Providing for Overtime Payments
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"The Commercial Motor" Costs Expert Examines the Position of a Haulier whose Vehicle Works a Seven-day Week and whose Customer Requires a Rate per Lead Mile: Provision for Sunday Work Should be Made Before Assessing Profit He Points Out
IN my previous article, I dealt with the problem of an operator who, having carried machinery for some time for a firm in the Midlands, had been asked to revise his methods of charging. He used to invoice each load separately: now his customers wished him to quote a rate
per lead mile. , The vehicle concerned is a 7-8-ton oiler with a platform body. The distances run are up to 200 miles lead, and a seven-day week is worked. A snag arises with the terminal delays which are often excessive, as much as 4 hours for loading or unloading.
I have made out figures for the cost of operation and charges for ' the vehicle, they are: standing charges per week, £14 13s.; establishment charges, £3 17s.; total of fixed charges, £18 10s. per week. Adding a profit of 15 per cent., £2 15s., I get the figure for minimum weekly revenue for a 44-hour week to be £21 5s. That is the revenue for time . only.
The tuning cost per mile I showed to be 7.65d., and the charge per mile, again allowing 15 per cent. profit, must be 8.75d. For a 500-mile week, which is the condition quoted to me by this inquirer in his original letter, the total of running costs is £18 4s. 7d.
Now I have come to the critical point. I want to assess a charge per mile, reckoning on an average of 500 miles per week. If the week be of 44 hours with no overtime and no Sunday work, then the procedure followed in my previous article will be perfectly satisfactory. Take the total amount expected as revenue, that is time charge, £21 5s., plus mileage charge, £18 4s. 7d., making £39 9s. 7d., say, £39 10s., and divide by 500. Thus the appropriate charge per mile, Is. 7d., is arrived at and the charge per mile lead, double that, 3s. 2d.
Sunday Work as Well
It was only as the outcome of subsequent correspondence that I learned that not only was there overtime during the week, but work on Sunday as well. Provision must therefore be made for the extra cost involved and for the extra wages paid, and these must be taken note of before and not after the assessment of the profit to be earned.
The average week apparently consists of 50 hours from Monday morning to Saturday night and 8 hours Sunday. Provision must be allowed for 6 hours ordinary overtime and 8 hours double time. The cost of the 6 hours overtime is approximately £1 Is., and of 8 hours double time for Sunday, £2 4s. These amounts must be added to the fixed costs, £18 105., increasing the amount on that major item to £21 15s.
Profit at 15 per cent, is now £3 2s., so that the weekly earnings on account of time must now be at least £24 17s. The operator would be quite justified in taking a round figure of £25. The total minimum revenue, allowing for 500 miles at 8.75d. per mile as -well as for time, is £25 added to £18 4s. 7d., which is £43 4s. 7d. Dividing that by 500 as before, I get the figures of Is. 9d. per mile run or 3s. 6d. per mile lead.
Terminal Delays!
The question of payment for undue delay at terminals crops up next. My correspondent, as described in the previous article, asked me to assist him in assessing a demurrage charge to be applied whenever terminal delays exceeded an hour. I informed him that he was not entitled to charge anything on that account because the whole of his time, 58 hours per week, was charged against the customer in assessing the lead mile figure of 3s. 6d., and his customer could not reasonably be expected to pay more.
' However, I received yet another letter insisting that there should be some extra payment when the terminal delay was excessive. He wrote: "Look at it this way. In your calculations you have included only 500 miles per week. I am, according to your reckoning, to be paid for only. 500 miles per week. The profit per mile you have shown to be 1.1d.. so that my weekly profit on the mileage run is 550d., or £2 5s. 10d., but if it were not for this terminal delay I might actually run 800 miles per week and the profit on that extra 300 miles at 1.1d. would be El 7s. 6d. In my opinion, I should be able to reap that £1 7s. 6d. at least by charging demurrage. Will you please let me have your views on this aspect of the matter." had to admit at once that there was something in his objection, but I could make no judgment without further information. I wrote again in the following terms: "Let me have some particulars of the travelling and waiting times that a,re usual with this vehicle on this job. What proportion of the time is actually devoted to travelling— leave Sunday out of it—and how many miles are usually covered in that time? , I want average figures not hand picked ones." In reply, he sent me a bundle of records—implying, I imagine, that if there were to be any hand-picking I was to be given the opportunity of doing it. I eventually came to the conclusion that in a week of 50 hours, excluding
Sunday, the average travelling tirfie was merely 28 hours. Sometimes only 24 hours were run and rarely more than 30 hours. The actual average mileage during the weekdays was 430, so that Sunday work accounted for an average of 70 miles. Incidentally, in going through these records 1 was able to check my estimate of £3 17s. per week for establishment costs, finding it to be ai nearly accurate as needs be.
The average speed of travelling, according to the above data, was 15.35 m.p.h. ' If the vehicle travelled continuously for 44 hours, the mileage covered at that rate would be 675; in 50 hours the mileage would be 768. If I. took into consideration the 8 hours work on Sunday and assunled the same average speed, 122 miles would be 'run, making a grand total of 890 per week, including Sundays. Clearly, my correspondent's estimate of a possible 800 miles per week was optimistic. There must be some provision for loading'and unloading time which must be more than 6 hours per week, the time necessary to allow for the Miles in excess of the 800 up to the 890 possible with no allowance for terminal delays.
Another item of information was required, namely, the number of journeys per week. I turned again to his records and found that the average number of loads per week was five. Assuming an hour each for loading and unloading. then 10 hours per week must he allowed to the customer before the question of charging for demurrage can arise. In 10 hours the vehicle, if it were travelling, would run 154 miles. Deducting that from 890, I get 736 as the maximum average weekly mileage practicable if the waiting time were 2 hours per journey.
The operator is thus justified in claiming that he can earn a profit on 736 miles instead of only 500 Miles, as was provided for in the previous calculations. The extra 236 miles per week lost to him because of undue terminal delays is, at 1.1-d. per mile, equivalent to £1 Is. 8d. per week.
Actually, the records show that only 28 hours out of the 50 per week are used for travelling, whereas if the waiting time were limited to 2 hours per journey, 40 hours should be available for travelling. (Sunday is excluded.) There is therefore justification in asking for payment for demurrage in respect of that 12-hour difference. As the loss to be made up is only £1 Is. 8d., it follows that the charge per hour for demurrage need only be one-twelfth of that sum, less than 2s.
' Ludicrous Amount
I recommended my correspondent to drop the question of demurrage entirely-2s, per hour was a ludicrous amount to charge-and suggested that he should make provision for that loss of ft Is. 8d. in his mileage charge. If he increased that by id. per mile run, it would be sufficient and would bring his legitimate charge from 3s. 6d. to 3s. 7d.
I shall now work out the charges and profits on a time and mileage basis. If the charge be calculated in that way, there will be no need to make any provision for any extra payment on account of overtime. It may even be that double time on Sunday is equally well covered.
For my time and mileage charges, I refer back to the figures in my previous article when I showed that the total revenue per week for time must be not less than £21 5s., which is equivalent to 9s. 8d. per hour for a 44-hour week. The mileage charge is 8td. A typical week's work is set out in Table I. We know from the data already given in this article that the total of 18 hours' work comprises 500 miles of running covering five journeys. It also provides for 8 hours -of Sunday work at double time and, of course, 6 hours ordinary overtime at time-and-a-quarter. The rate per hour is 2s. 9d., so that the rate for time-and-a-cntarter is 3s. 5/d., and that for double time 5s. 6d. The actual extra cost of overtime is thus six times 3s. 514., which is Os. 7-id., say £1 Is., plus eight times 5s. 6d., which is £2 4s.: £3 5s. in all.
Total Revenue
am trying to show that the operator can ignore this extra amount of £3 5s. wages for overtime, and to demonstcate this I have calculated the earnings of the vehicle during a typical week, particulars of which are given in Table I. The results of the calculations appear in Table The total revenue in the week is shown to be £46 '5s. 3d.
Now the revenue needed, accordingto the other method of calculation, making precise provision for the inclusion of overtime and Sunday time, should be only £43 4s. 7d., so that there is actually more profit made by ignoring overtime, etc., than by taking it into account. The operator receives £46 5s, 3d. in that way instead of £43 4s. 74.
This result can be explained quite easily. . It is because. in the calculation which resulted in the figure of 9s. 8d. per hour, provision was made to cover all the expenditure under the headings of standing charges and establishment costs. They were written off or provided for in 44 hours. These fixedcosts amounted to £18 10s. per week less wages, £6 10s. per week. leaving £12. That is nearly 5s. 6d. per hour, enough to balance the Sunday overtime and to pi ovide 2s. Oid. morethan necessary to off-set the overtime during the week.
It may be as well if I refer again to the vexed problem of payment for terminal delays. If it be accepted that a fair allowance is two hours pet trip, an hour for loading and the same for unloading, then the total allowable times for the five journeys scheduled in Table I is 10 hours. Actually, 25 hours are used in this way, so that there are 15 hours which, in case demurrage were to be charged, would rank for .payment on that accdunt.
Where Time is Lost
At Ws.' per hour, that is only 4d. per hour mute than the agreed charge, it would -mean that the. customer would have to meet a bill for £7 10s. per week more than he is now paying. There can be little doubt that he would regard that as excessive, and that he would not consent to pay unless, on examination, it were found that most of the loss of time were because of dilatoriness on the part of the loading and unloading staffs.
The operator is making a fair profit on this job as things stand. His net profit for the typical week scheduled in Table 1-is at least I5s., which is fair and certainly not excessive. Perhaps the best way to deal with the problem is for the operator and customer to get together with a view to -effecting an improvement in the conditions for loading and unloading.
If the haulier can make it clear that, with improvement in those conditions, he can do an extra journey or two per Week, the customer might realize that he himself would benefit if terminal times were reduced in that way, as he would be able to dispatch a greater quantity of his products in the time involved. This would he a better solution than -to make a deterrent charge, for the customer would not feel that he wz?..) beingimposed upon