Claiming for Loss of Profits
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Among a Variety of Matters Dealt With This Week by "The Commercial Motor" Costs Expert is How to Reckon Compensation in the Event of a Vehicle Being Out of Commission After an Accident: The Recommended 7+ Per Cent. Increase in Rates is Fully Justified But Seasonal Work Makes Difficulties
T. date " ' The Commercial Motor' Tables of Operating Costs" have been in existence for 44 years. I have been responsible for the collection of the information on which the Tables are based for the greater part of that time. In all those years questions have been steadily pouring in, never a day without its query.
It might have been thought, reasonably enough, that the subjects had been sufficient in scope and variety to cover all possible grounds. It is not so. This week a point has been raised which has never been broached. More, the same question has been asked in two separate letters, from two different readers, neither of whom knows the other.
Here is the first one. "There seems to be a considerable difference between the ' Hauliers' Charges' (minimum charge per mile) and the ' Time and Mileage Charges.'
"For example, Table 2: 200 miles per week at 4 tons. 'The Minimum Charges Per Week' are given as £23. 'Minimum Charges per Mile,' 2s. 30., which equals approximately £23 per 200 miles. Yet, according to the 'Time and Mileage Charges,' a number of journeys totalling 200 miles would work out thus: For 200 miles at average speed of 15 m.p.h., equals approximately 13 hours, plus 7 hours for loadings, etc.. 20 hours. Charge: 20 hours at 6s. 3d. per hour—£6 Ss. Time plus 200 miles at I Id. per mile, £9 4s., equals £15 9s.
Complete Answer
"This is a long way short of the £23 mentioned in the 'Minimum Charges.' Which is correct?"
There is nothing wrong with this reader's arithmetic, yet there is a complete answer to his query. The reason for this comparative discrepancy is that whereas my correspondent has worked out his charge on the basis of 20 hours to run the distance of 200 miles, including 'provision for terminal charges, the £23 in the schedule of minimum charges is based on a full week's employment of 44 hours. For 44 hours at 6s. 3d. per hour the time charge is 113 15s, and that, added to the £9 4s., the charge for a distance of 200 miles, makes £22 19s. which is as near to £23 as needs be. Indeed, had I arrised at that figure of £22 19s., I should have written the charge as £23.
B22 The second inquiry is on the same lines but requires a little more consideration. The inquirer writes: " We wish to carry capacity loads of 4 tons 5 cwt. in our 5-ton petrolcngined lorry a distance of 800 lead miles per week. The rate is 47s. 6d. per ton, which amounts to £50 9s. 2d. per week of five days. On referring to your Tables (41st Edition) we see that the 'Hauliers' Figures table shows £49 per 800 miles per week, or Is, 21d. per mile, whereas the Time and Mileage Charges' work out as follows: 60 hours at 6s. 4d., £191 800 miles at 11d. per mile, E38 bs. 8d. Total, £57 6s. 8d.
Making Calculations
"Please tell us if we are using the Tables correctly. We think 'they would be easier to follow if you would publish some examples to assist the operator in making costing calculations."
This problem arises, as in the other, because of the mistaken use of the time and mileage charges figures. In this case the operator is trying to use figures for time and mileage figures for periods in excess of the 44 hours week, whereas in the other case the period was less than the standard week. Otherwise the solution is as in the first case.
Another reader writes asking me to deal again with the problem of assessing a claim for loss of earnings. This is the claim which an operator makes when, as the result of an accident, his vehicle has been out of commission for a period and he claims, through his insurance company, not only for the expense of repairing the vehicle, but for consequential loss of the use of the vehicle for a period.
The subject is often misunderstood because, instead of referring to it as loss of earnings, it is described as a loss of profits. That is a serious mistake, for a claim for loss of earnings can be, and usually is, much greater than a claim for loss of profits only would be.
The matter is best understood if it is set down in a formula. The claim should be for the probable total earnings of the vehicle during the period for which it is out of action due to the accident. From that total must be subtracted the savings accrwing to the operator because the vehicle is not in service and therefore not consuming fuel, id tyres; not costing anything for maintenance or for ciation as calculated on a mileage basis.
items to be considered are: (I) Total anticipated igs for the period; (2) establishment costs for that 1; (3) standing charges exclusive of wages: (4) wages; arming costs. It should be realized that all the diture covered by (2) and (3) still continue to he red and should be included in the claim.
regards (4) wages, whether that should be included xis on whether the driver can be otherwise employed O. his wages arc not a loss to the operator, or whether ust be paid a wage while he is stood off. All the ;dilute on (5) is presumed to be saved so that perator cannot claim for that. The claim comprises the probable earnings for the period unning costs and possibly wages. ce the case of a 6-ton oil-engined on the Manchester-London run ing approximately 800 miles per
It is out of commission for five ; so that the operator loses the sum i would normally have been earned g that period. I am told that the y earnings are £50. The total loss venue is thus £250. The running costs, comprising Kliture on fuel, oil, tyres, some part of maintenance a proportion of depreciation amount to 8d. per mile. is equivalent to £26 I3s. 4d. per week which the nor saves because the vehicle is not on the road. The savings for the five weeks amount to £133 6s. 8d. and lat basis the claim should be £116 13s. 4d.
at would be a fair claim if the circumstances were that the driver could not be otherwise employed, but o be paid his wage. If, however, he can be put on to ler vehicle or be otherwise employed so that his wage ved, it is not fair to debit the amount of his wage St the claim. Taking his wage as around £7 per week, is a further £35 te be deducted from the £116 I3s. 4d., tg £81 13s. 4d.
e recent announcement by the Road Haulage Associathat rates should be increased by 7 per cent. is futly ied, in my opinion. It has naturally aroused the :st of all hauliers. but not in all cases to the same v.
Regularly Employed
ulage rates arc assumed to be calculated on a scale provides for a minimum profit from the conveyance )ods, on the assumption that the vehicle is regularly 3yed throughout the year. The profit margin is small leaves no reserve to cover emergencies.
consequence, when he meets idle times he is prepared ;cept work at whatever rate is offered, inevitably an monnic rate which also spoils things for fellow hauliers almost immediately becomes the standard charge for ransport of that particular commodity.
all instances in which traffic is liable to fluctuate, the lized rates should be sufficient to yield profit at the end se year. If such rates arc charged while traffic is ng; enough money will be earned to carry the haulier igh slack periods.
till illustrate this principle with an example, but before ; so I should remind readers that rates quoted in the are given on the assumption that vehicles are fully oyed throughout the year. Take the case of a 6-ton fully engaged for 40 weeks in a year and running niles per week. Let me assume that it earns Is. 6d. per
mile, so that the weekly revenue is £45: The operating cost is Is. Old. per mile, equivalent to £31 15s. per week. Overheads total £3 10s. per week so that the net'profit is 19 I5s. per week. For the period of 40 weeks, therefore. the profit is £390. This is not exorbitant and part of it in many instances will be paid off in hire-purchase instalments.
At the end of the 40 weeks there comes a lull. The instalments and other overheads have still to be paid. Assuming that a little traffic, involving say 200 miles per week, is obtained at a cut rate of 1s. 3d. per mile, with an operating cost of Is. 10d, per mile, there would be a net loss of 7d. for every mile run.
This equals a loss of £5 16s. 8d. which, when establishment costs are added. will amount to a total weekly deficit of £9 Gs. 8d.. During that 10-week slack period. therefore. £93 6s. 8d. has been lost. Deducting that from the £390• profit made during the busy period. the net annual profit .• has been diminished to £296 13s. 4d.-a meagre return from the operation of a 6-tonner over 26,000 miles.
The proper way to calculate a rate is to take the mileage covered in the busy period and call it the annual total, disregarding the distance run _during the slack period. Sis hundred miles per week for 40 weeks is 24,000 and we take this figure as an annual total, which gives an average of 480 miles per week.
Take that as the basis on which the rates should he calculated. This means that the earnings should be approsijnately Is. 71d. per mile. The extra profit, compared with the rate previously charged, would thus be 24.000 times Ild.. or E150, and this sum would tide the haulier over the 10-week slack period.
Less Than Agreed Rate The sugar-beet campaign is now long past, but while it was going on I met a man who told me that he charged less than the agreed rate when the farmer had built up a big heap of beet which uould provide the opportunity to use a maximum capacity vehicle.
It is of interest to check the potential profit of a vehicle of this kind engaged on the haulage of sugar-beet. The standard rate for a 15-mile lead is 10s. 3d. Assume that the haulier cut his rates by 3d. per ton in a case such as that specified. In a week he would probably take 140 tons over that lead and his revenue would be 170 for a mileage of about 360. The operating cost would be approximately 2s. 6d, per mile, a total of £45 per week, Adding £8 for the wages of a second man and £8 for overheads we get a figure of 461 for the haulier's outgoings.
The net profit is £9 per week and although that, is not a great deal it is not bad: it would probably be called reasonable by most sugar-beet hauliers. It would only be so regarded, however, if there is sufficient work in slack periods to keep that vehicle engaged regularly. Off-season work for lorries usually engaged on sugar-beet haulage is mostly the carriage of bricks and road-making materials. At the present time there is a good demand for such traffics and it thus seems reasonable to expect that the special rate thus suggested would be sufficient. S.T.R.