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Basing Rates on Actual Costs .

20th May 1949, Page 24
20th May 1949
Page 24
Page 25
Page 24, 20th May 1949 — Basing Rates on Actual Costs .
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Which of the following most accurately describes the problem?

BY impressing upon hauliers' the importance of theit knowing their fundamental basic costs, I am trying in this present series of articles to put the brake on the current tendency to cut rates. 1 am indicating, by examples, what those cbsts are in relation to particular types of vehicle and showing how to use the figures, (a) to assess a quotation; and (b) to discover if an offer of a rate for a job is one which should be entertained.

I have even gone so far as to depart from the long-standing principle of giving the haulier figures for minimum charges which I recommend him to the for the two purposes mentioned. I am now suggesting that he does not directly apply the time and mileage figures for rates which appear at the end of every table in "The Commercial Motor" Tables of Operating Costs!

Further, I give time and mileage figures, not for rates, as hitherto, but for cost, leaving him to decide, with those figures as a basis, what he should

charge or, alternatively, to help him to S OLVIN evaluate offers of mirk at a given rate.

My reason for this change of attitude is that many operators. when they find it

difficult, in a competitive market, to get the rates I recommend, proceed to quote at random any rate which they think will get them the work. They do this rather than look elsewhere for traffic; or, at least; without checking-up on costs to see what profit, if any, would accrue at the price quoted. When asked to quote, they may revert to the timehonoured practice of finding out what the "other chap" has quoted, and then ask for something less, again without any check on costs, and without any knowledge as to whether the work will pay or not.

Witha proper appreciation of what their costs are, hauliers would be less likely to go astray as they now do in quoting rates. To a man with only a few vehicles it is an easy matter for him to keep the essential 'figures at the back of his mind.


Time and Mileage for Casual Work am using time and mileage figures in preference to any others because, for reasons already given, they are most suitable for, and better adapted to, the needs of the jobbing haulier, who is most frequently to be found in the ranks of the short-distance operator to whose problems I am. for obvious reasons, giving priority.

The jobbing haulier is always being called upon either to quote a price for, or to consider an offer of, a small jobwhich takes up comparatively little of his time and which does not involve many miles of running. He rarely enters into long contracts or those which involve regular weekly mileages over considerable periods.

To illustrate my point, I have been using figures for a three-ton lorry. I have shown that the standing charges amount to £7 5s. per week, and the running costs to 5/d. per mile. The establishment costs I have assumed to be £1 18s. per week.

The total of fixed charges is thus £9 3s. per week, which is equivalent to 4s. 2c1: per hour for a 44-hour week. The figures which the operator needs to memorize are the 4s. 2d. per hour, and the 51d. per mile running costs. He must be careful to bear in mind that those arc his costs and that they make no provision for profit.

Dealing with a criticism that the amount of the establishment costs included in the calculations (£1 18s. per week) is too much for a local jobbing haulier, one operator says he has practically no establishment costs.

First, let me refute any claim to be able to run even the smallest haulage business without any establishment st-12 . costs, it simply cannot be done. A jobbing haulier, more than most other types, must have a telephone. That is only one item out of several. There are, for example, electric lighting, heating, 'printing and stationery, postages, and other sundries. They may not seem to be much individually, . but it is surprising how they mount up.

But there is a special reason; which applies particularly to the jobbing haulier, for making a fairly substantial allowance 'for establishment charges. The figure of £9 3s. per week which I use as indicating the cost per hour is calculated on the basis of the standard 44-hour week. This type of operator will not, year by year, be able to keep up an average of 44hours, By the very nature of -his work there are bound to he gaps between one job and the next. He will be fortunate if he can maintain an average of 36 hours' work per week. Dividing 36 into the £9 3s.

per week for fixed costs gives 5s. id. as the hourly • cost. This difference of lid.,

G THE reckoned over the standisrd week of 44 hours, is actually £2 is. 4d. per week.: Eire') based on the 36-hour week, it is ii"13s.'per week, which: nearly offsets the modest 'El 18s. I have allowed for establishment .THE CARRIER charges provided for just such contingencies as this lost time.

Now for. the problem, which I have selected as being a typical one. The operator is offered a rate instead of being asked to quote for a job, the customer being a builder. He wants three tons of bricks to be carted a distance of 14 miles, and offers the haulier the standard rate which prevails in his area-6s. 10d. per ton. The problem for the haulier is whether that rate will show him a profit.

Three tons represents approximately 1,250 bricks. The time for loading will be about half an hour, and the same time for unloading. Owing to traffic congestion and other contingencies it will take the operator a total of -2:1hours on the outward and homeward journeys.

For 2/ hours at 4s. 2d. per hour the figure will be 10s. 5d., and for 28 miles at 50., 12s. 10d., making the total cost .£.1 3s. 3d. The revenue from three tons at Gs. 10d. is 1 Os. 6d. The haulier must turn that job down.

An Unjustified Accusation .

He may -"then want to know how it came about that an unremunerative price was fixed as the standard rate for brick haulage. in answering that question we find the reply to many charges of rate cutting, where a man, operating a three-ton lorry, finds it does not pay to carry at the same rate as another haulier running a six-tonner. He complains that the operator of the six-tonner is rate cutting. He is wrong.

The figures for the cost of a six-tonner are: standing charges £8 3s, 611., and establishment charges £3 I2s., so that the fixed charges amount to £11 15s, 6d, per week, or 5s. 4-/d. per hour. based on a 44-hour week. The running costs are Gid, per mile. The cost of carrying six tons of bricks over a lead distance of 14 miles is 16s. Ud., based on 13, hours' loading and unloading, plus 1/ hours' travelling time, making 3 hours at 5s. 4/d. per hour. Add to that 15s. 2d., the cost of running 28 miles at-Gljd. per mile, and we get a total of £1 I Is. 31d. The revenue being six times 6s. 10d., or £2 Is., the work shows quite a reasonable profit, with a margin to allow for waiting time which often has to be provided for at some brick yards.

Here is another example: the haulier has a three-ton lorry and has been offered work at the local gravel pits. The distance to be travelled is not more than half a mile, and the work will be almost all loading and unloading. What should

the charge be ? In this case I am not sure how the rate is to be quoted, whether by the week or per yard of gravel, so I will work out the cost both ways, taking the weekly basis first.

Operating Costs £10 3s.

The fixed charges have been shown to be £9 3s, per week. The mileage covered will probably be about 40 per week, but the running costs, for such short runs, will be rather more than the 51d. per mile previously quoted. I will, therefore; take 6d. per mile, so that the amount of the running costs per week will be El, making the total £10 3s.

What must the operator charge? That depends on whether the job is for a long or short period. If it be for only a few weeks he should add, roughly, a third to the cost, and quote £13 10s. If the job is to run for quite a leine time, then he might be satisfied to add, roughly, a quarter and charge £12 10s.

Now to calculate the charge per yard, assuming that the lorry will carry 21 yards, it will first be necessary to calculate how many loads it will be possible to carry per week. It may be 40, or it may be 50. I have given two figures for weekly revenue: £13 10s. and £12 10s. Assuming 40 loads per week, the charge should be either 2s. 8d. or 2s. 6d. per yard. If the loadings total 50 per week, the charge can be is. 10d. or Is. 8d.

In the foregoing three examples I have indicated two methods of assessing costs and calculating rates. The first of these, which incjudes figures for both time and mileage, is essential when the operator is continually going from job to job. He must reckon each on its own, and there is no possible way of doing that except by the method described. He must take a figure for the time involved and then a separate one for the mileage run, and add them together.

How to Decide the Rate

Having arrived at the cost figures in this way, the rate should be calculated by the simple process of adding a profit to the cost, the profit figure being varied, as I have shown, according to the nature of the job, The complete quotation should be submitted to the prospective customer, no details being given as to the means by which it was arrived at.

The second method applies when the/work is more or less continuous. It is applicable especially when the mileage covered per day or per week is small, and when most of the time is taken up waiting for loads, or in loading and unloading.

In those circumstances, a rate per mile would be absurdly high. In the example quoted, the mileage was no more than 40 per week, but a charge of £13 10s. was justified; that is equivalent to a charge of 4s. 3d. per mile, which would be queried at once in any quotation, whereas, put in as a rate for a week's work, it would be accepted without comment.

Another method, customary when hiring-out a vehicle on contract, is to assess the cost on the basis of art agreed weekly mileage, and to charge accordingly, adding something for mileage in excess of the agreed figure.

I will assume that the operator of a three-tonner has art inquiry for its hire on the basis of 240•rniles per 44-hour week. His cost for time-£9 3s.-we already know. The mileage cost at 50. per mile is £5 10s., making a total of £14 13s. He should add to that 20 per cent., making the figure £17 12s. For excess' miles, over and above 240, it is customary to charge no less than 50 per cent. above the running cost, so that he can make his excess-mileage charge 81d., or even 9d.

Finally, the fourth method of costing is on the direct basis of cost per mile. This is to be applied when the operator is offered work in which the mileage can be closely calculated. For .exampte, the work might be in Connection with the delivery of the products of a manufacturer or wholesaler or retail establishment coming within the haulier's 25-mile radius of operation. The mileage is assessed at 480 per week. The fixed cost will be £9 3s., plus that of 480 miles at 51d. per Mile, which is £11, making a total of £20 3s, Find Net Cost Per Mile

The quotation, however, must be on the basis of a rate per mile, so that 'weekly variations in the total can be provided for, and with that end in view the net cost per mile should be ascertained. As the total is £20 3s., and the mileage 480, the rate per mile will be 101d. For profit, the haulier should add not less than 20 per cent, or 21d. The minimum charge must thus be Is. Id. per mile.

A more remunerative way of entering into a contract of the type just outlined would be to quote for, say, 400 miles per week at a rate of, say, £20, and then to add Is. 3d. per mile for excess mileage, as in the example already given.

It is astonishing how little the average haulier appears to know concerning contract-hire work, the excess mileage charge being a side of the business probably least understood.

T take an example. A haulier is asked to hire a one-ton van to a tradesman. The hours are usually from 9 a.m. to 6 p.m., with one hour for lunch. On one day of the week the van will be needed from only 9 a.m. to 1 p.m., the overall total working at 44 hours per week.

It would be fair to allow such a customer an average of six miles per hour, including tithe for stops. This would mean 264 mites per week.

Taking the figures from 'Y The Commercial Motor' Tables of Operating Costs," the weekly standing charges for a one-ton van are given as £6 9s.. 9d. To that must be added a small sum to provide for the fact that haulier's insurance premiums are practically double those applying to ancillary users as given in the Tables. That amount is 4s. 9d., bringing the standing charges up to £6 14s, 6d. If we add 5s. 6d. for estabbishment charges, we arrive at a round sum of £8 per week for fixed charges. The running cost per mile, taken from the Tables, is 40. If the vehicle is to be hired to run 264 miles per week the cost will be £4 8s., and the total per week, £12 8s. For profit 1 again suggest 20 per cent., which is £2 10s., so that a fair minimum charge would be £14 18s., or, say, £15.

. We still have to take Unto consideration the possibility of excess mileage and excess time. For the excess-mileage charge I propose tofollow the rule already given, that of adding not less than 50 per cent. to the running cost, making that figure 7d. For any time over the eight hours per day or four hours on the early closing day, the charge should be the cost per hour plus 25 per cent. The fixed costs are £8 per week, which is 3s. 71d. per hour. The charge per hour for excess time should, therefore, be 4s.. 9d. for each hour, or part of an hour.

Working out rates in this way would save both losses and'recrimination. S.T.R.


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