Cutting Your Losses
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IS and flows in traffic are virtually inevitable features transport with which all operators have to contend. very endeavour is obviously made to reduce the effect fluctuations by the mixing of traffic, inter working or on of other companies so as to give a more balanced of traffic movement either regionally or nationally.
or a variety of reasons there remains a comparatively imber of operators of small or medium size on whom ctuations can have an acute effect. The fact that they to remain in business despite periods of slackness of because they are able to offer advantages in other 'is such as greater flexibility to meet immediate demands ssibly, lower overhead costs.
iirre Empty Running ?
ttntioned a month ago in this series there is undoubtedly -able criticism by laymen of what they claim to be e empty running of vehicles, and particularly those on ?e. In fact, of course, all operators, whether having or C licence, will take advantage of every return load
s conveniently available. But in assessing the benefit return traffic, due regard has to be paid to other factors a possible lowering of the standard of the outward service.
se the Aor B-licensed operator is a professional ?rimarily in business to earn his living from such operashould be more than apparent that, in his own financial he will back load whenever possible. But despite such economic reasons in the case of A and B-licensed circumstances can arise which virtually compel them therwise.
t obviously an excess of traffic can provide its problems e maximum availability of vehicles and men, there is, d be, the satisfaction that the solution of any difficulties lit in a profitable exercise. In the reverse situation the is often more difficult in the sense that the choice ae made between the lesser of two or more economic I—at least in the short term—it seems at best a negative Actually, however, assuming the year's working as is profitable, the reduction of any losses to a minimum ;lack periods has a direct bearing on the total annual Itimately achieved.
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y in such circumstances a decision has to be made or not a vehicle standing idle in the garage is a less re proposition than clocking up a high mileage for little As an example of such a situation some figures are ,en as to the manner in which such a problem could sed relative to operating costs. Whilst it is possible to t acceptable average costs relative to the running of a this comparison also means some assessment of traffic
Because the types of traffic carried by professional are so varied any attempt to formulate average revenue circumstances must be largely hypothetical. But he amounts arrived at may need considerable adjusthen applied to individual cases, the manner and, to tent, level of comparison should remain valid. The vehicle chosen For making this comparison is a 9 ton four wheeler in the quality produced class. It is assumed to have an unladen weight of 4 tons 15 cwt„ so incurring an annual licence duty of £78. Assuming a 50 week year to allow for two weeks when the vehicle is off the road either for overhaul or driver's holidays the equivalent cost of licences per week is £1 12s., which amount also includes the appropriate proportion of the A licence fee.
Standing Costs The cost of wages to the employer is assessed at £11 2s. 8d. This amount is based on a standard working week for a driver in a Grade 1 area as laid down in the Road Haulage Wages Regulations R.H.(74), which amounts are not affected by the amendment in R.H.(75). This assessment also includes allowances for insurance contributions and holidays with pay. Rent and rates in respect of garaging the vehicle are reckoned at the equivalent of 11 2s. 3d. whilst insurance adds £3 5s. fid. This is based on a premium of £163 16s. a year to provide comprehensive cover on A licence operation,
The total cost of this quality-produced four-wheeler is reckoned to be £2346 complete with standard platform body. Allowing a nominal rate of five per cent the appropriate interest charges would amount to £2 Ifis. I 1 d. a week This gives a total for these five items of standing.cost of £19 19s. 4d. per week, or 5.99d. per mile when the average weekly mileage — throughout the year—was 800.
Running Costs
Assuming that this professional operator purchases his fuel oil in bulk at 4s. 2id. a gallon, the fuel cost per mile would be 4.19d. when an average of l2 mpg. was maintained. Lubricants are reckoned to add 0.28d, a mile.
A set of tyres for this type of vehicle would cost around £313 and with a mileage life of 40.000 per set would return a tyre cost per mile of 1.88d. Maintenance is reckoned to cost 2-85d. Per mile and depreciation I-80d. This latter calculation is based on an estimated vehicle life of 300,000 miles. The balance to be written off is obtained by first deducting the equivalent cost of the original set of tyres, with a further deduction in respect of an estimated residual value for the• vehicle of 10 per cent.
The total running cost is therefore 11.00d, a mile or £36 13s. 4d. a week when averaging 800 miles. Added to the standing cost already calculated, the total operating cost for this 9-ton four-wheeler becomes 16-99d per mile or £56 12s. per 800-mile week.
A Week's Work
Applying these results to a hypothetical week's work the daily mileages will be arbitrarily based around 150 as being the normal journey, plus 100 miles as a cross-country journey to collect return loads. Alternatively the 100 miles could be partly for that purpose and partly the additional mileage to the basic 150 for the return journey.
As said earlier any attempt to choose a set of traffic conditions which might be considered average must inevitably be B49
arbitrary. Not only will the journey mileages vary substantially in actual practice but, equally so, the terminal times whether expressed in connection with one delivery or sevei'al. Two further assumptions have also to be made, namely the rapacity of the load carried. This will be reckoned as a full load-i.e. 9 tons-on the outward journey and 5 tons on the return if and when available.
As the whole purpose of this comparison is to examine the effect of limited traffic availability on costs, it will be assumed in the first example that traffic is at its lowest ebb with only one outward delivery available throughout the week. On the basic assumption as to mileage this would result in a total return journey of 300 miles, so incurring running costs of £13 15s. Added to the standing cost of £19 19s. 4d. already calculated, a total of £33 14s. 4d. is derived as the total cost of operating for the week. Allowing a nominal figure of £2 10s. per ton as the average traffic received, the total for the 9 tons moved will be £22 10s.
Because of the wide variation in operating conditions no allowance has been made in these examples for either the effect of overtime working or payment of subsistence allowances. Nor is any addition made for the inevitable overhead costs and no adjustment has been made to the actual cost to the operator to provide a profit margin. In any case, as several of the results reveal, there are actual losses on bare operating costs.
But even on these minimum operating costs it will be seen that on the 300 mile week just instanced there is a deficit on even the basic cost to the operator of £114s. 4d, Nevertheless, if he had refused to move the outward load and had kept the vehicle in the garage there would be the standing cost of £19 19s. 4d. still to be met with no revenue whatsoever to offset it.
Variations As a variation of this first example it will now be assumed that by incurring an additional 100 miles to the round trip, namely 400 in all, a partial load of 5 tons can be brought back. The running cost would then be raised to £18 6s. Rd. giving a total operating cost of £38 6s. Od. With 14 tons now carried revenue is increased to £35 so leaving a deficit of £3 6s. Od. Compared with the weekly standing cost of £19 19s. 4d. the operating of 400 miles would in effect reduce this otherwise total " loss" by £16 13s. 4d.
As a third alternative it will now be assumed that only two outward loads are available throughout the week. This would result in a total weekly mileage of 600 with corresponding running costs of £27 10s. Od. and total operating costs of £47 gs. 4d. With £45 received for the 18 tons carried, a deficit on the basic operating cost of £2 95. 4d. remains.
Similarly if three outward loads only are available the total operating cost would be £61 45. 4d. and revenue £67 10s. Od. This would give a credit balance of £6 5s. 8d., although as already stated no allowance has been made for overtime, overheads, or profit margin.
Finally if three outward loads were available and only one partial return load the corresponding figures would be total operating costs £65 16s. Od., total tonnage moved 32 tons, revenue, £80, and credit balance on basic costs £14 4s. Od.
A Service
Although expenditure and revenue are of obviously vital interest to the operator, decisions as to whether to run a vehicle are not entirely dependent upon the cost aspect. The fact that he is in business to provide a service implies to some extent availability, reliability and continuity of service from the customer's view point. Particularly in the case of the small or medium-sized haulier, his prime interests will be on traffic originating in his area. Indeed, in all probability, it will be just such traffic which has been largely responsible for the building up of his business. Obviously, therefore, he would go to considerable lengths to move this traffic as and when the opportunity arises, even though the possibility of return loads is doubtful. It is on just such an occasion that a preliminary costing on the basis of the hypothetical examples just quoted would at least appraise the operator as to the loss he is likely to be involved in maintaining the goodwill of a long standing customer.
Having sent a vehicle on such an outward journey it is a common problem for transport managers to have to determine just how long to keep a vehicle at an outward point whilst endeavouring to make arrangements to avoid the vehicle returning empty. In addition to the driver's personal interest as week-end approaches, there may also be the possibility that it is known that further outward loads are available. When it seems likely that there is little or no chance of return loads in the near future then it would seem that, as a short term policy, a maximum number of outward deliveries could prove the hest compromise.
The Ideal-but . . .
It is self-evident to all concerned with transport that fullyloaded vehicles in both directions arc the ideal but there are many occasions where this is just not possible, at least within the confines of a working week. It is then the unfortunate job of the man on the spot to have to make a compromise decision in an endeavour to select the lesser of the two evils.
A curious aspect of this subject of empty running is that tipper operation is seldom questioned on this score as being uneconomic although a very high proportion of such work is in one direction only. Here again, with the known absence of return loads, concentration on the maximum number of outward deliveries though reducing terminal time by use of the basic principle of the tipper seems to provide an economic and acceptable solution.