Knocks on the Door
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of a "Closed Shop" THAT 1 am still receiving inquiries from people who wish to start a haulage business is, to me, astonishing,
as they wish to enter an industry of which 20 per cent. is to be nationalized. All that is left outside Government control is short-distance haulage, the operator being confined to a radius of 25 miles from his headquarters. Conditions within the non-nationalized section of the industry are going to be most difficult for some time to come, and in my view, unless a considerable measure of co-operation and grouping be carried out, all those who are outside the nationalization scheme, will soon he engaged in a dog fight in which there will be little chance of newcomers surviving.
My inquirers do not seek advice as to whether they should enter the industry or not, and incidentally, the majority is thinking in terms of contract A..licences. Curiously enough, the inquiries are often linked up with others relating to "The Commercial Motor" Tables of Operating Costs. A typical example came from a man who said that he and a friend were going into partnership. He stated that they had the prospect of two contract A licences, one for a 54onner and one for a 2-tonner, and he wanted to know the cost of operating the vehicles, and what the charges should be for contract hire.
I took the figures for my reply from the Tables of Operating Costs, and almost by return of post I got another letter saying that they had seen these Tables and they could not understand why there was so much difference between the vehicle operating cost and the hire charge. For the 5-tonner I had quoted fot a 300-mile week, the operating cost figure being 115, and the charge £22, and it seemed to this inquirer that a margin of £7 for profit was excessive. I explained that, included in the £7 was allowance for establishment costs, the nature of which I also dealt with.
Overheads Ignored
Many operators, and owner-drivers in particular. nearly always refuse to acknowledge that they are subject to any expense on account of establishment charges or overheads. There is not a haulier in this country who has not establishment expenses. A simple example will make my case.
I assume the case of an owner-driver who has one vehicle and plenty of ambition. His knowledge of the economics of road transport is usually in inverse proportion to his ambition. His vehicle and his headquarters may be a mile or two from the centre of the business part of the town or city nearest to him. A typical ease is an operator with headquarters at New Barnet, who expects to get most of his business in London. In his search for work, he will most likely drive into London. and he may cover 20 miles or so in going from one business house to another. At the end of the day he has another seven miles to cover before he
can garage his vehicle for the night. In adverse circumstances, that may continue for a week or more before he is fortunate enough to find work.
If he puts-down every item of expense, as he 41ould, and the vehicle is a 5-tonner, we find from "The Commercial Motor" Tables of Operating Costs, that he ought to debit his business accounts with £7 6s. 6d, a week for standing charges, plus approximately 6d. for each mile run. During the week he will have covered approximately 200 miles, making a total of £12 6s. 6d. This amount has to be made up in some way and it is going to be difficult to recover it during the ensuing weeks. That is an establishment charge or overhead cost even though it may not be recurrent.
Establishment Charges
Now consider the case of the same man when he has, to some extent, established himself. He will require a telephone. Even in the early days of his business that will cost him about £15 per annum. He must have some properly printed notepaper, even if a be only bill heads. This will cost him at least £.2 a year, including envelopes. Postage will be at least 2s. a week, or £5 Per annum.
Speaking from experience as the recipient of some handwritten letters from hauliers, I would most strongly recommend the purchase of a used typewriter. Even if he pays only £25 for it, and supposing that it lasts for five years. then £5 per year must be debited on his accounts for that item. Admitted that this is rough and ready accountancy, it will serve my present purpose. Further items necessary will be log sheets and similar documents, costing say £1.
Next comes the matter of dead mileage. As it is probable that most of his work will be obtained in London. the seven miles from New Barnet to London, which is dead mileage, has to be covered at least twice per day. The alternative is more expensive garage premises in the city, but there is not much to choose between the two in the matter of expense. There is also the distance covered in going from one prospectise customer to another. A fair average for this is 50 miles per week, or, say 2500 miles per annum. I imagine the majority of experienced hauliers would be staggered to realize that they are covering such a mileage each year for which they are receiving no payment. Even if I take into consideration only the running costs, and leave the mileage ion on profitable journeys to account for the standing charges, the cost of the 2,500 miles, at 6d, per mile, . is still £62 10s. per annum.
Then there are gratuities. A haulier working on his own, A35
is often faced with the necessity of obtaining help as, for example,' for loading and unloading. The only method of payment is the direct one of " tipping " the helper. It goes without saying, that an occasional 2s. or so expended in this direction is often worth while in more ways than one. liven if that expenditure averages only 5s. per week, the annual sum involved is £12 10s.
Sundry disbursements, parking fees and so on, will average another 5s. per week, making a further £12 10s. per annum. The total of all these items is £115 10s. or approximately £.2 5s. per week.
The point about the foregoing items of expense is that none of them is included in the direct operating cost of the vehicle. Regular readers will know how insistent 1 am on the point that operating costs comprise the 10 items of tax, wages, garage rent, insurance, interest, fuel, lubricants, tyres, maintenance and depreciation. I always emphasize that nothing more must be included in vehicle operating costs and that everything which cannot legitimately be set down under one or other of those 10 headings is an establishment or overhead charge. This £2 5s. a week, then, is an establishment charge involved in the operation of a 5-ton lorry by an owner-driver who insists that, according to the way he runs his business, there are no such things as establishment costs.
, A Paltry Return Looking at this from the point of view of the ownerdriver, who is content to regard a driver's wage as all that he need make out of his enterprise, at least, until he is established, suppose he decides to pay himself £5 per week and to -ask for no profit other than that. Having ignored establishment charges, whichamount to £2 5s. per week, he will be drawing only £2 15s. per week.
The establishment costs I have mentioned by no means cover everything. No provision has been made, for instance, for the licence fees payable under the Road and Rail Traffic Act, and although they be small, every penny should be taken into account. Neither has there been mention of any subscription to a trade association, which should prove more of an investment in the future than it has in the past.
Then there is insurance of the load. He must take out a policy to cover goods in transit, not only for his own sake, but because he will find that many prospective customers will raise the point as to whether their goods will be covered during transit. The annual premium for such an insurance may be in the region of £30 a year; it cannot be much less. That represents a further 12s per week on the establishment charges, and I could quite easily make provision for another £1 a week to add to the £2 5s. a week which I have already shown as being, unavoidably expendable. A driver is thus getting for himself, as remuneration for running his business as well as driving his vehicle, but £1 15s. a week.
I have described this newcomer to the industry as being a man of some ambition, which means that he will not for long be content to operate only one vehicle.
The first thing that should be clear is that if he be running his business on the lines I have indicated, it will be a long time before he will be in a position to acquire another vehicle, no matter what methods he adopts.
But supposing he has some resources, and does acquire a second machine. It will probably be from another owner-driver who has found that the game, as it is being played, is not worth the candle. The conditions for our new comer, who now has two vehicles to operate, will differ materially from those which prevailed when he had only one machine, which he drove himself. How great that difference may be will depend, to some extent, upon the type of man he engages to drive the second vehicle. If he be just a driver, which is all that can be expected if he be paid but a driver's wage, then our newcomer owner-drive t will now have the added responsibility of planning for a second vehicle, obtaining loads, securing payment of his accounts and attending to all other business routine to which he has hitherto been accustomed to take in his stride. That will find hint something to do.
Manager and Engineer Should a third machine be put into commission, he will find it impossible to continue to act as a_driver. He will then have to engage two further drivers, and the owner will have to devote himself entirely to the Management of his business. In the majority of cases, according to my experience, the man who commences as an -owner-driver usually has a fair amount of mechanical knowledge, and when he reaches the stage of owning three vehicles he may combine the two functions of manager and engineer.
Quite apart from the matter of establishment costs, what becomes of his idea about assessing his rates on the basis of paying himself only a driver's wage and accepting that as all he needs in the way of profit ? Having ceased to be a driver himself, that must go by the board, as he has to pay the wages to the man engaged to drive his vehicle.
One thing is quite certain, and that is the aspect of his account books, in respect of net profit, will change considerably. There will be additions to the establishment costs which I have already discussed from the point of view of the owner-driver. There will, for instance, be a new item, that of supervision or management, covering the wages which the owner will allocate to himself.
If he is going to tackle the business in the right way, he will require a proper office. Under these conditions there will be further items of expense, such as rent and rates, insurance of the office and its effects, maintenance, depreciation and interest on the cost of furniture, cleaning, lighting and heating, and in due time there will be the wages of an office boy, junior typist or clerk. Some of the items mentioned will increase, as the fleet grows, but not necessarily in the same proportion.
The telephone bill will undoubtedly• increase, as will expenditure or stamps and stationery. On the other hand, with more efficient supervision and intelligent use of the telephone, the dead mileage should be cut down somewhat, but my experience has shown that the figure which I have already given of £3 5s. per week for a 5-ton vehicle cannot be reduced to any great extent. At best, it is likely ' to be at least £3, and only under very favourable conditions , can it be reduced to £2 10s. per week. , In the tables there is an allowance in the case of a 5-tonner of rather more than £3 per week, so that the profit allowance is not, as my correspondent imagines, £7 per week, but only £3 10s. to £4, which is appfoximately from 20 to 25 per cent, on cost.