would need to be £38 10s. 11d. plus £7 10s., which is £46 Os. lid., so that the rate would be 6s. 7d. per ton, a reduction of 5d. When the lead is 20 miles, the revenue needed per week is £46 10s. 11d., plus profit at £7 10s., £54 Os. lid. As the tonnage is 108, the rate must be approximately 9s. 10d. per ton, a cut of 8d.

If he were to use the oil-engined vehicle and still continue to base his rates on a profit of £7 10s. per week, he could charge as little as 6s. Id., on the 10-mile lead, a reduction of 11d. on the scheduled figure and as little as 9s, 4d. per ton on the 20-mile lead, a reduction of Is. 2d. In addition to the factor of lower costs there is a lad: of wish to make high profits, tending to encourage some operators to cut their rates in certain parts of the_country.

I have often wondered, considering this matter, and realizing the difficulties of making a national schedule of rates for local traffics, if the way out may not be of fixing rates at a minimum level, tending to agree with the figures of the operators whose costs are low rather than those of hauliers whose costs are high.

In that way two objectives are achieved. First, the encouragement of efficiency of operation and, secondly, the elimination of any margin for rate-cutting. If by reason of better service or some other consideration a haulier can persuade a customer to pay more for the service than the standard rate, well and good. No one surely will have ground for complaint there. The essential thing is to put a bottom in the rates to stabilize the position. S.T.R


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