Small Vans Can Prove Expensive
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The principles of commercial vehicle costing are applied here to the operation of 10-cwt. and 1-ton vans
IN this series during August, aspects which require consideration before deciding whether to own or hire commercial vehicles have been discussed. In this context the alternatives of operating under a contract A licence or C-hiring arrangements, in addition to owning vehicles, have been dealt with.
Particularly where cash is being handled by the van driver, or where his prime duties' are as a salesman, it is obviously important, if not imperative, that he should be an employee of the trader or industrialist operating the vehicle. In such circumstances the absolute control which outright ownership of a vehicle appears to give is undoubtedly attractive. But such absolute control may not materialize in practice for a variety of reasons. The maintenance facilities may not be adequate for the purpose, with the result that vehicles are not even operative let alone under absolute control. Recruitment of suitable tabour is another problem inseparable from transport operation, particularly as this industry requires an exceptionally high proportion of labour. Moreover, because of the very nature of the work, such labour can seldom be under direct •supervision. • In addition to these problems of vehicle provision and maintenance and also the supply of labour, operation of one's own vehicles as an ancillary department requires a substantial diversion of administrative time and resources or, alternatively, the setting up of an adequate organization for just that purpose. . Nevertheless there are many sound reasons why C licence operators prefer to ran their own vehicles. These include speedy delivery and certainty of timing to meet precisely their particular requirements. Many would also claim a substantial reduction, if not complete absence, of loss or damage to the goods carried. But before a final judgment can be made as to whether to hire or own vehicles, it is obviously necessary to be able to make a reasonable estimate of likely operating costs. As mentioned last week when reviewing the recommended terms to be included in a contract hire agreement, the actual charge raised in any particular instance would vary according to circumstances but, nevertheless, the • basic principles of commercial vehicle costing remain.
BECAUSE the small van is such, a common sight on the streets of this country it tends to be taken for granted and its relative importance overlooked. In statistics recently published in connection with C licence operation in this country, the total number of C licence vehicles as at March 31 this year was 1,252,542 as compared with 1,217,571 a year ago, an increase of 34,971. Of these overall totals, C licence vehicles with unladen weights not exceeding 11 ton's number 786,526 this year compared with 764,298 in March, 1961. This category, of course, includes a high proportion of small vans and the 1962 proportion represents 62.8 per cent. of the total number of C licence vehicles.
In terms of capital outlay, if these 786,526 C-licence vehicles averaged only 1500 each the total would have involved a capital outlay of nearly 1400m., which at a nominal rate of interest at 5' per cent. would involve charges of £20m. a year.
Considered in isolation a trader or industrialist might claim that relative to his main line of business the cost of operating a few small vans was comparatively unimportant. But inefficiency at any level or in any proportion is something c36 that should be eliminated and, in this particular instance, can only be achieved if the real costs of operation are known. Otherwise it would be difficult for a prospective customer to pass a reasoned judgment without such information on a quotation submitted by a contract hire specialist for the supply of vehicles.
It is seemingly paradoxical, but nevertheless often the case, that the more efficient a transport service—by sales standards— the more costly and possibly inefficient it is by purely transport standards. In many ancillary transport departments there is an understandable clash of interests as between service and costs and even previously agreed compromises must be con-. tinually readjusted to meet changing conditions within, the company itself and competitiveness throughout the industry concerned. It is just at the point where increasing demands are being made for an improved or extended service that the real cost of its provision should be known beforehand, even though it may nevertheless be subsequently provided.
.A.S an example of the manner in which such operating costs can be estimated, details are given relative to a 10-cwt. van and a 1-ton van. The smaller van has a petrol engine and is assumed to average 200 miles per 'week whilst the 1-tonner is fitted with an oil engine and averages double that mileage.
The 10-cwt. van is reckoned to have an unladen weight of 18-cwt. and an annual licence duty of £18,. with the equivalent standing cost per week of 7s. 2d. This calculation is made on the basis of a 50-week year. so allowing two weeks a year when the vehicle may be off the road . on account of major overhaul or driver's holidays.
Although it is not unusual for drivers of this class of vehicle to be under 21 years of age, it will be assumed in both examples that an adult driver is employed and that the wages paid to him are comparable with those laid down in the. Road Haulage Wages Regulations R.H.(72). Admittedly wage rates laid down in these Regulations are a statutory obligation only on A and
B licence operators, but in practice the wages paid to drivers of C licence vehicles tend to be similar.
. Where the van is based in a Grade I area as specified in the Regulations, the basic weekly wage would be £9 3s. 3d. With appropriate additions on account of national health insurance, employers' voluntary liability insurance contribution and adjustments for holidays with pay, the total cost to the employer of driver's wages is reckoned at £10 Os. 6d. per basic week.
Rent and rates in respect of garaging the van will be reckoned here at the equivalent of 8s. 8(1. per week although it is appreciated that this amount could vary substantially according to individual circumstances. This item, incidentally, is one of those which some ancillary operators claim they do not have to meet as the premises in which their vehicles are housed, or possibly the yard, already existed so that no additional capital expenditure was necessary. This attitude, it is contended; is fallacious in so far as the prior failure to put such premises to good use cannot justify their subsequent use free of charge by the transport, or indeed, any other department.
As with other items of operating costs, insurance premiums continue to increase and comprehensive cover for this 10-cwt. van operating in a medium-risk area is reckoned to cost 122 4s. per annum, .or 8s. lid, per week.
Taking seven makes of van. with this carrying capacity as typical examples, the average price is £470 and, with interest charged at a nominal rate of five per cent, on this amount, 9s. 4d. per week would be added to the standing costs. The total for the five items of standing costs is thus L11 14s. 8d. per week or 14.08d. per mile whilst the van continues to average 200 miles per week.
Dealing now with running costs, it will be assumed in both cases that this ancillary user purchases fuel in bulk and, in the case of petrol, at a cost of 4s id. per gallon. With an average rate of consumption of 27 m.p.g. the resulting fuel cost per mile would be 1.81d. However, because of the low average weekly mileage, it would be reasonable to assume that there would be an unusual amount of stop-and-start work with a corresponding increase in the amount of fuel consumed. Allowingan addition of 10 per cent. on this account, the actual fuel cost per mile will be reckoned at 1.99d. Lubricants add 0.19d. per mile.
With a set of tyres costing £33 and an assumed mileage life, per set of 20,000, the tyre cost per mile would be 0.39d. whilst maintenance is estimated at 1.37d. Incidentally this latter calculation is based solely on the cost of labour and Materials, and does not include any proportion of overheads resulting from the presumed provision of a maintenance shop and facilities. This aspect will be commented on later.
In order to arrive at the amount to be written off as depreciation it is first necessary to deduct the equivalent cost of the original set of tyres from the initial outlay of £470, since tyre costs are dealt with as a separate item. From the resulting balance a further deduction is made in respect of the estimated residual value-10 per cent, in this instance of the original price-leaving a final balance of £390. Assuming a vehicle mileage life of 75,000 miles, the depreciation cost per mile is therefore 1.37d.
The total for the five items of running costs is thus 5.31d. per mile or alternatively £4 8s. 6d. per week when 200 miles are averaged. The addition of standing costs and running costs gives a total of operating cost for the 10-cwt, van of 19.39d. per mile or alternatively £16 3s. 2d. per week.
As just mentioned, however, these 10 items of operating costs are only those directly incurred in running a specific vehicle. They do not include any overhead costs either in respect of maintenance or any other aspect of vehicle operation. As with garage accommodation, some ancillary operators might contend that an adequate administrative and office organization already existed in connection with their main line of business and that any additional demands made on that organization in connection with the running of a few vehicles would make little or no effect on total expenditure. Here again this contention is in all probability faulty on two counts. There is either an unjustifiable excess of administrative resources existing before vehicles were acquired, or the amount of organization responsibility needed in subsequently running them has been greatly underestimated. Labour control and payment of wages must also necessarily add to administrative costs if ancillary vehicles are acquired and operated.
It would therefore not be unreasonable to add at least a nominal increase in respect of overhead costs and placing this at 20 per cent. of the original cost, the total cost of running a 10-cwt. van 200 miles per week would then be £19 8s.
The operating costs of the larger 1-ton van with oil engine, are dealt with in a similar manner. With an increased unladen weight of 1 ton 12 cwt., the. annual licence duty becomes £27 with a resulting standing cost per week of 10s. 11d. Wages remain the same at LIO Os. 6d. per week, but the equivalent cost in respect of rent and rates is increased to 9s. 11d.
Because of the increased outlay and carrying capacity the annual insurance premium now amounts to £25 16s. or 10s. 4d. per week. With a standard cost of £850 derived from averaging prices of five examples of this type of vehicle, interest charged at the same rate as before would cost £42 10s. or 17s. Od. per week.
The total for the five items of standing costs in respect of this 1-ton van are therefore £12 8s. 8d, per week. As previously mentioned, and appropriate to this larger type of van, it will be assumed that the average weekly mileage is 400, so giving a standing cost per mile of 7.46d.
With fuel oil purchased in hulk at 4s. 1-id. per gallon, the resulting fuel cost per mile would be 1.84d. on the basis of a_ rate of fuel consumption of 27 m.p.g. Incidentally it is merely a coincidence that the rates of consumption of the two vans are the same, despite the oil-engined van having double the carrying capacity of a 10-cwt. van. Lubricants now add 0.24d.
With a set of tyres now costing £53, but with an increased mileage life of 25,000, the tyre cost per mile is 0.51d. whilst maintenance is reckoned at 1.15d. Adopting the same procedure as before, but with an increased vehicle mileage life of 100,000, the depreciation cost per mile is reckoned at 1.71d.
This gives a total running cost of 5.45d. per mile or £9 Is. 8d. per week. Added to the standing costs, the resulting total operating cost for this 1-ton oil-engine van is 12.9Id. per mile or £21 10s. 4d. per week, still assuming an average of 400 miles per week. With the addition of a nominal 20 per cent. in respect of overheads, this amount . becomes £25 16s. 5d.
per week. S.B.