SOLVING THE PROBLEMS OF THE CARRIER
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A Warning to Newcomers
Entrants to the Industry Should Make Adequate Provision for Vehicle Depreciation, Otherwise They Will not be Able to Build Up a Solid Business They Should Also Acquaint Themselves with the Prthciples of „Rates Assessment
IT is likely that many newcomers. will enter the industry in the, course. of denationalization. They will find .. sufficient cash to, buy one or two. vehicles, complete with A. licences, and will in many ways be in just the same 'Position as those who bought vehicles almost immediately after the termination of the first World .war. It is more thin -likely, 'then, that histerk Will epeat itself. Far too' many of the newcomers will be utterly ignorant of the business aspects of haulage. They will be able to drive, capable of performing most of the maintenance operations, will be familiar with loading and unloading procedure, but will not have the vaguest idea about charges for their services.
Those who have been in the industry for some time will know what is likely to happen to many of these new men: they will recall what happened between the two wars. The first year will be a joyous one, with " easy money" coming in and ample room to cut rates if competition is met. The newcomers will not appreciate that the money that they have been earning but not saving is really cash that should be put aside for the upkeep of vehicles.
It is for that reason that I have been dealing with just those aspects of the problem, in the hope of ,avoiding trouble. At the close of my previous article, I referred to what I might term innocent rate-cutting, brought about because the culprit does not know enough about rates to keep out of trouble, until he has learned better.
Without the guidance I have been giving, a man may not even know that he has been rate-cutting, for the fact that rate-cutting is present is not readily discernible. It is not, for example, so easy to see as in the case of chocolate and cigarettes, or even motorcars, being sold at less than list _prices. It is, indeed, quite easy to make a mistake and blame a competitor for rate-cutting when actually he is doing nothing of the 'kind. Here is an example.
Varying Rates For 6-tonner There are two hauliers working in a district, each using the same type of vehicle, a petrol-engined 6-tonner. One Of them is fully engaged upon a contract which does not involve more than 300 miles per week for the lorry. According to " ' The Commercial Motor' Tables of Operating Costs," he must charge not less than 2s. 2d. per mile to -cover his operating and establishment expenses and leave a reasonable net weekly profit.
The other haulier, carrying similar goods, but operating *over a longer route, covers 1,000 miles each week.. His rate can be much lower than the first man's, yet yield just as much or even more profit. The calculation is not as straightforward as the other because the driver has to work overtime; a minimum of 56 hours per week will be neces 'sary to do the job. ...• . .. .
The figure given above for the first man is taken straight from the Tables. He can quite easily cover the 300 miles . per week without overtime and no addition to 2s. 2d. per . mile is needed. The rate per mile in the second case, if calculated without any provision' for overtime, is Is. 41d. per mile, or £67 9s. per week to the nearest shilling. The extra cost, taking overtime into account, is £2 6s. 9d. Add that to the charges and the total per week is seen to be • £69 15s. 9d., and the rate per mile becomes is. 4/d. To the first owner, if he has no knowledge of how costs vary according to weekly mileage or how to translate that A36 difference into pence per, mile or pounds per week, it will seem that the second man is cutting the rate by a large, amount, whereas in fact the second man is making more.
profit than the first. Even if the second man finds it necessary to employ a driver's mate, the difference in rates.' still persists.
In that case he will have to debit the job with £8 Is. per week for the wages of the mate. As the vehicle is coveting 1,000 miles per week, the extra cost per mile is ascertainable by dividing this £8 Is. by 1,000.. The answer is just short Of 2d. per mile. The total is still, at Is. 6/d. per mile, much less than the rate.which the first min must charge.
I must, if I am to complete this investigation, make provision for subsistence and expenses of £2 per week, driver only, or double that, £4 per week, for the two. That means rather more than Id. per mile for one man only or Id. per mile for the two—still, as may be noticed, less than the rate which the first man must charge.
To carry this argument a step further, assume that the second man is using an oiler. His rate per mile is 2/d. per mile less than the other, no matter whether the driver his a mate or not.
£3 10s. Per Load
Now another example. Take the case of a haulier engaged on a regular journey about 200 miles from point to point. The journey is run three times per week in each direction. He therefore covers 1,200 miles per week. His vehicle is an 8-ton oiler. His charge, according to the Tables, should be about £80 fer week plus overtime and subsistence, amounting to about £5 per week, so that his minimum charge must be , £85. For that sum he carries 24 tons so that his charge per ton should be about £3 19s.
To go to the other extreme, imagine a man with a 2-tonner who is offered regular work over the same route three times per week. In this case the arrangements are such that this vehicle is fully loaded in each direction. He must earn 'not less than £65 per week, and his rate per ton will have to be about £5. Here again,the haulier running the 2-tonner is likely to come to the conclusion that his competitor is rate-cutting which, of course, he is not.
It is likely to be the case that many of these newcomers to the industry will cut rates, doing so largely because they are ignorant of their actual costs. The publication of the Tables has done much to obviate this state of affairs and will undoubtedly continue to do so. Indeed, one of the principal objects the editor has in mind when publishing 'these Tables is that of educating users in general, and 'hauliers in particular, to appreciate what are' the actual costs of Operating commercial vehicles of all types and sizes; and' engaging in a variety of classes of work.
I. shciul4 'recommend every one of these newcomers to buy and read a copy of the clirrent issue of the Tables. Even so, there are many operators who have copies of the work who, fail. to appreciate that the figures before them apply as mu 8a tolheir own individual operations as to those of others._ So many owner-drivers do not remember that, at more or less prolonged intervals, certain heavy expense's recur, and they mint to make provision to enable them to afford this expenditure.
This is a matter on which I have from time to time dwelt at length, and to which I shall return. At the 'moment; however, I am merely going to make a suggestion. I recommend every haulier whose business knowledge is
limited, inasmuch as he has not as yet discovered whether he is really making a profit or a loss, to read-the published reports of limited liability companies. I refer particularly to those concerns which are in any way allied to haulage and, more particularly those relating to concerns which are consistently successful in making satisfactory profits.
Here is an example: "The accounts for the Mumbo Jumbo Co., Ltd., revealed that the net profit for 1952 was £986,536. The chairman, in 'presenting the accounts, stressed that this figure had been reached after making full provision for depreciation. Later, in the same speech, in referring to an item in the balance sheet for machinery, plant and equipment, he again referred to liberal depreciation allowances which were deemed prudent to impose. Since the incorporation of the company, no less a sum than £2,568,200 has been provided for depreciation, maintenance and repEtir.." .
To come alittle nearer home, I recall a month or so ago reading the report and balance sheet of a large haulage concern. I distinctly recollect the chairman's emphasis of the fact That he attributed some of the success of the company to the proper and adequate allowances for depreciation that they consistently made.
Publication of Rates One suggestion that has frequently been made is that a measure which might tend to diminish the tendency to cut rates would be for hauliers to 'publish the rates that they charge. It is, of course, understood that they will abide by those rates as published and not depart from them without due notice. Considering this proposal, the first thing that comes to mind is that if anything is done it should commence within the industry, so that it will not lay itself open to having a scale of charges forced upon it from outside. Some rates have already been agreed among members of the Road Haulage Association, but I have no accurate knowledge of the extent to which these rates are used.
I believe that the move would be a good one, and if the practice becomes general in its application it would at least put a fairly effective brake upon rate-cutting and tend to stabilize haulage rates at an economic level. There will always be a certain amount of rate-cutting. There will always be those, even among hauliers who publish their rates, who will covertly carry out work at less than their published figures. Indeed, it has been suggested that one effect of the publication of rates would be exactly the reverse of what is intended, that rate-cutting would actually be encouraged.
Antidote to Rate-Cutting
Whilst admitting that there is a certain amount of truth in this, I think that when rates are generally known and advertised, when hauliers as a body appreciate that published rates are attainable, they will be reluctant to accept less. Even the worst of the rate-cutters is anxious to obtain as much as he can for his labour, and the publication of rates would at least diminish the effect of ignorance, and that is the most important factor of all.
The difficulties involved are numerous. An inkling of at least one was given in my previous article and above, where I showed that misunderstanding of the underlying factors of rates assessment could easily arise. That a misunderstanding should occur seems perhaps rather unlikely, at least to anyone familiar with the underlying principles of vehicle costing.
A fundamental factor in conrrection with costing is that half the items of cost are static: they remain approximately the same each week. On the other hand, the remaining items of cost may differ week by week according to the mileage. Thus, the standing charges relating to the operation of a 6-tonner are, according to the Tables, £9 7s. 7d. If the vehicle covers only 300 miles per week, the cost per mile, so far as these standing charges are concerned, is £9 7s. 7d. divided by 300, which is 71d. per mile. . In the other case, when the vehicle was running 1,000 miles per week, apart from some extras on account of overtime and subsistence expenses, the figure for the standing charges is not 74d. but 21d. S.T.R.