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Problems of Growth

25th December 1964
Page 41
Page 42
Page 41, 25th December 1964 — Problems of Growth
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Which of the following most accurately describes the problem?

ADVICE ON TRANSPORT PROBLEMS by S. BUCKLEY, ASSOC. INST.T IN the past few weeks the effect of' unscheduled delays on the cost of operating commercial vehicles has been tudied, particularly in relation to deliveries to docks and retail outlets. It has been demonstrated that the additional standing costs are by no means the only loss thereby incurred. Where the average weekly mileage run is a fair indication of the useful work done, then the cost of operating a 7-tonner 600 miles a week—namely. 16-63d, per mile—is almost doubled at 32.15d. per mile when the mileage is reduced to 200 a week, as might well occur when delays of several days' duration at docks arise.

But even this does not indicate the total loss because, as the mileage increases, and presumably also reve-nue earned, a correspondingly increasing contribution is being made by that particular vehicle to the overhead costs and profit margin of the fleet as a whole.

So far these considerations of the effect on operating costs have been related to unscheduled delays which, in effect, is unscheduled under-utilization. It is common knowledge. of course,. that maximum loading of vehicles will give the maximum economic return, and to this end. in recent years there has been an extension of trunk operation with collection and delivery at the terminal "points 'being carried out by other vehicles. By the bulking of transport in this manner. the intermediate long-distance vehicles can be loaded to the maximum to the benefit of operating costs per ton-mile.

However, this widely accepted trend could give the misleading impression that road transport is now emerging as an industry of large units. This is, in fact, far from being the case, and in the Henry Spurrier Memorial Lecture last week, given before the Institute of Transport in London, a breakdown of operators in this country by size of fleet was given. One-vehicle operators amounted to 23,100, whilst between two and five vehicles the number was 16,000. At the other end of the scale, there were only 210 operators with fleets of 51 or more vehicles.

Accordingly, there still remains a large number of operators to whom a breakdown of working as between

trunk operation and collection and delivery does not apply, which, in its turn, brings problems peculiar to that size of fleet. As with many aspects of business procedure, there are both advantages and disadvantages in a particular set of circumstances, and in the case of the small fleet road transport operator, he cannot always match the particular job on hand exactly to the size of vehicle he may possess. On the other hand, because of direct personal control he may well be able to give spot decisions on a variety of matters to the advantage of his customer, in contrast with the situation which might apply with a much larger operator.

Relative to the problem of matching vehicles to a particular job on hand is the long-standing bone of contention in the road transport industry—namely, rate cutting. This also to some extent stems from the industry being largely made up of small units, though not entirely so. Complete ignorance of costing is a major reason for such mistaken practice. which can be detrimental not only to the operator concerned but also to operators unfortunately in the same locality.

However, in the heat of this contentious matter, the criticism of rate cutting can be wrongly applied—and. indeed, often is when an operator has the ideal type of vehicle for a particular job and can so quote a keen price to his customer and still provide a margin of profit, in contrast with his competitor who may not have that type of vehicle in his fleet

The road transport industry in this country is fortunate in having a virile and competitive manufacturing industry which provides a wide range of commercial vehicles of graduated sizes. Accordingly, in theory at least, the opportunity to match a particular type of traffic to the ideal size of vehicle is usually available. But in practice, of course, some compromise has to be made in the range of vehicles in a fleet, especially a small fleet.

As the total amount of traffic carried by a small operator increases he will be faced with the problem of whether or not to purchase a larger vehicle and, if so, at what stage in the development of the business. Because of the practicalities of transport operation. it is extremely unlikely that the ideal of full loading can in any event be achieved during this process of development, assuming that the practice of overloading is not encouraged. Accordingly, the problem resolves itself into endeavouring to determine which is the best of the alternative compromises available.

But even it an operator is in the fortunate position of assured development, there will still be seasonal increases of traffic related to the particular industries in the locality. Additionally, there could be new traffic contributing to the overall increase, and in this respect the haulier will be well advised to examine carefully the loadability and other peculiarities of such traffic. This is because, as indicated in the railways reshaping programme —the Beeching Report this form of transport in the future intends to be much more selective as to the traffics it carries, with the obvious inference that what is left over will not necessarily be particularly profitable for other carriers either. Moreover, by this very trend it could well be that other carriers also will be compelled to be more selective. Should this trend be, in fact, confirmed in the future, then it

becomes even more necessary [or all hauliers to know precisely their real cost of operation and to be prepared to refuse traffic on the basis of such costing knowledge if it is clearly unprofitable. Absence of such knowledge could well lead to its unremunerative acceptance.

The slogan "Carry anything, anywhere " may be superficially impressive but very little else, except for a nation-wide organization. For the small operator it was never economically an ideal or even workable proposition in the past, and it will be still less of a proposition in the future, when all forms of transport are likely to be accepting only remunerative traffics.

The operating cost of a 5-tonner and 7-tonner, both fitted with standard platform body and oil engine, will now be examined to give an indication of the type of problem which has to be met when the small operator is considering replacing his existing vehicles with ones of larger capacity. Additionally, alternative costings will be given for average weekly mileages of 400 and 600, as such a mileage variation will often be closely related with alternative sizes of vehicle.

Dealing first with the smaller vehicle, it will be assumed that the unladen weight is 2 tons 17 cwt., with a resulting annual licence duty of £42. With an appropriate allowance for a proportion of the A-licence fee, the equivalent weekly cost of licensing will be I7s. 8d. As with the other four items of standing cost, this amount has been calculated on the basis of a 50-week year to allow for two weeks per annum when the vehicle may be off the road for major overhaul or driver's holiday.

The total cost of wages to the employer is reckoned at il I 2s. 6d. This amount is based on a basic 42-hour week in a grade 1 area as prescribed by the Road Haulage Wages Regulations RH.80, with additions for national insurance contributiOns and ap adjustment for holidays with pay.

Rent and rates in respect of garaging the vehicle are nominally assessed at f 1 Is., whilst vehicle insurance adds £2 2s, 9d. a week, based on an annual premium of £106 18s. Interest charge at a nominal rate of 5 per cent on the initial outlay of £1,308 will amount to £1 6s. 2d. a week. The total for these five items, therefore, amounts to £16 10s. Id. a week, or 9.90d. per mile, at 400 miles a week and 6-60(1. a mile at 600 miles a week.

Dealing now with the five items of running cost, it will be assumed that the 5-tonner averages 18 m.p.g. Based on a cost of 4s. 8.1d. a gallon, inclusive of the recent addition of 6d. per gallon fuel tax, the fuel cost per mile for this vehicle becomes 3-13d. Lubricants add 0.26d. and tyres 1-26d. a mile, assuming a mileage life per set of 30,000. Maintenance is reckoned to cost 2.47d. and depreciation I.63d. a mile. This latter calculation is obtained by first deducting the equivalent cost of the original set of tyres from the initial price of the vehicle with a further reduction in respect of the estimated residual value. A vehicle mileage life of 150,000 is assumed.

This gives a total running cost of 8.75d. per mile, or £14 us. 8d. a week. The total operating cost derived from the addition of standing costs and running Costs is therefore 18.65d. a mile, or £31 Is. 9d. a week when 400 miles are averaged. The corresponding operating costs when averaging 600 miles are 15-19d. per mile and £37 19s, 7d, a week.

Calculating the operating cost of the 7-tonner in the same manner, the following details are obtained: Standing costs per week-licences 19s. 5d., wages £11 11 s. 6d., rent and rates £1 2s. 9d., insurance £2 12s„ interest £1 8s. 2d., total £17 13s 10d.; running costs per mile-fuel 3.75d.. lubricants 0-28d., tyres 1-48d., maintenance 3.02d., depreciation 1.73(1., total 10.26. This gives a total operating cost of 20.87d. per mile. or £34 15s. 10d. a week at 400 miles a week. When averaging 600 miles a week, the corresponding operating costs would be 17-03d. per mile, or £42 Ils. 4d. a week.

Whilst the term ton-mile can be misleading, there are occasions when, with reservations, it has a useful application. When the 5-tonner is fully loaded and averages 400 miles a week the cost per ton-mile will be 3.73d., whilst at 600 miles a week this amount is reduced to 3-04d. When loaded with only 4 tons the corresponding costs per ton-mile are 4.66d. and 4.00d.

For the larger vehicle when operating fully loaded the cost per ton-mile at 400 miles a week would be 2-98d., and 2.43d. at 600 miles a week. Similarly, for reducing amounts the ton-mile costs would be: 6 tons -3.48d. and 2-84d.: .5 tons4.17d. and 3.4Id.; 4 tons5-22d. and 4.26d. at 400 miles a week and 600 miles a week respectively; As to be expected, when the 7-tonner is carrying a load of only 5 tons the operating costs per ton-mile are higher than when a similar load is being carried by the 5-tonner. But it is noteworthy that, even though still underloaded at 6 tons, the operating cost per ton-mile is less than when the 5-tonner is carrying its full load. Alternatively, the larger vehicle gives a better ton-mile figure, even at 5 tons, when averaging 600 miles a week than the 5-tonner itself at 400 miles a week.

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