Cases Alter
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Circumstances
SOME time ago I was consulted by an operator in connection with a contract for the haulage of beer. After reviewing the terms he had been offered, I advised him not to have anything to do with it. Six months later this same haulier informed me that a competitor, who had taken on the contract, was doing well out of it.
Eighteen months later I met the haulier by appointment at the Commercial Motor Show at Faris Court. I armed myself with all the statistics I had available in connection with beer transport, particularly those with regard to the risks of loss.
After discussing some features in connection with the use of articulated six-wheelers on a particular contract my friend had been offered, I ventured to mention beer.
"Oh, yes," he said, "you are thinking of that business I was offered a year or so ago. Well, I am glad I took your advice over that after all, because the man who first took it over failed, and a second man also went out of business.
"Someone else is trying it now," he continued, "but there is evidently something wrong again, because the brewers have again asked me to take it on. I have told them that if I do, it will have lobe at my price."
So that was that. I was right. In the matter of contract rates some people are hard to convince.
The subject matter of the rest of this conversation was not exactly concerned with a contract but with work which occupied the full working hours of a 30-cwt. van which this operator was running in the service of a firm whose product was carried in cases. Each case when full weighed 3 cwt., so that 10 cases made a full load. The traffic was between the factory, A, and five different destinations, 13, C, D. E and F, as indicated on the sketcn map accompanying this article. My friend's headquarters were quite close to the central factory, so that 'practically no dead mileage was involved.
No Return Loads The full cases were carried from A to B. C, D. E and F, and the empty ones returned to A. The number of empties was always the same as that of the full ones, and as they were closed cases and could not be "nested," the load of empties was just as much a full load for the van as the full ones. There was, therefore, no possibility of the operator's being able to obtain anything in the way of return loads.
Half an hour was the time necessary to load, and it took just as long to unload, so that one hour was involved in terminal delays for each load. He was paid 8d. per full case and 3d. each for empties. With this information, and the mileage shown on the sketch, it is possible to draw up a table of costs. The standing charges in connection with a lorry of this capacity amount roughly to £6 12s. per week, which is equivalent to 3s. per hour, and the running costs n12 are approximately 4d. per mile. To facilitate the necessary calculations it is convenient to work out the time charge as 0.6d. per minute. .
Taking journeys to B as an example, the calculations which have produced the figures in the Table are as follows: The mileage is 12, and the time taken for travelling this distance was, I am told, 25 minutes. That is entered in the third column. Next, there is the 60-minutes' terminal delay, giving a total of 85 minutes for the journey. The time cost at 0.6d. per minute is obtained by multiplying 85 by 0.6d., which gives 51d.
In the next column comes the mileage cost-12 miles at 4d. per mile. Following this I have set down the total cost, that is, time cost plus mileage cost, which makes 99d. The last column gives the revenue for 10 cases, for each of which he is paid 8d. on the outward journey and 3d. on the return journey, which makes 110d, for the 10 cases.
Roundabouts and Swings
The difference between the last column and the penultimate one is the profit or loss made on the journey, and on the face of it, it looks as though an excessive number of journeys to D and a scarcity of runs to E and F would make the work more or less a labour of love and, of course, conversely, if the journeys to E and F were more numerous than those to B and D, then the haulier -concerned would certainly be in clover.
Actually, the conditions arc such that, week in and week out, the work is divided fairly evenly between the five places; the average is seven trips per week to each. On that basis, it is easy to calculate that the total revenue is £16 Os. 10d. The cost is made up of £6 12s. standing charges, plus 350 miles at 4d., which is £5 16s. 8d., giving a total for these two items of £12 8s. 8d,
If I take the establishment costs to be 'El Is. 4d., then the haulier's weekly expenditure is seen to be £13 10s., and his profit is that amount subtracted from £16 Os. 10d. revenue, which is £2 10s. 10d. It is not an enormous profit, but, on the other hand, it is not unreasonably low. It amounts to approximately 18i per cent,
"Well," I asked, "what are you worrying about? This seems to be a comfortable little job. It is not making your fortune, but it is keeping one of your lorries steadily at work, which, in itself, is quite a good thing. I thought that you were settled for life on that job." • So did I." he replied, " but now I find I am not." "Has somebody been cutting your rates, then?" 1 asked. "No one is likely to do that," he replied.
"Why are you so sure of that?" "Because about six months ago a man quoted rates• considerably below mine. Seemingly, he carried on all right for a week or two, and then began to take other work on the same vehicle to eke out his obviously inadequate income. In the end he upset the factory's schedule. That cost the management a lot of money, and they quickly came back to me. It will be a long time before they let any other haulier take a hand in this particular job." "Good for you," I said; "but what is the.trouble, then? " • "The factories are on short time and want fewer cases. They have asked me to quote per case, and have told me I must understand that I shall rarely be given full loads," "That is going to be difficult. Cannot you get them to let you have full loads for part of the time, so that you will be able to take other work in between?"
"No, they must have their deliveries of full cases and their collection of empty ones spread evenly throughout the week. Besides, they are afraid that if I do that I shall upset them in the same way as the man who cut the rates and then upset their schedule."
"I see. Is it to be a flat rate again?"
"No, that is the real trouble. I am to quote independently to each factory. I shall have no difficulty in connection with E and F, which are those nearest to headquarters, but I can See trouble coming with the others, especially D, where, as you know, I am at present making a loss on the fiat rate, and am able to carry on at that rate only because of the greater profitI make on the short runs to E and F."
Yes I agreed, " you will certainly be in difficulties there. I suggest that you will have to let them know what the conditions are."
"I have done that; they know exactly how matters stand and they are prepared to be reasonable. They are, nevertheless, fully determined on having independent quotations. There is a slump in their particular class of business, and I believe they are having rather a bad time just now."
"You want me to help you figure out your prices, I suppose? I believe you have some figures for cost and profit on this job, have you not?"
The figures he produced were those to which I have already referred, and which are set out in Table I. They show the time, cost and revenue for each journey to each of the five different terminals.
"01' course," I said, "these will not be a lot of use now because, under the new conditions, you will be unable to make the same amount of profit as you did. You see, you will now have to make a charge in proportion to the load you carry. Sometimes you will have only a half-load and on occasions possibly less than that, but your costs will, in fact, be just the same as -though you were carrying a full load all the time. Your standing charges, obviously, will be unaffected, as will your establishment costs.
"You are running the same weekly mileage with your vehicle, and it is not at all likely that the petrol you will use will be appreciably less for a week's running than it was before. Your running costs will still be 4d. per mile. All the contriving in the world will not, -however, make it agreeable to your customers for you to charge as much for half a load as you have been charging for a full one.
" You must remember that your customers are trying to cut costs. They will scrutinize your charges most carefully, not with the idea of trying to catch you, but so that they can ascertain what saving you are making, a saving which they will expect you to pass on to them. They will strongly resent even the most seemingly innocent deception, which I should, in any case, deprecate."
Journey to Full d.
B C D E. F 15 12 18 11 11
"What do you suggest then?"
"That you should make up your mind to stand in with your customer, and take a share of his troubles. Offer to cut your own profits while his are low. You will reap the benefit when better -times come, or, at least, you should do if you are on such terms with him as I understand you are.
"Suppose we begin by discussing what is the least you can manage on in the way of profit per week from the operation of this vehicle. With that as a basis, we can then draw up a reasonable schedule of pries."
"For the time being," he replied, "1 am willing to accept as little as 30s. in profit."
"All right. Now this time, in making up the schedule, instead of using figures of costs, I will set down figures of charges. Add 30s. to your weekly £6 12s. standing charges, and your £1 Is. 4d. establishment costs. That will give you a total of £9 3s. 4d. Take that amount as a basis for calculation of your hourly charge.
"In a 44-hour week you should make 4s. 2d. per hour That is 0.85d. per minute. You should charge your own costs for running, that is 4d, per mile, as you have made full allowance for your profit of 30s. per week in the fixed charges."
With these amounts as a basis, the figures which are set down in Table 2 have been calculated.
The hourly rate of 4s. 2d. works out at 0.85d. per minute, as compared with 0.6d., the figure which applied in the previous calculations, which gives us the data as set down in Table I. It should be noted that this 4s. 2d. per hour includes profit, ' whereas the 3s, per hour used in the earlier examples
was net cost. 7
The preliminary figures in Table 2 need no explanation, as they correspond with those in Table 1 It is the figures in the last three columns which are different. Taking the first line as an example, the time charge of 72d. for the journey of 85 minutes is found by multiplying that 85 minutes by 0.85d. The charge for mileage is for 12 miles at 4d., which is 48d., giving us a total charge of 120d., which appears in the last column.
The figures in the last column are used to calculate the charges per full and per empty case, as given in Table '3 The point is that, in the journey to B and back, the operator must earn 10s. He carries, in the first place, only six cases, so that his revenue per case must be 20d.
I have assumed that he gets approximately three times as much for a full case as he does for an empty one. The charge for an empty one is, therefore, 120d. divided by six,
which is 20d.; a quarter of that is 5d. for the empty case; and three-quarters of it is 15d. for the full one.
If he carries only five cases per trip, then the 120d, must be divided by five, which gives us a figure of 244. per-case per trip, and then, following the procedure just described, he must charge 6d. per empty case and 18d. per full one. The same procedure has been applied throughout.
Having got so far, I said to my friend, "Your customer is going to be a little staggered when you quote these figures to him."
"I am afraid he is," he agreed, "but I see no way of reducing these rates if I am still to make that minimum profit of 30s. per week."
"Would it improve matters," he asked, "if I were to put a one-tonner on the job instead of this 30-cwt. van?"
"It would not make a lot of difference," I replied. "You see, the standing charges would be £6 10s., as against £6 12s. Your establishment costs could not be less than £1, and I
presume you would still want to make your 30s. per week profit. .
The total of fixed charges is thus £9, as compared with £9 3s. 4d., so that your rate per hour would be 4s. Id., as against 4s. 2d. Your running 'costs would be a little less, probably 31d. per mile."
"Would you mind," he asked, running through the fit:Air& for the journey to B with six cases, so that we can have a direct coMpariSon of the rates I must charge if I use a one-tonner, as against a 30-cwt. machine?"
"First of all, 4s. Id. per hour is equivalent to 0.82d. per minute. For 85 minutes that is practically 70d., to which you Must add 12 miles at 31d., which is 42d. The total charge for the round journey to B is thus Ill& as against Ind. Dividing by six gives us approximately I81d. to be earned for each case, taking a full and empty journey. Proceeding as before, that means that you will have to charge 441. for. an empty case, and 137(d, for a full one, compared with .5d. and I5d. when you use your 30-cwt. vehicle,"
In .my next article I shall deal with the various methods of assessing depreciation on vehicles, showing hoW income
tax allowances are calculated. I shall also demonstrate how little use it is for hauliers to accept income-tax figures as exact items for the depreciation of their own vehicles.
The operator requires stable figures which do not fluctuate from year to year, but continue at a flat rate throughout the life period of the vehicle. There are three different methods for arriving at such figures, each of which will be explained. S.T.R.