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PLANNING

FOR PROFIT

The Price of Service

ZOAD transport is a term which to the layman implies a relatively uniform industry engaged in moving people and goods by motor vehicle. Yet although the motor vehicle common to all types of operation, there the similarity ends. 'en though identical types of chassis may he used by, say, ilk liquid and cattle hauliers, the experience necessary to cceed in these two operations is totally different.

Similarly the operation of small delivery vans falls into a tegory of its own. Indeed they are often regarded as so ciliary to the trade or industry they serve—particularly when crated singly or in small numbers—that their owners scarcely nsider them to be part of the road transport industry.

Such an attitude is understandable_ In fact, the more ancillary ey are to their particular trade and industry the more it ight be claimed they are fulfilling the purpose for which ey were purchased and subsequently operated.

But, however excellent the service provided, few trades can inpletely ignore the cost of providing a delivery van service. .though the true cost of such a service is accepted and subauently absorbed in the total costs of the business concerned, !crating costs should be known beforehand.

This, unfortunately, is seldom the case. With no such estiites of likely costs, and inadequate or complete absence of Lancial provision to meet the expense of repairs or vehicle placement when they occur, the operator must eventually be eed with one of two unpalatable alternatives. The van is her out of service whilst possibly expensive repairs are undercen, or is run in an unroadworthy or inefficient condition, a actice all too common as revealed by adverse comments in e annual reports of Licensing Authorities. Moreover vans such condition on the road are not only incurring the risk prosecution of the operator but provide a poor public image the company concerned.

The adoption of mass-production and assembly methods to e manufacture of small vans has made available a relatively w-priced vehicle for commercial use, It would therefore be ifortunate if this advantage were subsequently lost through .economic use and lack of appreciation of the ratio of initial ,day to operating costs. Thus, as will be detailed later, a mple average outlay on a 5-cwt, van is taken as £393, yet e operating cost for one year only is almost double this, mely 006. This latter amount, moreover, .does not include y proportional addition in respect of overheads costs which e inevitably incurred, whether accounted as such or not.

HE LEGAL REQUIREMENTS Because of this tendency to regard the small van as a mere bordinate of trade or industry, insufficient attention is given many instances to the laws governing the use of commercial hides on the public highway. When attention is drawn to me such omission, van owners are apt to reply that they did it consider the many laws and regulations governing comercial vehicles applied to the small vans they operate.

This is, of course, a wrong impression, although the busy Ider with perhaps only one or two vans will no doubt have Eficulty in finding the time to acquaint himself with all the gal requirements to be met when goods vehicles are operated. Yet this he must do if he is to keep on the right side of the law.

A way out of this dilemma is for him to become a member of a national association formed to protect his interests and, amongst other services, provide whatever legal advice he may require from time to time. Assuming his van were operated under C licence the appropriate organization would be the Traders Road Transport Association. Although its membership includes most of the largest ancillary users in the country, with fleets of vehicles numbering hundreds, or even thousands, the small operator of one or two vans is invariably in greater need of the advice and support such an association can provide.

Because small vans are relatively easy to acquire and in corn-Mon use, there is a third factor which can be underestimated, in addition to operating costs and legal requirements. This is the responsibility inevitably involved in first selecting and purchasing the most suitable type of van from the many available. Then follows the responsibility of not only operating but maintaining the vehicle to a standard that will ensure maximum availability for service.

WEIGHTY CONSIDERATIONS So stated, these may appear relatively light responsibilities to those who previously have not had experience of vehicle control. This is far from being the case, Quite apart from the qualifications necessary to ensure efficient transport management, traders operating ancillary vehicles as a new venture will be surprised at the amount of time taken in completing such relatively simple jobs as engaging a driver or locating some urgently required spare part not available locally.

Functionally, transport operation can be conveniently divided into two sections—engineering and traffic. Large transport organizations do, in fact, have departments so termed. Briefly, it is the engineering department's job to ensure that vehicles of appropriate type and in the required numbers are available for service at the required place. It is then the traffic department's responsibility to use the vehicles to the maximum possible advantage.

Obviously such departmentalization is of no direct concern to the small trader running a few ancillary vans. But the underlying principle is equally pertinent to him as to the large operator. It allows him to divide his transport responsibilities in a similar manner. He can, if he so chooses, delegate that part in which he has little or no experience—the selection, provision and maintenance of motor vehicles—to experts, namely the contract hire specialist. For a previously agreed regular payment, he can be relieved of these responsibilities by the hiring of vehicles in contrast to purchase. Outlays otherwise necessary for such purchase then become available for use in the trader's own business, should the occasion arise.

Such a policy may not at first appeal to some traders on the grounds that the contract hirer's profit margin must inevitably make this method of ancillary operation more expensive than owning vehicles. But except where large fleets are concerned, this is not necessarily so. Because it is his sole business the long experience of the contract hire specialist must result in him making substantial savings in selecting vehicles, compared with the small trader.

Still greater savings will probably be made in maintenance a45 of vehicles. Even in the unusual event of the trader having had the necessary engineering training to supervise his own workshop, economic utilization of the expense of providing maintenance buildings, equipment and staff could seldom, if ever, be achieved.

The combination of such savings may often more than offset the profit margin included in the hirer's charges. But even when known costs have been carefully ascertained and weighed against such charges, these remain the intangible but very real benefits to be derived by a trader through his being able to concentrate on his own business after adopting a policy of vehicle hire. Thereafter his transport problems are limited to the actual distribution of his goods to his customers.

Contracts for the hire of vehicles do not follow a set pattern. They are specially drawn up to meet the individual needs of customers. Consequently the terms of contract and the amount of hire charge will vary according to the extent of the service provided.

But whether or not a trader about to operate ancillary vehicles adopts a policy of hiring, he should know the approximate cost ot operating the type of vehicle he proposes to use. As an indication of the method to be employed in estimating such costs, the following details relative to a 5-cwt. and 30-cwt. van are given.

ITEMS OF EXPENDITURE Briefly the items of expenditure incurred in the use of commercial vehicles can be conveniently divided into two groupsstanding costs and running costs. The first group contains five items-licences, driver's wages, garage rent and rates, vehicle insurance, and interest-which have to be met whether the vehicle is used or not. The second group, which by coincidence also contains five items-fuel, lubricants, tyres, maintenance and depreciation-concerns expenditure which varies according to mileage run. As will be shown, this division has particular significance in the operation of small delivery vans.

As mentioned earlier, the average price of a selection of 5-cwt vans amounts to £393. With an unladen weight of 15 cwt., the annual licence duty is £15, the equivalent of 6s. Id. a week. This latter calculation, as with the other four items of standing costs, is based on a 50-week yeas to allow for two weeks a year when the van may be off the road on account of driver's holidays or vehicle overhaul.

The cost of driver's wages to the employer for a basic 42hour week is reckoned at £10 10s. ld. This is based on the new Road Haulage Wages Order R.H.(74) as applicable to adult drivers in Grade 1 areas. Whilst this order is admittedly not directly effective as regards C-licence (ancillary) drivers, in practice it tends to form an appropriate basis for such wages in the absence of any special trade or industrial rates.

The amount given includes employers' contributions to National and voluntary liability insurance, together with an allowance for holidays with pay.

Rent and rates in respect of garaging the vehicle are assessed at 8s. Id. a week. With an annual premium of £18 12s., vehicle insurance costs the equivalent of 7s. 5d. a week, whilst interest charged at a nominal 5 per cent on the initial outlay ado 75. 10d. a week.

The total for the five items of standing costs is therefo £11 19s. 6d. A small van of this type will probably.averal only a relatively small mileage per week, say 100. The standir cost per mile would then be 28-74d., a significantly high figur Because of this low mileage, fuel costs require special attentio when, as in this case, the van is fitted with a petrol engin An average rate of consumption of 32 m.p.g. would normal be assumed, but because of the low mileage a nominal increa of 20 per cent in consumption will be allowed. With petr purchased at 4s. Id a gallon, the fuel cost per mile becom 1.84d.

Lubricants are reckoned to cost 0.17d. and tyres 0.32d. mile, based on a mileage life per set of 20,000. Maintenano adds I-60d. and depreciation I-24d a mile.

The total for these five items of running costs is thus 5.17 a mile, or £2 3s. ld. when 100 miles a week are average Added to the standing costs, the total operating costs are tho 33.91d. a mile or £14 2s. 7d. a week.

The 30-cwt. van is assumed to be fitted with an oil-cull and to average 200 miles a week, whilst an average price £908.

With an unladen weight of I ton 18 cwt the annual liceno duty is £30, the equivalent of 12s. ld, a week. Wages are aga reckoned as £10 10s. ld. a week, but rent and rates are increase to 10s, 5d. a week because of the increased size of the vehicl Similarly, insurance now costs the equivalent of 10s. 7 and interest 18s. 2d. a week. This gives a total standing cc per week of £13 Is. 4c1. or 15.68d. a mile.

With fuel oil purchased in bulk at 4s. I id. a gallon and rate on consumption of 25-5 m.p.g. obtained, fuel cost per mi amounts to 1.95d. Incidentally, because this van is fitted wil oil engine no addition is allowed to this item on account low mileage.

Lubricants are now assessed at 0.24d. and tyres at 0.56d. mile, with a set now averaging 30,000 miles. Maintenance ado 1.75d. and depreciation 1-97d. a mile. Total running costs a therefore 6.47d. a mile or £5 7s. 10d. a week when 200 mil are' averaged.

The total cost of operating this 30 cwt. van is therefcs 22-15d. a mile or £18 9s. 2d. a week.

Comparing the cost of operating these two vans at the selectt average weekly mileages, the relatively high cost of providir a vehicle primarily as a service is strikingly shown. At a week average of 100 miles a week, the 5-cwt, van would be availab for, rather than actually on, service for a fair proportion o the week.

In contrast, with a load capacity six times as great ar averaging double the mileage per week, the extra cost t operating the 30-cwt. van is only £4 6s. 7d, a week.

Whilst there are trades and circumstances which justify ti provision of commercial vehicles, and particularly small van for comparatively small use, the true costs of such operatic should be known and accepted beforehand. Alternatively stir costs can provide a fair yardstick by which to assess contra hire quotations. S.B.