PUTTING OPERATING COSTS IN PERSPECTIVE
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TN a changing world there is a persistent tendency—rationally or
irrationally—to debunk past records, and costing is not excepted. Repeatedly one hears of the futility of "historic" records or costs. In a given set of circumstances this may well be justified comment. But let us not forget that the adjective "historic" is only relative.
By definition a record concerns something which has already taken place, even if it was only last week. It would be determined by individual circumstances, whether, for example, daily, weekly or even monthly records were looked upon as current returns.
In transport, as in other industries, by all means do away with records which are unrelated to modern conditions. But we should be on our guard against throwing away years of experience which could help us in dealing with future problems.
There is no point in wasting time, even though the most modern techniques of evaluation are applied, on trying out methods which have already proved unlikely to provide an acceptable and economic solution to a particular problem. Nowhere is this more relevant than the need for an accepted and, to some extent, standardized system of costing which can be applied to the very large number of small units which comprise such a high proportion of the road transport industry.
Far from ignoring history completely it is a worthwhile exercise to recap briefly the contribution COMMERCIAL MOTOR has made to the subject of commercial vehicle costing. For more than 50 years it has published the Tables of Operating Costs and weekly articles on this and allied subjects.
1920 Comment
In an article as far back as January 6 1920 this comment was made: "Acquaintance with the conditions of the trade, its methods and customs, should be thrown open to both hauliers and particularly newcomers, otherwise they will do harm to themselves and to those already established in the industry by quoting and accepting rates which will pay neither them nor anyone else".
While admiring the foresight of those who were already thinking along those lines nearly half a century ago, one recognizes, with regret, that a similar claim would have been relevant throughout that period and up to the present day.
I have deliberately chosen to make a brief reference to this pioneer work in the field of commercial vehicles costing not merely as an historical exercise but because I believe the experience gained in this field over the years is particularly relevant today.
In the light of such experience it is clear that the size of the problem of educating both newcomers and small operators in road transport as to both the need and method of knowing the cost of operating their vehicles is too easily underrated in some quarters.
Additionally, and possibly a more subtle problem, is that barring any future statutory requirements as to a would-be operators' managerial capabilities and financial resources, it is unlikely that there will ever be a complete solution to this problem.
In other words, despite the effect of the licensing system, newcomers will continue to enter road transport with little or no knowledge of costing with a possible financial loss, not only to themselves but also to their local competitors.
Not long-term solution
Even if such an operator ultimately goes bankrupt this cannot be reckoned as a long-term solution by established competitors. As past history has shown us, it is only too likely that another would-be operator is prepared to take the bankrupt's place and try his luck whether or not he has previously gained sufficient experience to carry out the job efficiently.
In this respect the number of bankruptcies in the road haulage industry do not tell the whole story. I suspect there are a large number of one-time owner-drivers and small fleet operators who, having exhausted credit facilities to meet repairs and other expenditure not provided for, quietly leave the industry without going through the legal formality of being declared bankrupt.
But it would not be true to say that such operators are lost without trace if only because of the unfortunate repercussion on local competitors during their spell of uneconomic operation.
Earlier I said an attempt to put costing in perspective was particularly relevant today. I had in mind the advent in recent months of the Road Transport Industry Training Board, the two reports by the Prices and Incomes Board on road haulage rates and charges, and the use of Interfirm comparison by some sections of tho road transport industry.
All these developments are to be welcomed in so far as they focus renewed attention where it is badly needed. But particularly in the case of the reports by the Prices and Incomes Board it would be unfortunate if an impression were created that there was some once and for all solution which could be evolved in a relatively short time to eliminate totally uneconomic operation and all the evils that it brings in its train.
Past experience, as I have already indicated, suggests that it will always be a continuing problem though it is hoped that it can be reduced in size.
Why has this problem of newcomers into the road transport industry, operating at uneconomic rates, been so deep-seated for so long? The reason is basically the composition of both the road haulage industry and the road passenger industry outside the major groups. The latest available statistics show that 93 per cent of all A and B operators (43,000 out of 46,000) have 10 vehicles or less.
• Put another way round and excluding BRS and BR, there are only 55 operators with haulage fleets of 100 or more. Moreover such fleets total only 10,000 vehicles out of a national figure of around 205,000 Aand B-licensed vehicles. In public passenger transport, more than 71 per cent of operators have fleets of 14 vehicles or less.
It follows therefore that with so many goods and passenger operators having so few vehicles there is a real need for a relatively simple costing system because few such operators will be in a position to employ personnel solely for that purpose.
When more sophisticated techniques of costing as applied to road transport, including use of computers, are being increasingly introduced, the hard facts as to the size and composition of the industry need to be restated.
However admirable a system may have proved to be when applied to a large fleet this is no criterion as to its worth when applied to a small fleet even if the limited staff then available had the necessary expertise to apply the system.
Test of time The method of compiling operating costs as practised in the COMMERCIAL MOTOR Tables can reasonably be claimed to have stood the test of time. Moreover the procedure has been devised with the small fleet operator in mind although the Tables also provide a useful yardstick against which the larger operator can compare his own costings.
The underlying principle in compiling the Tables is the recognition of the two fundamentals in road transport operation—time and mileage. These are reflected in the division of total operating costs into standing costs and running costs. The former are incurred whether the vehicle is in use or not while running costs are directly related to mileage runs.
Here again there is a particular relevance to modern operating conditions. With increasing delays arising from congestion both on the road and at terminals, the need to make due allowance for the time factor, as distinct from mileage run, is facilitated by this grouping of operating costs.
Basically a commercial vehicle journey consists of loading, proceeding and unloading, involving both time and mileage. Until all three have been accomplished a useful service has not been provided.
Recently, however, in a understandable striving for greater operational efficiency there has been a tendency to look upon all terminal time as non-productive. Such a contention could lead to a misconception.
By all means try to reduce unnecessary terminal time but I suggest it could lead to a misdirection of effort if the ultimate objective was accepted as being to eliminate terminal time altogether because a distorted notional figure of efficiency would then have been created.
Loading and unloading, always assuming it is efficiently carried out, is just as much part of the overall commercial exercise as the journey itself.
Still on the topic of current tendencies and their reflection on operating costs, a pertinent report recently was the 50-point traffic census of the Road Research Laboratory, a department of the Ministry of Transport. This report shows that estimated goods vehicle mileage increased from 14,831 m. in 1960 to 18,131 m. in 1965 while, as an indication of increasing congestion on the road, all motor vehicle mileage increased by 42 per cent during the same period.
Even after allowing for extended journeys by commercial vehicles due to increasing use of motorways and other major roads, the increase in commercial mileage during this five-year period of 3,300 m., or more than 20 per cent, must largely arise from additional journeys.
No corresponding national statistics are likely to be available but one is left wondering what small increase, by comparison, there has been in the availability of loading and unloading bays and— equally important—the staff to man them. Without either a commercial journey cannot be completed.
Likewise on the road itself a 42 per cent increase in vehicle mileage must represent a debit in journey time despite whatever credit arises from the increasing use of motorways.
Overall, therefore, several trends in the road transport industry are directly affecting the cost of operating vehicles and this in turn re-emphasizes the need for both a knowledge of, and a determination to maintain, an adequate costing system if efficient operation is to be achieved.