Planning for Profit
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Dangers of
Flat Rates
IDEALLY, a haulier should price each of his jobs individually to ensure the greatest degree of accuracy, but unfortunately this is impracticable. Customers want ready quotations, and a haulier must have a schedule of charges. • Prices are offered according to length of journey, for example, and any additional
expenses peculiar to particular trips are discounted:
A schedule must be based on sound costing because of the standardization it represents. Periodic reviews of costs must be made, with adjustmentsto charges as necessary. Much mit& is carried today at flat rates, and as innumerable individual calculations are avoided there are advantages both to hauliers
and their customers. • , .
However, two trends in distribution arc becoming more 'Pronounced. Hauliers who are negotiating flat rates, either per mile, ton or other unit, should be wary of them. If a customer's production is increasing, he will require more deliveries. This involves an extension of the area of distribution, longer mileages and higher operating costs.
Bigger output usually entails acute pressure on floor space. Stocks are curtailed by the customer to make room for production, and more part-loads are offered to the haulier. If he is carrying for a flat tonnage rate, he will incur higher operating costs relative to the amount he earns.
It is not always realized how much split loads increase delivery costs, even though most operators are aware that full loads are the most economic to deal with. Moreover, there is corresponding difficulty in convincing customers on this point. I propose to examine the use of an articulated 10-ton oiler in this context.
Taking the Unladen weight as 4 tons 12 cwt., the annual licence duty is £65, or £1 6s. a week. Wages will be reckoned at £9 1 Is. 6d., which includes allowances for insurance contributions and holidays with pay. Rent and rates amount to 13s. per week. With an annual premium of 162, vehicle insurance is £1. 4s. 10(1. weekly.. Interest on an initial outlay of £2,330 amounts to 11 7s. 10d. per week at a nominal 3 per cent. .
The total for these five items of standing cost is £14 3s. 2d.' Assuming a standard working week of 44 hours, this suns is
equivalent to approximately 6s. 5,-;c1. an hour. 7
With a fuel-consumption rate of 11 m.p.g., fuel cost per mile is 4.18d., whilst lubricants add a further 0.27d. Tyres will B30 cost 2.32d. per mile, taking an initial price of £290 and a life of 30,000 miles. Maintenance is assessed at 2.36d. per mile, and depreciation 2.64d. Depreciation is based on a mileage life for the vehicle of 150,000. Appropriate residual values for both tractor and semi-trailer have been taken into account. The five items of running cost total 11.77d. per mile.
I will assume a hypothetical day's work in which the vehicl Covers 100 miles and makes four deliveries, and allow an hou for loading and initial garage,time and five hours for travelling Each delivery will occupy half an hour, making two hours 'all, which, when added to the other 'times, makes a day o eight hours.
The cost to the operator (as distinct from any charge h may make to his customer) will be eight 'hours at 6s. .51c1 (12 Ils. 6d.) plus 100 miles at 11.77d. per mile (£4 18s. Id,) This gives a total of £7 9s. 7d. When 10 tons is carried, the cos per ton is 14s. 11d.
Next suppose that the haulier, having agreed to a flat rat based on four deliveries a day, is asked to make more but i smaller lots. Eight deliveries become necessary, and allowin five miles for each one to be added to the original dail mileage, the total becomes 120. Similarly, even if the loadin time for the 10 tons remains the same at an hour, travellin time must be increased. I will reckon it at six hours.
When the amount to be unloaded at any one point is alread comparatively small, there will be little, if any, reduction the overall unloading time I have allowed. As experience operators are well aware, a large proportion of the time spen effecting a delivery is not in the actual unloading, but i waiting and documentation.
The time allotted for eight deliveries will therefore mak 11 hours necessary for the whole day's work. The total cos 'will bell hours at 6s. 51d. (£3 10s. 10d.) and 120 miles a 11.77d. '(£5 17s. 8d.), total 19 8s. 6d. The cost per ton no becomes 18s. 10d.
Both of these examples have been calculated on the assump tion that a full load is carried. If the customer subsequentl requires smaller and more frequent deliveries to be made, i is likely that, in addition, there will be a reduction in the daily tonnage offered.
The small operator may not be in a position to substitute a more economic size of vehicle to meet such a situation, in which event part-loads would have to be carried. These would raise his cost per ton still further. .
But even the larger operator who is fortunate enough to have a 7-ton oiler available, for example, would find the cost per ton appreciably higher. For this class of vehicle an average unladen weight of .3 tons 4 cwt. would represent a weekly licence cost of 15s. 6d. The weekly wage payable to the driver would be the same as with the larger vehicle, £9 I Is. 6d. Rent and rates will be assessed at a little less, lis. 6d. Vehicle insurance may be reckoned at 17s, 2d. and interest 18s, 3d., based on a capital cost of £1,525. Total standing costs per week are therefore £12 13s. 11d. or 5s. 91d. per hour.
With oil fuel purchased in bulk at 3s. 10d. per gallon, as with the previous vehicle, but with a consumption rate of 15 m.p.g..
fuel cost per mile becomes 3.07d. Lubricants are assessed at•0.25d, and tyres 1.48d., assuming a set is £188. Maintenance
is reckoned at 2.34d., and depreciation 1.84d., again allowing for a mileage life of 150,000. Total running costs are 8.89d. per mile.
Supposing that the conditions in my two previous examples still apply to this smaller vehicle, a day's work consisting of four deliveries over 100 miles will cost eight hours at 5s. 91421. (£2 6s. 2d.) and 100 miles at 8.98d. (f 3 14s. 10d.), giving a total of £6 Is. Allowing for the reduced capacity, the cost per ton is 17s. 4d., compared with 14i. lid, for the lOztonner.
Similarly, when operating 120 miles per day to effect eight deliveries, the cost for the day becomes 11 hours at 5s, 94d. (€3 3s. 6d.) and 120 miles. at 8.98d. (E4 9s. 10(1.), totall7 13s, 4d. The resulting cost of 11 Is. 11d. per ton compares with 18s. 10d. for the larger vehicle.
Throughout these calculations all the amounts quoted have been limited to the direct costs to the operator. No allowance has been made either for overheads or profit margin. Overheads may not remain constant. If the trend for smaller deliveries continues and increases documentation, it must raise the haulier's expenses. This would eat into his profit margin.
There are other aspects which could have an even greater effect on operators' profits, but which cannot readily be expressed in terms of money. Those concerned with the day-today scheduling of deliveries know the difference between a trip that can be done in a day and one which leaves a proportion of deliveries over to a following day. This can happen if the number of deliveries per load is unduly increased.
What was previously a reasonably economic run might become unprofitable, especially if the rest of the second day could be employed for nothing better than reloading. Split loads can therefore not only increase the operaturs' costs per
ton, but affect other traffic adversely. S.B.