Small Operators' Difficulties

24th September 1954, Page 225

24th September 1954

Page 225

Page 226

Page 225, 24th September 1954 — Small Operators' Difficulties

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Keywords : Depreciation, Fuel Efficiency, Fuel Economy In Automobiles

THIS week I am going into reverse. Instead of devoting my energies to warning hauliers of the danger of overlooking any one of the 11 items of operating cost, I am going to show how little is the actual day-to-day expense of operating a small van by a greengrocer, a' butcher or the like. I have, in fact, already given the advice which follows in a letter to a correspondent. The subject is, however, of wide interest.

In reply to those readers who no doubt will accuse me of doing-a little fifth-column work, I should emphasize that this is not a haulier's problem but an inquiry from a greengrocer who, up to the time of my writing to him, was still using a pony and cart for his transport. He was, he wrote, thinking of buying a motor van of about 10-cwt. capacity and wanted to know what it would cost to run, having been warned by several of his friends that it would cost him anything from f5-£6 per week, exclusive of wages. His mileage, he added, Would be about 100 per week, Now it was quite obvious, to me that someone was trying to frighten the man and trying to put him off buying a vehicle, doing so by exaggerating the figures for cost of operation. If. therefore, I were merely to refer him to " ' The Commercial Motor' Tables of Operating Costs," he would discover that the total cost of operating a 10-cwt, van running 100 miles per week was £10 4s, per week.

Information Spoon-fed

Judging by his letter, that information would definitely deter him from buying a motor vehicle of any sort, It would not improve matters much, either, if I were to point out that out of that cost £6 10s. was wages because, even then, it would be apparent to him that the vehicle was going to cost him between £4-£5 per week. Even that might be all right if I could be sure that he fully appreciated how many items that included. As, however, I can be certain that he has not that knowledge, the best thing to do is to spoon-feed him with the information.

I told him, therefore, that his costs could be made up as follows: petrol, oil, tyres and repairs would cost him about 34d. per mile which, for 100 miles per week, is 350d. That can fairly be read as 30s. per week. It is quite possible that he has thought of those four items, and if I were to leave the matter at that I should have done all I am required to do, that is, to satisfy him that it would be a good idea for him to buy a van.

It would not be quite fair to do that; I should advise him that there would also be expenditure on licences and insurance, which would be equivalent to a further 10s. per week taken together. The cost, therefore, for 100 miles per week amounts to £2 per week. If he does more than 100 miles per week he need only add 3+d. for each mile, as the amounts for licensing and insurance will not be affected thereby: they do not increase with the mileage.

I told him that I was assuming that he would be keeping the van on his own premises, just as he now does with his pony and cart.(That being the case, as he was not using the vehicle for profit, there was no point in reckoning anything for rent and rates of a garage.) I also advised him that there was no allowance in the figures I had given him for depreciation or for interest on first cost.

I am referring to this problem here because it occurred to me, while I was answering his letter, that there were many hauliers or potential hauliers who were being alarmed at the figures for costs as they are set out in the Tables. Take, for instance, the case of a man who has acquired a 5-ton lorry and, with it, a special A licence. He has made some preliminary inquiries as to the prospects of business and can see possibilities of doing at least 300 miles per week almost as soon as he begins.

Stumbling Block

He has, perhaps, quoted for the work in prospect on the basis of the Tables and his tender has been provisionally accepted. Getting down to brass tacks, he begins to consider ways and means. He is satisfied that he will be paid but is also aware that, in the ordinary way of business, he will not receive his first cheque on account until he has done a month's work. He takes a look at the Tables and finds that the operating cost of a 5-tonner doing 300 miles per week is, assuming that it is petrol-engined, £21 for that period, so that it looks as though he will have to spend close on £80 before he begins to see any return.

That may seem to be rather a stumbling block, for he has mortgaged everything he has got in paying for the vehicle and the licence. It may be as well, therefore, if I point out that £80 is not necessarily out-of-pocket expenditure during the month.

A man starting business in this way will naturally have made full allowance for the initial expenditure on his vehicle. It will not matter whether he is buying a new or, as in this case, a used machine. Whether he is paying cash or instalments, he will be aware that among the items of expenditure which be will necessarily have to meet will be those of licence and insurance, so that by the time he takes the wheel of the lorry and starts work those expenses will

have been met. He will have his garage rent to pay —he may have to pay that in advance or he may not have to pay at all until he has been at work for a month, all depends c27

on circumstances—but the item itself, for a month, will be somewhere between £2 or £2 10s.

Over and above that he is not likely to have to spend anything for months except what he has to pay for petrol and oil, and that, for 300 miles per week, assuming our figures to be correct, will be less than £5 per week, £20 in the month.

For the first month, therefore, the cost to the haulier of running a "5-ton petrol-engined lorry, including his garage rent, should be no more than £22-£22 10s. If at the end of the month's work he is paid according to our schedule he will receive between £120-£130 and will, therefore, from that time onwards, be in a position easily to meet expenses and to pay his way.

What I must not fail to emphasize is that the other items of cost as set out in the Tables will have to be met eventually, so that it is up to the haulier to lay aside each month enough to make it possible for him to be in a position to meet the heavier items of expense, tha renewal of tyres, licence, insurance, the cost of an overhaul and, ultimately, the renewal of the vehicle itself when these things become due. The building up of that reserve, however, need not commence at once.

Another aspect of the haulage business has been brought to my mind by a letter from a man who owns one vehicle and, in the first place, puts the usual query concerning the rates he should charge. He has apparently been in the habit of charging a fixed rate per hour plus a regular amount per mile and is up against keen competition. He gives me very little information indeed; he does not even tell me what size vehicle he has, and I have had to guess at it, from the figures he does disclose.

My guess is a 2-ton van and is based upon his statement that its fuel consumption is 16 m.p.g., which about fits a vehicle of that size, mainly engaged on short runs. He is, for a reason I cannot discover, subject to excessive expenditure on lyres. He states that he has had as many as four punctures in 3.000 miles in a tyre which has run only 10,000 miles and has had as many as eight punctures in 12,000 miles. I can only assume that his running is in a northern town where they still wear clogs. It is a fact that, in the old days when clogs were regular wear, tyre mortality was great because the worn clog-irons were prolific and particularly easy to pick up.

The inquirer takes care of the lighter work of repairs and maintenance but lets the local agent dothe major jobs. He states that he finds that cost of maintenance works out at some 10 per cent, more than the figures in the Tables, but that is likely when the major operations are paid for rather than carried out in the home garage.

Local Tradesmen's Work

He gives me a couple of examples of the sort of work he is doing. One of his contracts is with a local confectioner, for whom he does three four-mile trips per day. Each trip involves +-hour, and that includes loading and unloading. Another job is for the local newsagent, for whom he does a 24-mile run which, including terminals, takes two hours. That, however, takes place only once a week. In his letter he gives no figures for his weekly mileage, but nevertheless expects me to tell him what he should charge.

It may be taken for granted that, in a case of this sort, the mileage will probably vary from one week to another and, in answering his letter, I tried to give him some suggestions based on his own favourite method of charging, namely, "so much an hour plus so much a mile." At the very outset, it struck me that I should have to assume some number of working hours per week. The charge per hour would necessarily be based on the total of standing charges together with the establishment costs plus profit. These, in the case of a 2-ton van, amount to £12 10s. per week, as follows: standing charges, £8 15s.; establishment costs, £1 15s.; profit, £2.

I imagine that it will be obvious to the reader that it will be useless to reckon on a full 44 hours work per week. Indeed, I expect that the average will be about 30 hours, and at that rate the charge should be at the rate of 8s, 4d. per hour. That charge per hour is net and does not include c28 any provision for mileage. The actual running cost of a 2-ton van is lid, per mile, and if I add 3d, for profit I get a iigure of Is. 2d. per mile as the basic charge.

It is of interest to see how these figures work out in relation to the two contracts he mentions in his letter. First of all there is the job of carting for the confectioner. On the time basis he would have to charge 12s. 6d. for If hours and Is. 2d for each of 12 miles, which is 14s. The full charge should thus he £1 6s. 6d, The newspaper job takes up two hours and a mileage of 24. For that the charge would have to be 16s. 8d. for the two hours at 8s. 44. per hour, plus 24 times Is, 2d. for the mileage, £1 8s.; total, £2 4s. 8d.

A week's work would bring in a revenue of 30 times 8s. 4d., which is £12 10s. plus the mileage charge. If I assume that throughout the 30 hours the average is four miles per hour, the total per week would be 120, the revenue for which would be £7. The total reMrn from a week's work would be £19 10s.

I have just been reading an account of a case which was under examination by the Official Receiver. It could easily be applied to more than one unfortunate haulier. He said: " I am very seriously of the opinion that had the debtor at any time during his period of trading as a motor engineer kept proper books of accounts from which his true gancial position could always be discovered, he would never have drifted into the hopeless and unhappy situation in which he now finds himself.

Inadequate Capital

"The facts in this case arc that the debtor, some two years ago, commenced business as a motor engineer. The capital with which he commenced trading was most certainly inadequate for a venture of this nature yet, in spite of working under this disadvantage, he appears to have secured a reasonable amount of custom and to have been on the way to establishing a profitable organization. The debtor has told us that at all times he had plenty of work, and this statement is supported by the details which we have been able to collect of his activities over the whole period.

"Unfortunately, a very high percentage of the whole business which he transacted was completed without any profit accruing to his establishment—a lamentable state of affairs entirely attributable to the debtor's neglect to establish and use even the most elementary system of costing. He appears to have charged his customers purely on a time and materials basis, no addition of any sort being made to take care of his ordinary overheads, such as depreciation, rent, taxes, plant, leakages, breakages, repairs to premises and the like.

"The debtor's shortage of capital at the outset resulted in all incoming cash being absorbed for immediate needs as soon as it was received, and the absence of proper books of. account account kept him continually in the dark as to his true financial position. As a consequence he is suddenly surprised at creditors pressing him for the liquidation of liabilities which are far in excess of the profit which he can reasonably anticipate making for some considerable time."

I read this warning and reprimand. I rubbed my eyes and read it again. But no, I was right: the Official Receiver was discussing the affairs of a motor trader who had failed. We could substitute the words "motor haulier" for those of " motor engineer" and the paragraph would be equally true to life, for in the business of failing to succeed as a haulier, a business which has many followers, there are two things which lead to failure.

They are—I quote the Official Receiver—".. . neglect to establish and use even the most elementary system of costing," and charging customers "... purely on a time and materials basis, no addition of any sort being made to take care of his ordinary overheads...."

The motor haulier, whether he is making for bankruptcy or a reasonable profit, has one advantage over the motor trader: he is given a guide as to the cost of operating Isis vehicle and indication as to the rates he should charge in order that his overheads shall be provided for and that there shall be a profit on his undertaking. S.T.R.

Small Operators' Difficulties

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