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Coal Haulier in Trouble

21st July 1950, Page 46
21st July 1950
Page 46
Page 49
Page 46, 21st July 1950 — Coal Haulier in Trouble
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Which of the following most accurately describes the problem?

MUCH correspondence followed a recent article of mine dealing with the problem of flat rates and exposing the folly of applying the principle generally. It also brought about one interview. It appears that I was nearer the truth than ever I thought when I expressed the view that too many hauliers were relying on flat rates as a basis for assessing charges, whereas they aught to apply a tapering scale.

The man who came to see me was carrying industrial zeal over short distances and had apparently been using the charges per mile figures given in "The Commercial Motor" Tables of Operating Costs for calculating his rates.

Moreover he' had been using the figures wrongly. He had evidently just realized that be was not making the profit he should. He brought with him a copy of the Tables marked where Table "II quotes minimum charges per mile and drew my attention to the fi'gtitei' given: '

"There must be something wrong with, the figures in this Table," he said, 4 or maybe I am

, not using them properly. I carry coal mainly from local •goods yards to factories. There is no chance of a return load. It is one-way traffic all the time. Suppose I am working out the charges for a load— is it right for me to multiply the total mileage by the charge per mile given in the Table, then divide by two to get the charge for the ,distance the. load is carried and then by the tonnage, in 'order to get the charge per ton?"

" What gave you the idea that you should divide by two?" I asked.

"Looking at the Table," he said, "the charges are given per mile and it seemed to me that you might possibly mean charge per mile for the load,' so that if I am using a 5-tonner, which normally covers 300 miles per week, and I get a load of 5 tons to take 20 miles, my charge is 20 times Is. 51d., which .is £1 9s. 2d." ,

"The figure in the Table," I said, "is the charge per mile run, and te find out what your charge should be over any journey for.any :en:sterner, you must take as the mileage the total distance run and multiply by the charge per mile." , ' "So that in the case of a 20-mile lead," he asked, "my

charge should be 40 tithes-Is. 54d., or £2 18S.4d?" .

" That's right," I said the price on that. basis would be I Is. 8d. per ton." .

" Welli",he said, " the problem has worried me from time • to time-,in using the Tables. ,.You give the cost per mile and rate. per mile for various weekly mileages ad I have been usingthe second to calculate my rates.

: • Working to Fixed Scale "The coal merchants I work for sell coal principally to big users—factories, bakehouses and the like----and for a long time 'V have been endeaveuring "to get them to agree to some kind "of.fiked scale. You will 'appreciate that the tonnage varies: :Shiite of, the factories a J-C engaged on work that is to some extent. seasonal: I have in mind a :

scale somethitlike • " .

Here he pro uced a sehedule,showing a charge of 2s. per ton for distances:up to one mile; 2s. :2d. for 14 miles; 2s. 4d. for two miles; 7s. 64. for 2.4 miles, and 2s. 8d. for three miles. For each additional mile, 4d, per ton per mile was charged.

I looked the Table over before going into the figures and asked why there was no mention of the size of load carried. "Generally the bigger the load the less the cost per ton;" I: said. " Have you aaisidered 'that?"' "That has not been lost sight of," he answered, "but if I endeavour to take that factor into consideration, it brings about complications, and I am told by my customers that A36 it is up to me to use vehicles that will enable me to earn the maximum profit at a given rate. They will not accept the proposition that they should have their accounts complicated by being asked to pay, say, 2s. Id. per ton for a load just because it is small and 12s., or possibly is. 11d.; if they give me a big load."

But surely you can put it up to them that if you must quote on the basis of a flat rate, "you will have to arrange your rates so that they will show, you a profit on a small load, and so, that you will be able to .give them a rebate on a large load.". : "No fear," he rejoined, "I am -not going to start talking • to them like that, because if I do they will lake the opposite line and suggestthat I should reduce my rates and base them on the probability of being able to carry large loads and take my chance on making a profit with the small ones. They have, for the time being at least, agreed to these, rates, and I want to be quite sure riow that I have a reasonable chance of mak ing a fair profit.". • " What kind of vehicles are there in your fleet?" I asked.

"All but one are 5-tonners," he said. "There is one 7-8-tonner, but I seldom get a 7-8.-ton load and I am thinking of disposing of it apd_ replacing it by another 5-tonner."

"What do you carry on these vehicles, 3 or 6 tons ?"

"Oh, I stick to 5 tons.'

"The best thing we can do," I said, "is to get down to a figure of your actual .ost of operation. But before we do that, tell me how you arrive at the figures in the little table of yours."

".For the first mile," he said, "I had to quote 2s. per ton in order to get the contract. 'Someone else who was quoting

was asking 2s. ld. •

Little Extra Profit

"Then for each additional I took the figure of

Is. 51d. per mile, thinking it was per mile lead. So I reckoned I should get 9d, for the 4-mile extra lead, and dividing that by five for the 5-ton load I decided to charge. /d.,,thinking I might earn a little extra profit that way."

"'Extra profit!" 1 exclaimed. "What you really mean is that by charging 2d. instead of a fraction under 2d. you Make a little less extra loss. For I cannot see how you can possibly be earning anything at these rates. However, the best way to prove that to you is to go into actual figures and see what you ought to charge What mileage do you get per gallon ?" "The figure varies, but it is usually about 8-9 miles, so we'll say 81; I pay 2s. 9d. per gallon for petrol."

"That meahs that your cost for fuel per mile is 3.9d.— nearly 4d. I will take the 3.9d. and for lubricants I will take 0.2d. What tyres are fitted ?" ".They are 34 by 7, and I reckon to get 20,000 miles out of a set."

' "Well, that is fairly easy to calculate; taking the price as being approximately 1100 a set, it means that your tyre cost is 1.2d. per mile. Have you any idea what your maintenance costs are ?" • "No, I am afraid not. I never have time to keep records and even if I had I should probably omit quite a lot of items."

"Very well, we will take a figure rather more than that quoted in "The Commercial Motor" Tables of Operating Costs. I will take 1.8d. Now the total . . ."

"Wait a minute," he interrupted. "Haven't xoulorgotten about depreciation? " "No, I haven't. In a case of this sort where the lead mileage is short, I think it more useful and practical to treat depreciation as a standing charge. You will note that the total of your running costs so far is 7,1d. per mile. Now for the standing charges. What is your annual tax?" "It is £35 per year," he answered, "because being a tipper, it is rather heavier than usual."

"That is 14s. per week. Now, concerning wages, are you in a grade I or grade 11 area ?"

"Grade I," he said, "and that is another point I do not quite follow in your Tables of Operating Costs. The basic wage is £5 6s. per week, and in your Tables you give £5 12s. Why is that ?"

"As a matter of fact," 1 replied, the correct figure to-day is £5 16s., because there has been an increase of 4s. per week since those totals were compiled."

"You mean £5 6s. surely," he objected.

"No, 1 said £5 16s., and if you read the introduction to the Tables you will discover why. That sum includes £5 6s:, which you rightly say is the basic wage, and provision for national insurance, workmen's compensation and holidays with pay.

Now for the other items. What are your insurance and garage rent ?" " •

"A sum of £55 per year insurance per vehicle-which is £1 2s. a week, and I pay £20 per annum for rent and rates, which is 8s. per week," he said.

"Now I had better calculate depreciation for you. The price of a new vehicle like the one you have would bp about £840, including purchase tax on the chassis and so on.' "What has that to do with it?" he asked. "I only paid £620 for this vehicle. Surely I should calculate the depreciation on that figure?

"No, not for calculating your charges. When you are thinking of depreciation in that connection, you must regard it, as a replacement fund, put by year by year towards • buying a new

vehicle. If you think of it in that 'way you will agree that it is the price of a new vehicle that counts and not what you had to pay for the one you are now using. So we calculate as follows:-£.840 less £100 for .tyres-£740, less, 'shallwe say, £70 as the amount you may get for it when you.sell•it, leaves 070, And if you take it that this vehicle will last no more than four years,

think I am being reasonable.

"1 would like to•replace it at shorter intervals than that," he said, "but as you knew, you. cannot do as you please in this matter of buying new vehicles, so that probably your estimate of four years fills the bill."

"A Lot of Money"

Very well then," I said, "that means you must allow 1.168 per annum for depreciation, approximately £3 7s. per week. Now let's put £3 a week for establishment costs." We added the figures and arrived at a total of £14 I5s. per week.

" It seems a lot of money without any provision for running costs," 'he said.

"I expect it does," I replied, "and I am afraid that when calculating your charges in the face of this total we shall find that you are not earning as much as you should be. And, of course, I have not finished dealing with the fixed costs yet, because we must add some profit to that total. I must use a similar argument to that which I applied when . we were talking about depreciation. That is that owing to the fact that many hauls may be very short, covering little mileage, it is essential for the haulier to make his profit on the fixed charges, leaving the mileage pretty well to take care of itself."

"Do you suggest that we put no profit on to the mileage costs at all? " he asked.

No, 1-don't mean that. We shall add a little to the

mileage costs, but by making slight provision for profit on the fixed costs we make sure. I am going to add 20 per cent.-that is £3-to the £14 15s. which we have just agreed for fixed costs. That brings the weekly figure up to £17 15s. The mileage cost is 7.1d., ii we charge 8d. per mile it is equivalent approximately to 12-1 per cent. profit, and we shall be treating the customer fairly."

"Why are you doing all this? 1 am looking for a charge per mile and this does not seem to be getting us anywhere in that direction."

Convenient Figures

"Because any charge for haulage, however it may be made out it the end, is, in the beginning, composed of two items; charge for time and charge for mileage.

"First of all I am going to reduce £17.15s. per week to a charge per hour and for that 1 take a 44-hour week as a basis."

I worked a littler sum out for my friend and showed him that he had to charge at the rate of 8s. per hour.

"You have two nice convenient figures there," I said, "Ss. per hour and 8d. per mile. You ought to be able to remember them. How long does it take to load our vehicle at a goods yard?

" About hour,"-'he answered, "but you should reckon an average delay of f hour because of difficulty in getting to the appropriate waggon."

' Good," 1 said, " I will take an hour as the average time. And how long to unload? 7' "About 10 minutes, but there again sometimes i is a little difficult to get into position to tip off the.load and a fair measure is 1 hour" "We have If Flours for loading and unloading at 8s, per hour-10s. You have run two. miles delivering this load over a one-mile lead 'and the direct charge for the mileage . at 8d.. per mile is Is. 44., but this isnot, all. You must also charge for travelling time and over a short distance such as this you had better assume an average speed of 10 m:p.h. so that the two miles-will take one-fifth of an hour which is approximately Is. 8d. Your total time for travelling is..., ; therefore, is. 4d. for the mileage and Is. 8d. for the time, "

3s., so that you must get altogether 13s. for that particular load. if you carry 5 tons you should charge 2.s. 7d. per ton and that compares with the 2s. per ton which you showed ' me on your schedule Of rates.

"For the next -1-mile lead you must charge 8d. as the . mileage charge, .plus half Is. 8d., or I0d., for time. The total is Is. 6d. so that the higher price to compensate for the increase in lead distance must be 3.6d, per ton.

"In considering this, however, you should take into account the fact which you have already mentioned that : there are fairly frequent occasions on which you do not get full loads, and I therefore recommend you to add 4d. instead of 3.6d. per ton for each k-mile increase in lead."

"Would you rnind drawing up a schedule of rates similar to mine?" he asked, "so that I can compare the two? "

I did so and gave him the following claim-For distances " up to one mile, 2s. 7d. per ton; 11 miles, 2s, lid.; two miles, 3s. 3d.; 2 miles, 3s. 7d., and three miles, 3s. lid., with an addition of 6d. per ton for each extra mile lead.-S.T.R.

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