Are Return Load Profitable?
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A DIFFICULT problem which always crops up when ever any:attempt is.made to standardize rates for road. haulage concerns return loads. To plan rates so as to ensure that the full measure of profit is earned_ on one-way traffic only is almost out of the question, although in certain circumstances it may be correct.
In the event of a rate being assessed oft the basis of oneway traffic and occasions arise when return loads are available with any measure of frequency, one of two things happen; either the haulier accepts the return load at a catchpenny fate, and thereby starts the downward spiral of
charges, or he asks and obtains a profitable rate. His earnings therefore become such as to make him think that the rates in both directions are higher than they need be and, therefore, on the basis that a fair rate is cost plus agreed profit, he is justified in depressing the rate for traffic in both directions. Either of these courses is, of Course, inimical to the establishment of a standard charge.
In an attempt to provide for the building up of a national rates structure, the Road Haulage Association had, of course, to deal with this problem and met it by providing that there should be a balance-loading factor of 75. per cent, but only in respect of lead distances in excess of 20 miles.
So many hauliers have had their activities curtailed during the past four or five years that their lead distances are rarely much more than 20 miles, and the problem may be said to have solVed-itaelf, but in view of the fact that that stranglehold is shortly to be removed the subject is worthy of some discussion.
Likelihood of Profit
I may say that I agree with that 20-mile limit; although there are many instances in which it does not apply, It is at least certain that if the lead distance be short, it will not pay the haulier to bother with the return Toad unless it is available at the place of delivery of the outward traffic, and even then the likelihood of a profitable run turns on the loading and unloading times. Generally speaking, it pays. the operator to turn his lorry sharply round after delivery of the first load and make a quick run back to the home base to pick up a second load for the same destination.
Take, for example, the case of a 6-tonner operating between two places 20 miles apart. Assume that the loading and unloading times are at the rate of 1-hour per ton plus 10 minutes for turn-round. In the case of a 6-tonner, the loading time is thus 1 hour 40 minutes and the unloading time is the same. Assume the average travelling speed to be 15 m.p.h., then the travelling time is 2 hours 40 minutes and the total time 7 hours.
This is going to be an unprofitable job at almost any rate because 7 hours is an awkward time. It means that 1-I1 hours of the day will be wasted, and in a case such as that if it were possible to pick up a return load it would be worth while, especially if it could be picked up at the point of delivery of the outward traffic. In such a case, assume that the loading and unloading times are the same for the other traffic, then an extra 3 hours 20 minutes would be required for loading and unloading, bringing the total of the day's work to 10 hours 20 minutes. This is practicable only if the reception arrangepaents for the return load permit the goods being unloadedthat same day.
. Unprofitable Job
My view is that 75 per cent, is an optimistic figure for the proportion of return loads which the haulier will obtain, even in favourable circumstances. The figure that I prefer is 60 per cent:, which means that in order to calculate the rate to be paid for traffic, we must first take out figures for the rate to IN,charged on the assumption that the vehicle is fully loaded in both directions, and then add something to allow for our assumption that the vehicle will, in the ordinary way of business, return loaded for only 60 per cent, of the journeys it makes.
That means that in the case of a 6-tanner the average loading will be assumed to be 8 tons Instead of 12, so that the basic rate shall be increased according to the extent that will enable the revenue for 8 tons to be the same as would have been earned had the vehicle carried 12 tons., If the rate for one-way traffic, 6 tons in each direction, be 10s. per ton, the revenue would be £6. However, as we are assuming that only 8 tons are being carried, the revenue will remain at £6 and the rate per ton must be 15s. instead of 10s.
What I would like to do is to get out figures which would demonstrate the mipimum lead mileage at which it becomes practicable to make an allowance in the rate for the possibility of there being a return load. In considering this, I must not lose sight of the importance of profit and must be careful to ensure that in any particular case it must be profitable for the operator to pick up a return load. One thing I think we can take for granted and that is that there must be a point in the ascending scale of lead mileages below which the operator is more likely to lose than gain by picking up a return load.
As I see it, the only satisfactory way of arriving at this lead mileage is by trial and error. I know of no theoretical way of calculating it, and I feel that this method is as likely as any to give me the result I want. It should be fairly obvious that the governing factor in dealing with the problem of making provision for a return load is the sum of the times needed to proceed to the point of collection for the return load after discharging the outward one, and the time taken in proceeding to the original collection point for the next outward load after discharging the first one.
Another thing which must not be overlooked, although it is not quite so important, is the dead mileage involved in travelling for the purposes just named. It is also fairly obvious that the class of traffic, particularly in respect of time needed to load and unload it is of consequence.
Let us take as our first example a lead distance of 15 miles.
will also assume that the traffic itself is of a nature to allow loading and unloading times somewhat more favourable than those specified above. The time I will take for terminal delays is 6 minutes per ton for loading and the same for unloading, plus 10 minutes at the end of each journey.
. In the case of a 6-ton load, that means that there must be 46 minutes delay at each end of the journey or 1 hour 32 minutes altogether for terminal delays, say I/ hours. I shall stick to my figure of 15 m.p.h. for the travelling speed and in this instance the travelling time for the whole distance can be taken as 2 hours, and the total time, including provision for terminal delays, but without provision for return loads, is 3/ hours. Providing that everything worked out according to plan, it should be possible to complete three journeys in a day at the expense of a little extra outlay in wages for overtime for the driver and that, as I demonstrated in a recent article, means that both owner and delver make a little extra profit.
I shall assume the charges for the operation of this vehicle to be at the rate of 7s. 6d. per hour and Is. per mite, that being a fair average to-day. The minimitm revenue for a return journey for a one-way load should, therefore, be that for 31 hours at 7s. 6d. per hour, which is £1 6s. 3d., plus 30 miles at Is. per mile, giving me a total of £2 16s. 3d„ and as 6 tons have been carried, the rate per ton should be 9s. 4/d. If the operator can steadily maintain an average of three journeys per day, his total revenue will be £8 8s. 9d. per day. ' •
• Now suppose that on this journey he picks up a return load. Assume that the terminal delays in conection with this return-load traffic are the same as for the outward load, namely, 1/ hours; also assume that 4 hour is lost in travelling, say, 4 miles from the point where the first load is delivered and the second load is taken on board. That means no more than an average of 15 minutes and 2 miles at each end of the journey, which is not excessive.
The time for a complete round journey with the two loads is thus 34 hours for terminals and 3 hours for travelling, 61 hours in all. For 6/ hours at 7s. 6d., the charge must be £2 Rs. 9d., and for 34 miles at Is., £1 14s., which gives me £4 2s. 9d. altogether. The net charge per ton, as 12 tons has to be carried, is therefore 6s. 11/d. say 7s. per ton.
But here is the rub. It is impossible with only one driver to complete two such journeys in a day without exceeding the specified 11 hours laid down by law as the maximum a driver must normally work. If he collects a return load, therefore, his revenue is only £.4 2s. 9d. as against a potential earning of £8 8s. 9d. per day if he ignores the possibility of a return load and a consequent three journeys with a load in each direction.
Before, however, condemning the attempt to obtain return loads as impracticable and, more important, unprofitable, let us see what would happen if conditions were favourable to the collection of this return load. Suppose that the outward traffic is of the kind which is quickly loaded and unloaded so that the terminal delays are short, say 30 minutes in all, the time for the return journey, excluding provision for a return load, is now only 2/ hours and the
.charge is based on 21 hours at 7s. 6d., which is 18s. 9d.,
plus 30s. for 30 miles at Is., making £2 8s. 9d. in all, which is 8s. 11d. per ton. If this promptitude in loading and unloading be maintained and if the traffic be steady, the operator will be able to handle four loads a day and make a revenue of £9 15s. a day, charging 8s. 11d. per ton.
Now assume that the attempt is made to obtain return loads and, as a further assumption, that similar conditions prevail. On the example with which I have just dealt, let me take it that he finds a return load which involves 34 miles in picking up and returning to the starting point, but nevertheless involves 11 hours for loading and unloading.
His total journey time is now 11 hours for the outward journey, 24 hours for the return journey and 30 minutes for shunting. That is 4/ hours. The charge for that must be £1 13s. 9d. for time plus £1 14s. for mileage, making £3 7s. 9d. per trip, which is, in round figures, 5s. 8d. per ton.
That rate is applicable only if the return load be always available. It should be noted that it means that only two journeys can be run per day, giving a total daily revenue of £6 15s. 6d., as against the £8 8s. 9d. which would be earned running a one-way traffic only.
If the return loads be not always available but are somewhere around the proportion which I have already mentioned, that is about 60 per cent., then the rate Of Ss. 8d. per ton should be increased by 30 per cent. in order to make a profit of 20 per cent. on cost. That would make the rate per ton 7s. 4d. instead of 5s. 8d., and the daily revenue £5 17s. 4d., still less than can be made if no attempt be made to bring return loads.
It may be of interest for me to show how I arrive at the average speed of 15 m.p.h. I reckon that the first and last mile • of each journey is travelled at 5 m.p.h., that is 12 minutes per mile and, therefore, 24 minutes per journey for those 2 miles. The next 7 miles arc travelled at 15 m.p.h., which is 4 minutes per mile and the total time for that 7 miles is thus 28 minutes. That 7 miles means 31 miles at the beginning of the journey and 3/ miles at the end, so that up to now I have provided for 9 mites of the total of the 15.
I presume that the average speed for the remaining 6 miles is 30 m.p.h., that is 2 minutes per mile, a total of 12 minutes. The total allowed for the whole journey is therefore 64 minutes and the average speed is rather more than 15 m.p.h.