THE FOLLY OF FLA] RATES

1st June 1956, Page 108

1st June 1956

Page 108

Page 109

Page 108, 1st June 1956 — THE FOLLY OF FLA] RATES

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Solving the Problems of the Carrier

IF a vehicle is not employed for a full 44-hour week, rates reckoned on the basis that it.is Will not provide a profit_ My article last week was written to impress readers with this point. I cited the case of an operator who overlooked the fact that whilst his vehicle was engaged upon a contract involving 30 hours of work weekly, his time and mileage charges applied to a 44-hour week.

I discussed the subject further with a knowledgeable haulier. He agreed with me that the point was of great importance, and showed me that the Road Haulage Association had touched upon the same matter. He quoted from an R.I-LA. bulletin:

" Many have tried, but no one has yet succeeded in avoiding the reSults of ignoring hard economic facts. Where charges do not cover all costs, whether you kno'w what they are or not, the results must be bankruptcy if long continued. ‘ One -factor often overlooked is idle time—times when the• vehicle is not at work, either through breakdown or when there is no traffic available. Certain costs go on all the tithe, even when the vehicle is standing, and unless busy • times pay for idle times and loaded mileage pays for empty. . running, a serious hole can be made in what were thought to be profits."

20 Per Cent. Profit My haulier friend asked me to go further into the subject. Let me take the case of a vehicle with standing charges of £10 per week, £2 establishment costs and a running cost of Rid. a mile. On the basis of a 44-hour week, time costs amount to £12 divided by 44, equal to 5s. 6d. an hour. Charges should be calculated on this sum plus about 20 per cent. for profit, making 6s. 6d. an hour. Let us also take is. a mile as the charge for distance.

A haulier being asked to quote for a job which takes 30 hours, takes this time at 6s. 6d. an hour and obtains £9 15s. as his time charge. The mileage involved is 360 which. at Is. a mile, comes to £18. The total charge is £27 15s.

Actually his costs are for 44 hours at 5s. 6d., which is £12 2s., plus a mileage expense of £15 (360 miles at 10d.); this makes £27 2s, As his charges are only £27 15s., he is making a profit of 13s.—next best to none.

He should divide his total fixed charges, £12, by 30 to obtain the cost per hour. This is seen to be Ss.: with 20 per cent. added for profit it becomes 9s. 7d. The quotation should be 30 times 9s. 7d., £14 7s., plus the £18 for mileage. This becomes £32 7s., a rate which makes a good profit.

Now let me turn to a country carrier's difficulties. A Devonian friend asked me to help him calculate the rates he should charge for the transport of artificial manures, "I am trying," he said, " to work out a system of flat rates for the haulage of this traffic. I collect from railhead and the deliveries are over an area within a 10-mile radius." '!What basis have you in mind for your flat rates?" I asked. "II it to be a rate per ton for any distance within the 10-mile radius, or per mild for any tonnage up to the capacity of your vehicle?"

"What I want to do is to plan a flat rate per ton per mite," he told me.

" But that isn't a flat rate," I objected. "It is merely an ordinary ton-mile charge."

"But I want the rate to apply no matter what, the load is, so long as it is within the capacity of my vehicle."

"You mean that you are going to charge the same rate per ton whethet you carry 6 tons or one?" I asked. "That doesn't sound like a good scheme to me. What size of vehiElle are you using?"

"I have two: a 30-cwt. and a 4-tonner."

That doesn't make it any easier,"I said.. "In any case I don't recommend flat rates They are rAjeCtiotaabie from almost any point of vie*.", "What's wrong with them?"

In your case, you 11 find that the result of working a fiat-rate scheme will be that most of your loads will.he In calculating your fiat rates, you have.. three possible methods.. You may work your. rates out on a basis which will enable you to make a profit on small loads, on large toads, or, taking a middle course, on medium loads.

Scheme Overboard "If you. take the first course, that's 1.6 say so that small loads are profitable, your charges will be much too dear for large loads. People with large loads to offer will expect sub-standard rates, and as soon as you grant them your whole scheme goes overboard.'

" If you proceed by the second method, calculating your rates on the basis of profiting by large loads and you obtain a majority of small loads, you will make no money. Your competitors, who no doubt charge according to more orthodox methods, will be given the better traffic.

"By the third method you will miss both boats. You may obtain a few large loads, but only because you agree to a rebate. A few medium loads will show you a slight profit, but you will earn nothing on the small loads.

"Bear in mind," I continued, "that there is a growing tendency for buyers of transport to place their orders in small loads. People who stock supplies are finding it pays to keep their stocks low, and this is profitable only if road transport is available. When stocks are small, bills are low, and if you charge the same price per ton to carry a small load as a large one, you will supply one more reason why such customers should persist in dealing in small loads."

"But my competitors are already doing this," my friend protested. " They are charging the same i-ate per ton for any load up to and including 6 tons, and they are carrying the loads in 6-ton lorries."

He showed me a schedule for the carriage of basic slag, phosphates, nitrate of soda and other artificial manures from station to farm in 3-ton lots: ` One mile, 2s. 6d.; two miles, 3s. 8d.; three miles, 4s. 4d.; four miles, 4s. 8d.; five miles, 5s.; six miles, 5s. 60.; seven miles. 5s. 8d.; eight miles, 5s. 10d.; nine miles, 6s.; 10 miles, 6s. 2d.'

"But this schedule definitely quotes a minimum of 3 tons a load," I pointed out.

"No notice is taken of that," replied my friend. "This haulier will carry a ton at those rates."

"Perhaps we should discover if you can compete with these charges. Let us take the 30-cwt. vehicle first. What is its fuel-consumption rate? "

"Fifteen m.p.g."

"That's about 3id. a mile. If you get 400 m.p.g. for oil at 8s. a gallon, that makes Id. a mile. On rough country work you may obtain 20,000 miles from a set of tyres at £80, making a cost of Id a mile. I will take ld, a mile for

maintenance, and another id. for depreciation. That makes a running cost of 6fd. a mile."

I went through the standing charges and obtained a total of £10 a week. This came to 5s. 6d. an hour for a 44-hour week. A sum of Is. an hour sufficed to cover his establishment costs, and he expected to make a profit of at least £5 a week.

Putting the time elements together, we got 5s. 6d. phis Is. for establishment costs and, reckoning that half the profits should come out of the running costs, Is. 2d. an hour for profit. The total hourly charge was 7s. 8d. The profit element per mile worked out to about 2d. Finally we obtained rates of 7s. 8d. an hour and 8/(1. a mile_ Terminal Time

Loading and unloading occupied about a quarter of an hour per ton, so that for a full 30-cwt. load the terminal time would be three-quarters of an hour. This involved a charge of 5s. 9d. a load or 3s. 10d. per ton. My friend Teckoned his average speed along the narrow, winding roads as 20 m.p.h.

I took a four-mile haul as an example. There was first the terminal delay of three-quarters of an hour, then hail an hour for travelling the eight-mile return journey. The total time was thus hours and the charge at 7s. 8d. an hour was 9s. 7d. The mileage charge at 8fd. a mile was 5s. 8d., making a total of 15s. 3d. for the trip or 10s. 2d. a ton.

"It looks as though I had better leave this traffic to my competitor," my friend observed, and I agreed with him.

I was glad that, having been taken step by step through an analysis of his costs, be could see that this work was of no value to him. Too many operators are willing to accept unremunerative traffic, and the only possible reason for their attitude is obstinacy, a stubborn refusal to acknowledge that the expenses they incur are higher than

their earnings. S.T.R.

THE FOLLY OF FLA] RATES

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