Flexibility in Rates Fixation
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Schedules of Charges Should Always Allow For Some Deviation. Rigidity in Such a Structure Is More Likely, Than a Little Give-and-Take, to Destroy it
LTHOUGH progress towards rates fixation has been
iji.made in a large number of areas, there are still many districts in which little success has been gained. However, the struggle to achieve something worth while is proceeding, if slowly. Activity is especially to be noticed among those who belong to the Road Haulage Association. Most of these people are beginning to appreciate that the continued existence of free hauliers depends upon widespread agreements upon rates schedules,
The obstacles in the way of progress seem in most cases to arise from seemingly petty objections, but clearly •they are anything but petty to those who put them forward.
One man told me that on local work with 5-ton vehicles he was likely to obtain a life of 24,000 miles from his tyres, but on a vehicle of the same size which was running on permit over long distances it appeared likely that his tyre mileage would average 60,000 per set.
"How," he asked, "is that difference going to be taken into consideration in stabilizing rates?"
"Candidly," I said, " I think that it is a waste of time to put forward a single item such as that as affecting the question. The difference in costs of operation as regards one item does not really affect the possibility of stabilizing rates to any marked extent."
" But you have always insisted that the operating cost of the vehicle is the first essential in building up a rates structure."
"Quite. But 1 will show you first that this seemingly tremendous difference in tyre cost does not make much difference to a stabilized rate; second, that it is almost certain to be offset by some other item of expense. . "Let me compare the figures using average data of operating costs as a basis. 1 will take a 5-tonner, as that is. the size of vehicle in which you are interested. if it be running 300 miles per week the basic figures for operating costs will be £7 10s. per week for standing charges, plus 300 times 6d. per mile for running costs. Now, I agree that in that figure of 6d. per mile for running costs I have assumed 24,000 miles per set for tyres. At the time the figures were compiled, tyres were £80 per set so the cost per mile is 0,8d.
Minimum Revenue
"The cost of operation of the vehicle will be the £7 10s. for standing charges plus £7 10s. for running costs, a total of £15 per week. If I add £7 10s. per week to cover establishment costs and profit, I get £22 10s. as the minimum revenue per week from the operation of that vehicle."
"That is just the point," interrupted my hearer. "On the long-distance traffic I am going to save nearly Id. per mile on tyres alone and the bigger the mileage the more important does that id. become."
Before we go any farther, what weekly mileage are you doing with this vehicle which is giving you such excellent results in respect of tyre wear?"
About 720 miles per week."
" Very good. Now if I take my own figures for running costs and .stick to the 6d. per mile, the total operating costs work out to this: multiply 6d. by 720 and you get £18. Add £7 10s. for standing charges and the total is £25 10s. For profit and establishment charges I take £12 15s. so that the minimum revenue that you must earn is £38 5s.
"Now suppose you are saving a Id. a mile on tyres. That economy will bring the running costs down to 51d. per mile, always assuming that some of your other items of cost are not greater than the figures which I am using for c8
this total of 6d. per mile. Your total running costs will now be 720 times 51d., which is £16 10s. The standing charges will remain as before, £7 10s., and your total operating costs will thus be £24. Add 50 per cent, as before to cover your establishment costs and profit and we get £36 as the minimum weekly earnings as compared with £38 5s."
"Now that is where 1 think you are wrong," interrupted my friend. "You are going to allow only £12 gross profit on this job, whereas in the other case, assuming the original figure for tyre costs and a total of 6d. per mile for running costs, you allowed £12 15s. for profit and establishment costs. In a sense you are penalizing me because I am getting better service from my tyres."
"I am not overlooking that point," 1 said, "but I thank you nevertheless for bringing it up. I will come back to that in a minute. Meantime I should like to proceed on the orthodox lines. The difference between the two figures for minimum weekly revenue, as you have just pointed out, is £2 5s. per week. You must be aware that long-distance haulage brings in its train certain extra expenses, which would not be met by the man whose vehicles never go more than 25 miles from his door. One item alone, lodging allowance for the driver when he is away from home, may, in some weeks, wipe out most of that total difference of £2 5s. When it does not, there are such items as trunk calls, sundry maintenance costs because small defects have to be remedied on the road, and other items like that which are apt to be forgotten.
Not to be Condemned "I will take up the point already raised—that a man ought not to be condemned to earn less profit in a week simply because his operating costs are favourable. Instead of adding £12 as gross profit 1 will take £12 12s. Then the minimum revenue becomes £36 12s. and the difference between that and the original figure of £38 5s. is £1 13s. per week.
• "Now I should like to come back to my original criticism of this query. To my mind the question is almost entirely beside the point. I do not believe that any schedule of rates which results from the deliberations of you and your friends in the Association can be made rigid; it must be flexible in its application. There will have to be allowance made for local conditions for one thing, and, in any event, any schedule of rates relating to what little long-distance work is now open to you will have to be calculated on a different basis than that for local operations."
" That is something I do not like at all," objected my friend. "If you are going to have flexibility you are going to open the door to rate-cutting and we shall be nearly as badly off, under those conditions, as we are now."
"I do not agree," I said, "I think there will have to be a margin, but I think it will be something like the margin which is allowed in a machine shop in reference to the finished sizes of parts. There will be the plus' or
and allowance over or under that fixed rate to make adequate provision for special conditions. ." What you will get out for each local schedule, which 1 am sure will have to vary from district to district, will be some sort of standard for each area. When you get that you will be much better off than you could ever possibly be without a schedule even if, as in your case, you are not quite in agreement with some of the details of the calculations which form the schedule."
"I still don't like your idea of flexibility. Give a man an inch and he will take a yard. That is something which we ought to bear in mind in this matter."
"I know what you mean," I said, "but you must have some give and take in your structure. If it gives a little under stress it will spring back again to its original form. If it is rigid it will most likely craek and may even collapse altogether. You fear that flexibility will encourage ratecutting. I think that rigidity will eventually destroy your schedule because it will prove to be impracticable."
"But you are going right against your own recommendations," he protested. "You say that a minimum rate must be based an three things, operating costs, establishment charges and profit, and that that minimum rate must not be cut. Well, you are now suggesting a departure froin that."
"' Minimum ' is the operative word in what you have just said," I replied."if it is a minimum rate according to my recommendations or according to your deliberations you should add to it sufficient to allow for contingencies normally to be expected. Let. the sum of those figures be your standard. rate, which you will then know allows a small mai-gin for bargaining, and you have the ideal structure, "You must not forget," I continued. "the factor of competition. Many others, like you and your friends, have often stated that I am probably right in my figures for operating costs, but optimistic as regards the rates which can be obtained. I am fully aware of that. Rates that can be obtained are seldom determined simply and solely by the figures for cost of operation, establishment costs and profit. The factor of economic competition is important. It is equally important that there must be means for meeting competition, and one of the means, I believe, will have to be a certain degree of flexibility in the standard rate."
Disagreement " I don't agree with that at all," came the answer. "The proper method is to have rigidity in your structure and provide for competition by the service rendered rather than by the rate. Under those conditions the haulier who gives the hest Service will get the business."
" You will have to be extremely careful to define service," I said. "otherwise there will arise, not one, but several kinds of service, which, in their application, will be more uneconomic than some of the cut rates of which you complain."
"What might that kind of service be?" asked my friend. "Welt," I said, "take, for instance, the delivery of coal to a house or of feeding stuffs to farm. Both commodities are usually delivered in sacks and on to,ground leveL It is quite likely that some hauliers in their zeal to Provide service, will deliver the load up a flight of stairs in the case of coal to a house, or up a ladder to a loft in the case of feeding stuffs to a farm, and charge nothing extra. That is the kind of uneconomic service I have in mind."
"That would not cost much."
"Wouldn't it? Let me show you. Take the cost of a man delivering 5 tons of feeding stuffs into a farm and having to hump every sack up a steep ladder into a loft. He will take at least half an hour longer to unload than if he were dumping the .sacks on t:se ground. An average 5-ton lorry is worth at least 15s. an hour to its operator. Consequently, that job justifies an addition of 7s. 6d. to the price or Is, bd. per ton extra."
Difficulties
"But, surely, provision for extra charges for unusual difficulties in loading and unloading will be met in the rates schedule?"
"It will be, but only up to a point. You cannot provide for every small variation in conditions; if you were to do so, you would need a whole library of books to contain your schedules. No-one would ever read them or understand them, and no haulier wguld ever work to them. That is what I mean when 1 say if you try to make your structure too rigid it will crack and collapse. Rigidity brings complications in its train. "Only the other day," I continued, "I was discussing sugar-beet rate schedules with a haulier friend of mine who does a considerable amount of that traffic during the season. He put it quite bluntly when he said he would not charge the schedule rate to a big farmer who so arranges his heaps of beet that a I6-ton lorry can be sent for it, loaded quickly by elevator, and continue-to run between factory and heap for two to three days in succession. There is a case where, if you tried to enforce a rigid khedule, you would simply lose that haulier's support and would not persuade him to alterhis methods."
"What do you suggest then?" came the somewhat exasperated retort. "What I have always suggested: a standard rate, taking into consideration the three essentials, vehicle-operating costs, establishment costs, and profit, plus a margin to allow for small differences in the standard rate itt order to meet special conditions." At that the conversation ended, although I have the feeling that my inquiring friend was still not quite So satisfied
as I would like him to be. • S.T.R.