Reckoning with Idle Time
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ACORRESPONDENT writing about an article of mine which appeared in the issue dated September 28, in which 1 discussed the RH/D /20 rates schedule, points out that the charges therein quoted and the alternatives which 1 worked cut would not be profitable if the vehicle concerned did not run for at least 2,000 hrs. per annum.
He wrote: ". Your article, ' RH/D/20 Under Comparison,' contains an important point to which you should draw attention. It is that the charges which you have calculated would result in a loss to the carrier if the annual amount of hire fails below 1,900 hrs., or thereabouts.
I think that the proper way for a carrier to use your calculations is to take the £713 standing charges for a 5-tonner, add £X for profit and divide by the number of hours anticipated hire based on his past experience. Even then, of course, he takes some risk, but of course, wins If he hires above his estimate, "On the basis of your proposed charges, a man having 10 5-tonners might average only 1,500 hrs. over the 10 and would drop something up to £150 on each On standing charges."
My correspondent is correct, As a matter of fact, I have frequently drawn attention to the same risk myself, although I did not do so in this particular article. I was examining a standard schedule of rates, checking that schedule against my own calculations. The article was written in response to ,a request and in complying with it I based my calculations
'A38 oil the same fundamental. factors as appliedin the schedule. One of those factors was that the vehicle was to be reckoned to Work 2,200 hrs. per year,
Most operators are alive to the fact that when a vehicle is idle, a loss is likely to ensue; it is seldom fair to expect a rates schedule to be based on the assumption that the vehicle loses about 25 per cent.-of the available working time each year. The exceptions to that rule arise when it is-known, from the nature of the Work;that a good deal of idle time is likely to be experieneed.. Incidentally, as a fOottiotefo RH/D/2.0 there is a stated condition that weekly hire Will be for a minimum of 44 hrs. per week and daily hire will -be for a minimum Of 8f hrs. daily. That does.. notentirely. Cover the 'point raised by my correspondent, as there is nothing to insure thatthe vehicle will be hired for 50 such weeks in a year, or .five such days in every week. The clause,. however, does safe,guard the operator to some extent, ash ensures a -The subject is, in .my opinion, of sufficient interest to deserve more than passing Mention and, in Table I; I have shOwn how. the costs differas regards to the, variation in the number of hours worked per annum. Actually, the . original information from. Which Most of the figures in this table come is in Table .1 of the -article to which this correspondent has drawn attention.
The standing charges per annum and the . running costs in pence per mile cOme•from that table. The first of the four lines of " Standing charges per hr." also derives from Table I in the previous article. The other figures for standing charges, for 2,000 hrs. per annum, for 1,800 hrs. perannum and 1,500 hrs. per annum, are all arrived at by the Simple method of dividing the annual standing charges by the number of hours the vehicle is assumed to work per annum. All the figures in Table I are costs only.
As a preliminary step towards arriving at the figures for charges, I proceed to calculate the figures which are given in Table II. To understand how these have been calculated, the reader should appreciate that provision is made in RH/D/20 for two sets of hire charges per hr., one when the vehicle is hired per week and the other when it is hired per day. The material difference between the two, so far as these calculations are concerned, is that it is assumed that the profit for daily hire should be more than that for weekly hire. That is understandable, as the former is. likely to be more casual than the latter. Actually, in calculating for daily hire a profit of 20 per cent.. is assumed and for weekly hire 15 per cent, reckoned On the actual cost.
Take the figures for the 5-tonner as an example and assume that it is doing 1,500 lira. per annum; according to Table 1 the net cost per hr. is 9s. 61c1. That increased by 15 per cent. gives me 10s. ltd. as the basic charge per hr. with provision for mileage; by adding 20. per cent. to 9s. 60., I get us. 6d., which is, correspondingly, the basic charge per hr. for a vehicle on daily hire, The other hourly figures are arrived at in the same way. The figures for charge per mile have been taken from Table II of the article which appeared on • September 28.
Table III gives what might be termed a series for RH/D/20 on different bases of hrs, per annum. There is one for 2,200 hrs., one for 2,000 hrs., one for 1,800 and one for 1,500. The reader can see, by comparing the four sets, how the rates schedule rises as the number of hrs. per annum diminishes.
Poi of Emphasized
It also emphasizes the point I have already made, that it is hardly to be expected that a standard schedule of rates should be drawn up on the assumption that a vehicle works only 1,500 hrs, per annum. In that case, the charge per hr. for a 7-ionner would be 17s. 7d., compared with 13s. 7d., the charge based on the assumption that the vehicle works a normal year of 2,200 hrs.
For the benefit of the reader who has noteirad the opportunity to see the article in the issue of September 28, it may be-as well to indicate how the figures. in Table Ill have been calculated. Take the 5-toriner at 2,200 hrs, per annum. The rate of hire assumed for a 44-hr. week is given as lls, 6d. That is made up of•7s. 6d weekly hire from Table II, plus five times 9i-d. from the same table so as to provide for the Maximum for 5 m.p.h.
Five times 91-d. is approximately 4s., which added to 7s. 6d. gives I is. 6d„ which is inserted in Table HI. In the fourth column of the same table, the rate per hr. for daily hire we take from Table H, 7s. 10d. Five miles at 10d. is 4s. 2d. and the total is 12s., as given,
• The figures in the: third column, the charge per hr. in . excess of 44 hrs, in the week, are arbitrarily 'assessed direct from the second column of figures. The assumption is made that when 44 hrs. in the week have been completed, certain items of the start:frog charges can be regarded as wiped off, that is such items as licence, rent and, rates, interest and part of the overheads. The charge is reduced accordingly by approximately 10 per cent.
Now turning to Table IV, this is perhaps the most interesting as it is devised to demonstrate the point made by my correspondent in his letter, namely, that if the vehicle does not work the full 2,200 hrs. per 'annum, the earnings will not be soffit:it:ill to allow the operator. a reasonable profit.
Cost Per Hour •
In this Table the second column is the cost per hr. taken from 'fable I. Taking the 5-tonner, which for 2,200 hrs. per annum is stated to cost Os. 6c1. per hr. plus 8.22d. per mile, for 5 miles the charge would be 3s. 5d., which added to the 6s. fad. per hr. gives 9s. 1 ld., as set down in the second column of Table IV, other figures in that same column are assessed in the same way anddemonstrate how the cost rises as the number of hrs, per annum diminishes.
The third column compares the figures for the actual ptrYments to be expected under RH/D/20 having in mind. that those payments are based on 2,200 hrs. per annum. It is seen that if the vehicle works 2,200 his. per annum, there is a reasonable profit from the charges, the amount rising from Is. Old. per hr. to 1s, 7d,
If, however, the vehicle runs only 2,600 hrs. per annum', the operator is then still paid at the rate applying to 2,200 hrs. per annum, and as shown in column four of Table IV, the hourly profit greatly diminishes, being as little as 7d., and at its best no more that If the number of hours worked falls to 1,800, then no profit is made at all, and the figures are entered for a slight loss per hour, At 1,500 hrs. per annum the loss is big, being nearly as much as Inc estimated profit for 2,200 hrs. per annum: Actually, the flgLIIT2S ill Table IV substantiate .what ray correspondent says in his letter about the possibility of profit.
It is reasonable to close this article as I did in my direct reply to my correspondent. The rates quoted in RH/D/20 are based on the assumption that the vehicle is in operation for 2,200 hrs. per annum. . It is not assumed that there ia a contract with one customer for that specific time. It is for the haulier to find work for his vehicles' for 2,200 hrs. each year. On his ability to do that depends his success or otherwise as a haulier, -and in this he is in the same position as any other businessman,