Cost Tables urge 20 per cent more
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by Johnny Johnson
DELIBERATELY to provoke price increases and then refuse to allow a businessman permission to increase his prices in order to preserve the viability of his business seems a strange way for any Government to behave. Yet this is the treatment the road haulage industry has suffered in the past months.
A large portion of the percentage increase of between 15 and 20 per cent in costs shown in this year's CM Tables of Operating Costs can be directly attributed to the increase in fuel prices imposed by the Chancellor in April. Yet, only last week the Price Commission announced that it has refused applications for road haulage companies to increase their prices.
The Tables, publisted this week, show that for a 30cvet diesel van averaging 100 miles per week the overall rates increase necessary would be about 16 per cent while for the same vehicle running 500 miles a week the comparable increase would be about 20 per cent.
This demonstrates that the significant influence on costs lies in the running costs factor and with fuel in particular as the greatest of these.
In the higher weight ranges, a 5 ton capacity vehicle would attract a cost increase of about 15 per cent, a 10 ton capacity vehicle about the same, while the 32 ton articulated unit would need a further 17 per cent to keep it viable. On the passenger side, the cost of running the larger buses and coaches has increased by about 15 per cent.
It Should be understood, however, that these increases should be 'applied now to maintain a level of viability equal to that of the past 12 months. It would make no provision for price increases already in the pipeline and agreed by the very Price Commission which has refused to allow road haulage to maintain its own position.
But for the intervention of the Chancellor in the matter of fuel prices, the Tables could well have shown that there had been a much smaller rise in overall haulage costs since May 1975 than in the previous 12 months.
This was due mainly to an inexplicable steadiness in the price of fuel to the operator accepting bulk deliveries.
Throughout 1975 and in the early part of this year, both the Organisation of Petroleum Exporting Countries (OPEC) and the oil companies had announced •a number of increases in the price of fuel; OPEC twice and the oil companies three times. Despite these increases, at the 'beginning of April this year the operator with his own fuel storage facilities Was paying little more than a year earlier; about 47p in 1975 and 484p in 1976, for diesel. Petrol prices too had hardly moved and were further 'held down by the cut price "war" which was going on at the pumps.
Then came the Budget and the effect of adding a further 74p to the Excise duty though reducing the VAT on petrol by 124 per cent was to add the whole of that amount to diesel fuel and only an extra lp on petrol.
Without any other consideration, such as the effect on an operator's cash flow through the direct debit system of payment, an additional lp per mile running cost was added to the operation of a maximum capacity artic averaging 7repg. This involves an additional expenditure of £520 a year per vehicle operating at 1,000 miles a week.
Standing cost factors do not have the same serious effect on an operator's expenditure and can often be minimised by extra productivity though this is difficult in these days of declining traffics. However, the Increases in standing costs can be spread over a greater mileage When it proves possible to find additional work.
In this context, the control of wage increases to £6 a week, though 'large enough in itself, bore no comparison with the kind of wages increases which had 'been experienced in the previous 12 months and which were reflected in the 1975 Tables.
Nor did operators experience the kind of increases in rates which had prevailed during the 1974/75 period: Indeed, some would have found increases only of the order of about 6 per cent though the Water, now assessed separately added its own. burden of increase.
Thus two out of five standing cost factors were the subject of comparatively small increases while road fund licence fees remained the same.
The two remaining standing cost allocations of insurance (25 per cent) and interest dependent on vehicle price increases) varied much more.
Despite the somewhat larger increase in the price of the last two items, standing costs did not, therefore, increase at anything like the same rate as in the previous year.
As far as the running costs— other than fuel already discussed—are concerned, lubricants which involves only sump oil is a minor cost factor and this was advanced 10 per cent in the new Tables.
Tyre costs, however, were advanced on two and sometimes three occasions during the past year by tyre manufacturers often between 7 and 9 per cent depending on the type and construction of the tyre. With the ability of the operator to negotiate with his supplier on the price of tyres and the discounts which are available for bulk purchase, on overall increase of 10 per cent has been applied to the tyre allocation in this year's Tables.
The maintenance factor remains a difficult one to assess but from the replies to the questionnaire which we sent out earlier in the year it became apparent that an increase of about 14 per cent had been experienced in meeting this factor.
It would be appropriate here to acknowledge the help which we have received from operators and manufacturers in completing our questionnaire and to thank those who so willing gave us the benefit of their experience. Without their help, the task would have been much more difficult.
The standing cost allocation for interest, which is based on an average interest rate of 12 per cent per annum fiat, and the running cost allocation for depreciation are, of course, both linked to the price of vehicles.
Increased prices
It has been impossible to allocate an overall percentage increase in vehicle prices. Instead, what we have considered to be the average price which an operator would have to pay for a vehicle of a particular type has been used. This was based on new vehicle prices communicated to us by manufacturers and by the use of Glass's Guide.
Even this has been complicated by the fact that, because of vehicle modifications and the addition of further equipment, such as tachographs, it was not easy to ensure that like was being compared with like when corresponding vehicles included in the previous year's Tables were concerned.