Solving the Problems Of the Carrier
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Working Out Agricultural Haulage Costs
Establishment Costs not Particularly Low; Running Costs High; Total Costs Likely to he Above Average IN the previous article, I started to report a conversation with a haulier whose whole time is occupied in hauling for farmers. One of htk difficulties is that the roads are ' narrow and in bad condition: Another is that he frequently has to . go into fields and often has difficulty in getting out 'again, having to call upon the farmer for the use of his tractor to get the lorry on to the road.
I had reached the point where we had finished discussing his establishment costs. The total of that expenditure is not, in fact, high, but as it has to be divided amongst three vehicles, one of 5 tons, one of 2 tons, and one of li tons—a total of 81-tons pay-load altogether—the result is to enhance the amount of establishment costs per ton of pay-load to something above what is normally expected Id rural areas.
As a ,matter of fact, in discussing this aspect of the matter we came across a curious and rather interesting-fact, namely, that -the incidence of establishment costs in a case like this May quite ea,si,ly exceed 1s per ton of the
traffic carried. " _ ' . '•
In arriving at this figthe I took the-two extreme cases, the 5-tonner and the lf-tonner. It had been shown that the establishment costs per ton of pay-load amounted' to 15s. per week, which meant that the establishment costs to be debited each week against the 5-tanner are £3 15s. and against the 11-tonner El 2s. 6d.
Incidence of Establishment Costs
Now, assuming that the 5-tonner carried 100 tons per week and the li-tonner 30 tons per week, we arrived at
a figure of 9d. per ton of traffic carried. Actually; of course, those tonnages per week are rather high, especially for the class of work in which this operator was engaged. He had no average figures which I could use, but it, is unlikely that the average will exceed half the quantities named, in which case the incidence of the establishment costs per ton will be doubled and will amount to Is, 6d.
This is very important, especially in its application by those operators who imagine that establishment costs are a negligible factor in the case of a small operator, for the costs which I took as a basis for this calculation were the costs quoted to me by the operator and their amount is, therefore, bey end dispute. They were, in total, as I said, 'not excessive, but the fact that his fleet comprised no more than three vehicles and that the tonnage tarried per week was not great, emphasizes the importance of establishment costs in this connection, Having come to agreement on this important question of establishment costs, we turned to deal with the operating costs of his vehicles and dealt first with the 5-tonner. For this, we .agreed the following as standing charges per week:—Tax,. 14s.; wages, on the basis of Grade III, with appropriate allowances for employees' insurances and holidays with pay, £4 9s. On the question of rent and rates he was inclined to belittle my suggested figure of 4s. for the largest of the three vehicles, but when we got out a figure for total rent of the building in which he housed them, he had to 'admit that the 4s. was not excessive.
. He agreed ray figure of 16s. per week for insurance and, of course, accepted the 8s. 3d. for interest on capital outlay as something for which he ought to make allowance, but something which he did not quite understand. Nevertheless, we did not argue at any great length about that item. The total is,Z6 us. 3d. and adding the establishment costs of 23 15s. we get 210 6s. 3d as the total of fixed charges.
At this point I thought it might be advisable to get a more accurate idea of the way he wished to assess the ' rates he proposed to charge. •
" Are you preparing a schedule of rates per to for your various traffics? " I asked.
"I have not .made up my mind about that," he said, "and would like your advice."
" On that point," I answered, "I would like some more information as to, what provision you make in your chargcs for a farmer when—on delivering or collecting a load—your vehicle is bogged and some two hours or more have to be spent in trying to get 'it out and, finally, you have to utilize the farmer's own tractor to help your man to get back on the road.again.".
" As a matter of fact," he said, " you have just hit
upon the problem which is worrying me. Logically, I suppose I should charge him something extra for the time taken owing to the vehicle having got into difficulties, but you know what farmers .are. He is just as likely to say, ' Right you are, but if you do that I am going to charge you for the loan of my tractor to get' you out of trouble.' and, of course, once that argument starts goodness knows where it is going to end. Can you suggest a way whereby I can get over that difficulty, get my money back for the delay and lost time, and yet not fall foul of my customers?
"Certainly." I said, " but you will not do it if you get 'out a Schedule of rates., The Only thing you can do is to charge per job and work it out on a time and mileage .basis."
" What' exactlydo you mean by that? I don't quite understand."
" Well," I retorted, " if you will wait until we have . finished scheduling' these rates for your 5-tanner I will explain what I mean by using the figures we get: it will be easier to do it that way."
`..` Good enough," he said. " Let us get on."
Running Costs Analysed
So we turned to discuss the running costs of his vehicle.
"Do you think," I asked, "the figures in The Commercial Motor ' Tables of Operating Costs will meet your case? "
"No," he said, " my running costs are definitely above the average. In the first place, I only get nine miles to the gallon, largely due to the bad roads and to the enormous quantities of petrol that are sometimes used when the vehicle is bogged."
" And how much do you pay per gallon? "
" Two shillings." (This conversation took place before the recent reduction in petrol prices.) • .
" That means we have got to allow 2.7d. per mile for petrol."
" And as to oil? "
" You can take it that the oil expenditure is roughly greater than the figures quoted in your Tables by about the same percentage as the petrol. That is because r use a lot of oil in revving the engine up and travelling on low gears along these dreadful roads."
" Shall I put it down at .2d. per mile? " I as,ked.
" I think that is about right," he answered.
"And now tyres? "
"Put down the same amount for tyres as you do for petrol," he said, " because you can take it from me that during the past 12 months or so my tyre bill has beett more rather than less than my petrol bill."
"Synthetic tyres, I presume?" " Exactly," he replied.
" Very well then," I said," we will put down 27d. for tyres. Now for maintenance. ' The Commercial Motor ' total of maintenanc-, that is to say, routine maintenance and expenditure on repairs and so on of a vehicle doing 900 miles per week is 1.55d."
" I don't think I spend quite as much as that," he said. " That is the one advantage I get from being in an agricultural. area. I can often get odd jobs done for veilr little and then, of course, as you may perhaps have seen, I do not spend a tremendous amount of money on keeping my vehicles varnished, lettered, painted, and so on."
"Very good," I said. " Shall we say lid.? " He agreed to that; I put down td. for depreciation and he passed that without further comment.
" The total," I said, " is 8.1d, per mile, and now we come to an important matter-the amount of profit you hope to earn."
" As to that," he replied, " I have always followed the recommendations you have So frequently made in your articles, that as my business is more or less regular jobbing haulage I should aim at 20 per cent, on cost."
" Yes," I answered, " that is lair and reasonable. We have now got £10 6s. 3d. per week for fixed costs. This is the standing charges for your vehicle And your establishz ment costs, and we have 8.1d. per mile running costs. We have to add 20 per cent, to both those: one-fifth of
£10 6s. 3d. is £2 Is.. 3d., making £12 7s. 6d., and 20 per cent. on to 8.1d. brings it, as near as makes no matter, to 9d., and this is what I mean by time and mileage.
Calculating Charges or the Job
" You must calculate your charges for each and every job in such a way that you earn £12 7s. ed., plus 9id., for every mile run. It is convenientto get the time charge,';ir down to so much an hour rather than to so much a week, and to do that we must divide this £12 7s. 6d. by 48 hours, which gives us 5s. 2d. per hour.
" Now, suppose you have a job 'which takes four hours and you run 40 miles. Well, you must add up the time and mileage charges in this way. Take four times 5s. 2c1.„ which is £1 Os. 8d., and 40 miles at 9d., which is £1 12s. ed. Your charge for that job must be the sum of those two arnounis, that is £2 13s. 2d.
" If you have another job which, because of delays, took you six hours, although you only did 10 miles, you would charge six times 5s. 2d., which is £1 lie., plus 10 times 93(1., which is 8s. lid., say, 8s. 2d. Your charge would, therefore, have to be £1 19s. 2d."
" I see," be said. " That is -not very difficult, but do I make my accounts .out like that to so many hours at 5s. 2d. and so many miles at 9acl.? "
" I would not if I were you," I answered, " because you will most surely get some farmer quibbling.about it,
• saying that he doesn't understand it and you don't want to have to spend half a day explaining .a thing like that to him. I should just make out an account to carting 5 tons of ,feedstuffs from A to B, £2 13s. 2d.,' or RI les. 3d., as the case may be. If he wants to quibble you can then tell him that your charges are based on 5s.`241. per hour and 9id. per mile, and show him how you get out the amount,
Well, that is rather interesting," he said, " because if you look up your own Tables of Operating Costs you will see that you recommend that the charge should be 5s. per hour and 84d. per-mile. The conclusion we have come to rather justifies my suggestion that your rough-and-ready • method of assuming that the figures in running costs would be offset by a decrease in fixed charges is not sufficiently accurate."
" I agree,". I replied, " and, of course, the principal rcason for that is that I had not appreciated that your establishment costs would work out in the wa they did. They are higher, especially for. this 5-tonner, than I had expected them to be."
"We will now take the 2-ton vehicle," I said. " We have already agreed that the establishment charge for that vehicle is £1 10s, per week. Now we want the standing charges per week. First of all we have tax at 12s. per week. Then we have wages; the net amount in a Grade III area for a vehicle carrying a 2-tonpay-load is £3 17s. and you need to add 4s. 6d. for insurances, etc.; so that brings your wages figure to £4 is. 6d.
" We will allow 2s. ed. for garage rent and, as I see your insurance is £26 per annum, .say 12s. 6d,, for insurance. Then there is 5s, ed. for interest on first-cost, sothat we have a total of ES 14s. per week for standing charges. Add Al les. per week for establishment costs and we get £7 4s. per week as being the total sum of the fixed charges. " I hav.e still to add the 20 per cent. for profit, which is approximately £1 9s. per week, and your time charge per week must, therefore, be £8 13s. If you 'divide that by 48 you get 3s. 8d. per hour.
" Now for the running costs. What mileage do you getper gallon? "
Twelve," he answered.
" That is 2d. per mile," I' said, -" and we will take -oetenth of a penny for oil. I suppose you want me to take tyres at petrol cost again? "
" Certainly," he replied.
" That is 2d. for tyres. Now for maintenance."
" Well," he said, " it is somewhere midwaybetween Id. and lid.," and at that I put down 1.15d.,and added Id. for depreciation, so that we got a thtal of 6.25d. for running costs.
" Now," I said, "we have still to add 20 per cent. to that figure and that is another lid., giving us 7id. --for the mileage charge of this 2-tonner."
Comparison with the " C.M." Tables
Do you mind," he asked, " if we compare these atain with the figures in the Tables? "
" Not at •all," I re-plied. Looking up the Tables, we found that the recommended charge there was on. the basis of 35; 9d. per hour and 61d. per mile. •
" Now," he said, " we have got the time charge down to less than in the Tables, although the mileage -charge is considerably more."
" Well, a curious thing arises there," I said; " In assessing establishment costs 'when I prepared these, Tables took a minimum of 30s... per .week, which is exaCtly the'' figure we have agreed to apply in your case, But, Of course, the wages in the Tables are an the basis of Grade I area,so that you save a little on wages and that brings the time charge down to a little below the figure quoted in the Tables. However, your mileage charge is definitely in excess and that is only what we expected."
We then turned to the figures for the li-toriner, and the result was that 'the total of vehicle standing charges • was £5 10s.--and the establishment costs £1 2s. 6d:, so that the total offixed charges was £6 12s. 6d. a week. 'Adding 20 per cent, on that is £1 6s. .6d., so that the total weekly charge on a time basis should be £7•19s.-1 assumed it to
be per week-which is Sc-. 4d. per hour. "
Comparing that with the Tables, I discovered that --the
difference was 4d., the Tables figure being 3s And that: I had to point out to him, was due again to-the faCt that I had allowed an average figure of 30s. per week for establishment .costs, whereas in his case We had agreed that it was £1 2s. 6d. Only.
We agreed his running costs at approximately Std.-per mile and his mileage charge at 71d., is compared with Sid. in the Tables. S.T.R.