HOW BIG A FLEE1
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iOULD I HAVE?
ESTABLISHMENT costs per vehicle, as I always say they should be assessed per ton of pay-load, do not necessarily bear any direct relation to the size of the fleet. In my last week's article I showed that the following figures might reasonably be expected (all the vehicles are presumed to be of 8 tons load capacity).
In a two-vehicle fleet: 8s. Sri. per ton of pay-load per week, or 23 6s. per 'vehicle; in a three-vehicle fleet, 7s. 4d. or 22 18s. 8d.; in a four-vehicle fleet, lie. 4d. or 24 10s. Sd. in a six-vehicle fleet, 13s. 7d. or 25 8s. 8d.; in a 10-vehicle fleet, 13s. 6d. or 25 8s.; in a 16-vehicle fleet, 12s. 7d. or 25 Os. 8d.; in a 20-vehicle fleet, 16s. 3d. or 26 10s.
The least expensive, according to that schedule, is the three-vehicle fleet. It is, however, important to bear in mind that these figures refer to operation over long distances, running regular services.. In local traffic, such as for example, sand and gravel haulage and the like, the proportions, as well as the amounts, would be quite different. I should not expect to'find the large fleet more expensive than the small fleet; on the contrary, it is likely that the 20-vehicle fleet would be the most economical.
Nevertheless, as I pointed out in the previous article, the expenditure on overheads is only one of the considerations which must be taken into account when trying to decide what is the best size of a fleet, Balancing Costs Against Revenue For the benefit of those who did not read my article last week, I had better repeat that, in answer to a question put by a haulier, I am trying to discover at what point, in enlarging his fleet, he should stop, that being the point at which his monetary return is the maximum, having regard to the capital involved. I have indicated the capital amounts for each size of fleet as follow:—For two vehicles, 22,000; three, 23,150; four, 24,250; six, 26,600; 10, £11,000; 16, £18,000; 20, 224,000.
An importafit factor is the ability of the operator to make the. most effective and profitable use of his vehicles. Extra cost in administration does not matter if the-revenue gained increases in greater proportion. What economists call the law of increasing returns applies so long as the revenue grows at a greater rate than the expenditure. On the contrary, the opposite law, of diminishing returns, begins to operate if the growth in administration costs be more rapid than that of the revenue gained.
That, indeed, expresses our problem, in one way. A man expands his business until its direct control gets beyond him. He then has to engage additional staff, enlarge his premises, probably take a partner, and the net result, so' far as his pocket is concerned, is that he earns less whilst having to work harder as well as shoulder more responsibilities. Often the way out, is to expand yet a little more, until the revenue grows again to such proportions as to pay the extra expense and show a bigger profit.
Actually, that is usually the way it goes. The progress of' an expanding business, measured in terms of net profit, is a wavy line, the profit increasing and then decreasing, then increasing again, .and so on. We want to discover one of the peaks in that curve, and stop there.
In the previous articles, in which I compared the small man—a two-vehicle operator—with the not-so-small man— owning 14 vehicles—I gave the former certain advantages. I stated that, due to his own personal attentions, he wat able to operate his vehicles at less cost, notwithstanding the benefits of buying in . bulk enjoyed by the 14-vehicle man. I said that his weekly , tonnage was greater, first, because, due to his close supervision of the work of his two drivers, he did three journeys per week, regularly, over a 200-miles route; secondly, because his record of personal service was such that he was able to load back more regularly; moreover, the back loads were usually not far below the vehicle capacity.
The result, expressed in figures, was that, whereas the large operator could only reckon on an average of 30 tons per week per vehicle, the two-vehicle man carried an average tonnage of 37 tons per vehicle per week.
Now that difference in tonnage is enough to justify a difference in rates, as may easily be shown. Take the fixed charges as being 21,5 per week; that includes vehicle standing charges (but not running costs), establishment costs
and drivers' subsistence and expenses. The amount of fixed costs per ton. in the first case is 10s., and in the second just over 8s., a difference of 2s. per ton.
. Now, it is always dangerous to draw general conclusions from particulai instances, and I may well be told that I am not justified, just betause I have observed the phenomenon occasionally, in concluding that the small man is always able to ensure a better load ratio for his few vehicles than the large man for his many
The Worth of the Personal Element
I will admit that, but at the same time ask my critic to consider the balance of probabilities. The small man,. with three or four or even half a dozen drivers, is in close personal contact with his men. He knows the foibles and, fancies of each and if he be a good employer, and we must assume that, he turns that knowledge to his own advantage, using it to get the best out of his men. In a bigger concern, sometimes with as few as 10 vehicles, that personal element is not so strong. There is probably a foreman or manager who deals with the men, many of whom the employer may not see from one month's end to another, Men will rarely work so enthusiastically for a foreman as they will for the boss. There are exceptions to that, of course, but it is fair to claim it as a general rule. Nor is it so nearly possible to ensure that every man in a team of 10: or a dozen, is a good man as it is when the team comprises from four to half a dozen. All these things are to a large extent imponderable: their value cannot be set down with any degree of accuracy in terms of tonnage or revenue. , It is possible, _however, to keep them in mind, whilst making the more precise calculations, and that is what I propose to try to do.
Perhaps the best way to tackle the problem is to deal with it in stages. First of all I will assume that this incalculable advantage does not exist. I will take it that the average loading and average weekly mileage are the same in all cases. For figures, I will ask the reader to accept those of the 14-vehicle man whose business was, discussed in the previous articles, Each of his S-tonners carried an average of 30 tons per week and covered 1,000 miles in that time.
For vehicle operating costs I shall assume 6d. per mile ru oiling costs and £11 per week standing charges; the latter includes the cost of overtime, also driver's subsistence allowance and expenses. The total operating cost of each vehicle is, thus, £36.
The average rate for the traffic is the same for all, namely, 32s. per ton, so that the revenue per week per vehicle is £48.
Now in the case of Operator A, the two-vehicle man, the weekly cost per vehicle is £36 plus his establishment charge ef E3 6s per vehicle, a total of £39 6s., leaving a net profit of £8 14s. per vehicle per week. His annual profit, taking a 50-week year, is thus £870. That, on a capital outlay of £2,000 is 434 per cent. The percentage profit on his cost, wltich is the proper way to assess his earnings, is a little over 22 per cent., a reasonable amount.
The three vehicle man, Operator B, is slightly better off, in that his establishment costs per vehicle are only £2 18s. 8d. His total cost per vehicle per week is, thud. £38 18s, Sd. and his net profit per annum is £1,360. His capital is £3,150, so that his return is equivalent to approximately 43 per cent, on the capital invested. On cost, the per centage is about 234. Clearly Operator B, with his three vehicles, is much better off
than Operator A, with his two vehicles. He is, actually, bauking £1,360 a year, which is in excess of 50 per cent. more than Operator A, with only £830 per annum is able to pride -himself upon.
Now Operator C. with four vehicles, is earning £192 gross per week. His expenses are £36 per vehicle for operatingcosts pins £4 10s. 8d. per vehicle for overheads, a total of £40 10s. 8d. per vehicle, or £162 2s. 8d. for the fleet. His net profit amounts to £29 17s. 4d. per week, or £1,493 las, Sd. per annum, on his capital of £4,200. His profit on capital is, thus, a little more than 35 per cent., ared on his outgoings rather better than 18 per cent. Judged by the percentage return on capital, Operator .0 is worst off, amongst the first three, although I expect he is well satisfied with his earnings.
It is when we come to examine the case of Operator D, with six vehicles, that some indication is found of the • fluctuating conditions to which I referred in the early part of this article: His establishment costs total £5 Sc. 8d. per week per vehicle,, so that his total Cost, also per week per vehicle, is £41 Ss. 8d., leaving only £6 lie. 4d profit from each unit. . His annual profit is thus £1,970, which is a little short of 30 per cent. on his, capital of £6,600. Calculated on the basis of coet, his profit is at the rate of approximately
15.S per cent., which nearly approaches the minimum.
In pocket, however, he is not so well off, for he has taken a partner, and, assuming that they divide the profits equally, each partner is getting only £985 per annum as his share. Only the two-vehicle man, Operator A, is the poorer, and he gets £870 per annum. Assessing him on a three-vehicle business, as though he had three and his partner had three,. he compares most Unfavourably with Operator B, a three-vehicle operator, who, actually, earns £1,360 per annum.
Now come to the 10-vehicle concern, Operator E, with a capital of £11•,000.' His establishment -costs are £5 Ss. per vehicle per week, his total cost• per vehicle per week £41 8s,, and his profit E6 12s. The total annual profit is £3,300----£1,650, for each partner and 30 per cent. on capital: nearly 16 per cent. on cost.
For Operator F, the 16-Vehicle owner, the figures are: ' capital, £18,000; annual profit, £5,573; profit on capital. just over 30 per cent.; profit on expenditure, just short of 17 per cent.; partners' annual share of profits, £2,786 10s. each. Up to now this is clearly the best proposition.
The 20-vehicle concern, Operator. G, with a capital of £24,000, comes into yet another category, bedause there are now three partners to be considered. In this case the establishment costs are more than those of any other, being 16s. Sd. per week per ton of pay-load, or £6 10s. per vehicle. The total weekly cost of each vehicle is £42 10s., and the net profit from each only £5 10s., which is as low as 124 per cent. The annual profit is £5,500, only 22.8 per cent, on the capital, and each partner takes as his share £1,833.
Graphs that Simplify Understanding Comparisons of sets of figures like these are always easier if they be shown diagrammatically, and to facilitate their understanding I have prepared the four graphe, which are reproduced on these pages.
In Fig. 1 the relation is shown between the percentage profit, between the.capitai involved and the number of vehicles. It will be,recollected that this was really the first thing that we decided to investigate. It certainly appears that the point at which the fleet should cease to expand is three vehicles.
This is borne out again in Fig. 2, which shows the percentage profit en expenditure in relation to the number of vehicles employed. Actually, this diagram is similar in form to that of Fig. 1. It is quite possible that, by altering the vertical scale, which represents percentage profit, the shape could be made to approximate very closely to that of Fig. 1.
16 O At any rate, ft still appears that the three-vehicle concern is the best, It is in Fig. 3 that we come to another aspect of the matter and here the three-vehicle concern does not show quite to the same advantage. In this figure I have shown the relation between the actual amounts of net profits and the number of vehicles in the fleet. The full line shows the total, the dotted line shows the amount going to each partner when there is more than one person concerned. In this case it looks as though the best size of
fleet is one of 16 vehicles and that when that number is exceeded, rising to 20, the benefits are not what might perhaps, have been expected. In Fig. 4 I have shown the net amount of profit earned per vehicle and here it seems again that the three-vehicle fleet is the best.
On looking back to the previous article, there seems to be
a serious discrepancy between the figures I have set down for income tax and the profit which I now show capable of being earned by fleets of this size. I can only offer as an explanation that the establishment-costs figures shown in the previous article were pre-war and the reason may be that either the profits .earned pre-war were not-so much as they are to-day, or that the proportion which had to be paid in income tax was less than it is to-day or, as is more likely, a combination of the two factors. S.T.R.
6 :6 CLES