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What is a Cut Rate?

21st January 1955
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Page 60, 21st January 1955 — What is a Cut Rate?
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Which of the following most accurately describes the problem?

IRECEIVE many complaints of-rate-cutting. Some are supported by statements of facts and figures, but not all _ the complaints are justified. The plaintiff does not always take into account the fact that the so-called rate-cutter is in a favourable position which enables him to make a reasonable—sometimes almost excessive—profit and yet

operate at a lower rate than the complainant. ..

The test is this: rate-cutting ceases to be inequitable when the prices quoted show a fair profit There is one proviso: the traffic must not have been the subject of a rate agreed by a properly appointed rate committee of hauliers. That sort of rate-cutting is the worst, for it involves the cutter in going back on his own plighted word. It is not a fact, either, that these rate committees are harsh or unreasonable in the application of an agreed rate.

I have been present when a disputed rate has been under consideration. The operator whose rates are queried has stated his case and has been acquitted because he was able to prove that there was, under the special, conditions, full justification for his apparent cut. In one such case the rates were for the carriage of sugar-beet. One of those present, whilst concurring that the agreed rate was fair under the usual conditions, stated that he was in the habit of quoting a special charge when the farmer stacked his beet so that the haulier was able to use a 15-ton lorry and a mechanical

elevator. Thus there was a big saving in the cost of collecting a load. ..

Part of the trouble undoubtedly lies in the fabric of the industry. The haulage industry presents many contrasts. On the one hand there are large companies operating extensively with well-kept and efficient vehicles, smart drivers, properly organized service depots, and systems of accountancy as accurate and comprehensive as the -best in any industry.

At the other end of the scale, there are those operators whose vehicles only just escape prohibition notices or, worse still, are able to carry on only because the inspectors

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have not yet reached them. Thee, are the ne'er-do-wells of the industry. They struggle on from day to day, each day being sufficient to itself, but putting nothing by for the time, obviously near, when their rolling-stock must perforce he renewed. Between these two extremes there are all grades, including the owner-drivers who regard the driver's wages as all the profit they need. Nowadays most Of them

are reasonably successful.

One and all, however, hold to the opinion that rate-cutting exists and is a permanent blight on the industry. The big concern blames the little one; the little ones blame the large ones, but not infrequently insinuate that not only does the blame lie there, but tell me that I should be surprised if I knew the rates quoted by some of the more important operators.

Low Rates Attract Traffic

There is ample justification for these complaints •because a considerable proportion of rates appears to be uneconomic. Some of this rate-cutting, however, is essential for the wellbeing of the industry as a whole. By diminishing the cost of haulage it causes it to be favoured by users of transport in preference to alternative means.

This accounts for the flood of complaints by those buyer,s who aver that hauliers in general are not making serious efforts to lower the cost of transport to the extentthey (the buyers) expected when denationalization began. That might seem to be a complaint which is at variance with my claim that rate-cutting is rife: it is, but not to the extent that the traders wotild like.

Rate-cutting is the business of hauliers, who must fight the battle between themselves. If the traders take a hand they will undoubtedly come down on the side of the ralecutter. Indeed, I have a letter before me now in which the haulier states that he has been carrying a certain traffic for 22 years without complaint on either side, to be confronted this year with the warning that unless he seriously cuts his charge the work will go elsewhere, another haulier having quoted a much lower rate.

He has written to me for an opinion, but, as he gives me no data, I cannot adjudicate. For all I know, he has been on a good thing with this traffic and the customer has, as the saying goes, "rumbled him." I do not know who is right.

ROW IT WORKS The bi-starter is in effect a small auxiliary carburettor built into the main one. The air and petrol fed to the engine for starting can thus be calibrated independently of the normal running jets in the main carburettor. Its two positions—"Full out" for starting and "Halfway" for warming up—make it the simplest thing to use that you can have.

When the dashboard knob is full out, air is drawn in via a jet (Ga) and petrol via the jet (Gs) by the depression created by cranking the engine. Passing through an orifice (cc) in the starter disc valve (dd) this petrol is mixed with air from (Ga) and the mixture is drawn out through (c) and down into the engine.

When the engine starts, you push the dashboard knob half-way in. This rotates the valve (dd) — "half-way" being located by the ball (sb) meeting a notch in the sealing disc (D)—and at the same time a smaller orifice in (dd) has come opposite (cc) reducing the petrol supply to give the lesser richness required for warming-up.

When the engine is warm, push the dashboard knob right in and the rotation of (dd) then blanks off the orifices (cc and c) putting the hi-starter out of action.

Rate-cutting may be justified by the efficiency of the haulier's methods. He may, for example, have had the enterprise to acquire special vehicles particularly adaptable to the traffic. He may have purchased maximum-load vehicles as being more economical for long hauls—something which the complainant may not have appreciated; or he may be using articulated outfits—one tractor to three semi-trailers —or some other such device which enables him to carry at less cost and to be able to cut the rates to the customer.

Those arc the things that matter when a rate is being discussed, and it is of no use to try to bolster up a charge which has been calculated on the basis of old-fashioned methods. Indeed, it is worse than useless; it is harmful to the industry, having in mind the importance of rendering an efficient service at the lowest cost.

One way of rate-cutting is to overload. . At least, it may do as part of a short-term policy: in the long run it seldom pays. Here is a letter Which I received last week on that subject.

"I have the chance of a 12-month contract for the haulage of coal with two wagons, a.5-tonner and a 30-Cwt. The distance is 31 miles each way, the 5-ton wagon taking five loads per day and the 30-cwt. taking seven or eight. Previously the 5-tonner has been overloaded to 7 tons and the 30-cwt. machine. to 2 tons. I propose to continue that practice, as the loaded part of the journey is all downbill."

It never pays consistently to overload: an occasional load at above capacity is not likely seriously to matter, but continuous and persistent overloading is to be deprecated. There are many 2-tonners on the market and as many 7-tonners. Why not buy one of each? A 10-ton lorry is a sound proposition for a 10-ton load, whereas an 8-tonner is not. Next to cutting rates below the economical level the continuous loading of a vehicle beyond its capacity is the most foolish mistake that a haulier can make.

Not Even the Straw

Incidentally, I have been overloaded recently with inquiries from readers who give me none of the information essential to the solution of their problems. Some have asked me what rates they should charge per mile, yet have forgotten to state what size and capacity of vehicle they propose to use. Others, equally remiss, have left out that most important item, weekly mileage.

Sometimes neither of these items is included and I am then in a far worse state than the Children of Israel under Pharaoh, for they at least had every ingredient but straw for their brick-making; I am deprived of both clay and straw. I think, however, that the limit has been reached this week in a letter from a reader who asks me to work out a claim for loss of earnings and tells me nothing but the size of the vehicle involved in the accident.

Early in the beet season, an inquirer asked me to quote for the cartage of that commodity, and named a number of specific leads. No further information was vouchsafed and, to be frank, if the subject of beet haulage had not been one of my specialities, I should have had to refer his letter back.

How is a problem like that to be tackled? Beet is carried in almost every type and size of vehicle, from tractor-drawn 11-ton trailers to 15-ton 8-wheelers. The former, doing its best under difficult conditions, might, in a week, be able to deliver 15 tons, a quantity that the other would handle in one journey. That at least emphasizes the necessity, in an inquiry, of specifying the size of vehicle.

Then I had another inquiry, this one almost unique in its implications. The writer said that he was beginning to wonder whether he was making money or losing it. He sought. my opinion. (There is no joke here: it is, unfortu nately, possible for an experienced man to go on for quite a while losing money in haulage and be blissfully ignorant of the fact.) He said that he had carried a load of 6 tons for 75 miles, involving a total distance of 160 miles, including 10 dead miles. He had been paid £10 for the job. He used a 6-ton petrol-engined vehicle. The journey had been completed in a day.

He offered no information as to what the vehicle was doing during the rest of the week, and none as to its occupation for all the other 51 weeks in the year. I am, apparently, free to take it that the one journey constitutes a week's work.

Suppose that no other work is done during the week. In that case, the vehicle is covering 160 miles per week, its total cost of operation is approximately £18, and the owner is losing £8 per week. The price that must be charged to make .a profit of 20 per cent. is £21 12s.

Lest the reader thinks I had no right to come to such an absurd conclusion, let me state that the facts were just as quoted. I ascertained by correspondence that, for a week, at any rate, that was all the work done.

Overheads the Crucial Point On the other hand, if the vehicle is making a similar journey every day, five days per week and 50 weeks a year, its cost per -week is approximately £44 and the revenue is £50. The answer turns on the amount of his establishment costs. If they are £6, he is breaking even. He is, nevertheless, rate-cutting, inasmuch as he is not charging enough to show a reasonable profit. £12, not £10, is essential.

The first item that the inquirer should mention is the capacity of the vehicle, and the second is the weekly mileage. If there are circumstances which make either of there conditions impossible, put as much useful information in the letter as is available.. Do that in any event. • Whatever information he suppliEs will, if the inquirer desires, be treated in confidence.

No letter that is marked "confidential," or which, in its nature, is obviously private, is published in any way. Replies, in any event, are sent through the post, especially if the writer complies with the formality of enclosing a 21d. stamp.

I will conclude by showing how I replied to the reader who wanted me to advise him how to pursue a claim for loss of earnings after an accident, but failed to give me any information beyond stating the size of vehicle involved.

First I warned him that only actual figures for cost and earnings would have any value. It would not be likely that the court would accept data from " The Commercial Motor' Tables of Operating Costs."

I told him that he must extract from his books the actual revenue from the use of the vehicle during a period of the previous year corresponding to that in which it was out of commission as the result of the accident. Any expenditure that would have been incurred had the vehicle been running, but was saved because it was off the road, should then be deducted. There will be savings in fuel, oil and tyres and in routine maintenance. The driver's wages may also be saved, but that depends on whether it was practicable to find him other useful employment. The procedure is simple, but not capable of being met by other than actual figures both for revenue and expenditure.—S.T.R.

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