WHY RATES SHOULD NOT
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kRBITRARILY FIXED
Solving the Problems of the Carrier
There is, says S.T.R., No Fear that Freedon to Compete on Price, as Well as on Service Will Bring About a Recurrence of the State o, the Industry as it was in 1925-1930 THIS is an article which has been delayed. It relates to a conversation I had with a haulier at the end of March last. I would liked to have written it before. but the series on rates for municipal haulage was more
urgent. .
The argument with my haulier friend was about certain paragraphs in .my article, "The Wise Men from the East," which appeared in " The Commercial Motor '' dated March 24. Two of the statements I made were criticized. First, after discussing the pros and cons of a stabilized rates" structure as applied to road haulage, I ventured the opinion that such a structure would not be in the best interests of either the industry or of the country as a whole. The alternative, I wrote,, was free competition amongst hauliers, each operating in a business-like manner and charging such rates as would show a-reasonable profit on outgoings, without regard to the next man, and certainly without regard to the railways.
Then I pointed out that, if rates be made statutory—that is, fixed by the Government, with or without guidance from the industry— these would be maximum rates, hauliers being permitted to cut them as they liked, without let or hindrance. In other words, statutory rates would not be a bar to rate-cutting, which is the only purpose which those hauliers, who are .so strongly in favour of them, have in mind.
The opening remarks of the haulier, fOr whom I have the greatest respect, certainly seemed the reverse of friendly.
• . "You're a nice chap," he said; '! a proper Quisling, a turncoat! "
" Hullo, hullo! " I replied. "Now what have I done? " This article of-yours in ' Cala.; " he said.
" Which one, may I ask? "
" That called 'The Wise Men i from the. East,' " he replied." I suppose you include yourself amongst them? If you do, I think you'd better go back there." •
" Now, come along," I said; " cut out the rough stuff and tell me what's biting you."
Leaving Hauliers Free to Cut Rates?
"Advising hauliers to charge what they like, and telling them that stabilized rates will encourage rate-cutting; what is more, leave them free to cut rates as much as they like. And that after all the years we've spent trying to draw up a rates schedule and all the hard work we've put into the job." .
" Yes, I know that, but how far have you got? What rates have been agreed?"
`'A considerable number—corn, bricks, sand and ballast, lime and basic slag, coal, municipal hire, to name just a few.
" Just a few," I answered. " You mean that's the lot, don't you? "
" Well, perhaps those are all that have been published, but we have examined a great number of streams of traffic."
" Streams of traffic," I rejoined. " If there is one phrase that makes me see red it is that one. The truth is that you have come to agreement., in certain areas, about rates for local traffic and in no two areas are the rates alike. Moreover, the differences are considerable. Is that not so? "
" There is, perhaps, a certain amount of truth—," he started, but I interrupted.
"Not merely a certain amount, but the whole truth. What I said was a plain statement of fact, and you can't get away from it. As for trunk traffics, you haven't done a. thing. Why haven't you, in nearly five years? "
"We have," he protested. " We have been discussing the Leeds Schedule in relation to that."
"A complete waste of time," I retorted. "The Leeds Schedule is based on one-way loading and the' rates are so high' that they wouldn't stand the stress of peace-time competition for five minutes." 'But if they are made statutory," he protested, " they won't be subject to competition." , ." That's just where you people are so utterly and completely wrong," I retorted. " Statutory rates will he maximum rates. Operators will be free to quote under them, but not over them."
" I c,annot understand how and where you get that idea," he said. "Surely when rates are fixed they are fixed, and no one will be allowed to depart from the schedule."
The principle of rates and prices fixation by the Government has always been that the rate and price should be maxima," I replied. " Railway rates were first fixed by Parliament, I believe, in 1891 and 1892. The principle underlying these Orders was definitely that of stipulating maximum rates, above which the compani6 could not go, but each railway had complete freedom in a downward direction.
Justifying a Rates Increase
" In 1894 it was ordered that, if any rate be increased, the trades affected conld appeal and the railway concerned would have to justify the increase as reasonable."
"I think you are wrong there," he retorted. " You are a bit out of date with your railway-rates information."
" How am I out of date? " I asked.
"According to my recollection," he replied, " there was a clause in the Railways Act, of 19,21, which laid down the obligation to charge standard rates ,without variation." "You should finish your quotation, my friend," I "What have I left out? "
" Just half a dozen words," I answered, but they make a world of difference."
" What are they? "
" Except by way of exceptional rate," I replied, " and you know the extent to which the railways have made use of that way out—or you ougLit to .know." He looked rather crestfallen at that, but came back at me from another angle, " All right," he said. " I'll give you that; but I see no reason why you, of all people, should turn around and recommend hauliers to start rate-cutting hgain. We have always regarded you as the stalwart supporter of standard rates."
" Not a supporter of standard rates," I corrected. " An ardent and active opponent of rate-cutting, if you like."
" But what's the use of talking about rate-tutting," he asked,' "if there be no standard rate's? You edn't cut what isn't there to cut."
This, I thought to myself, isn't too good. He's answering me out ofrny own mouth. T'd better hedge a bit, while I think over that one.
Policy of Rate-cutting Not Advocated
" One thing at a time," I said. " You say I have recommended haulieis to cut rates. I most strenuously deny that. Where did you,get that idea from?
" In this same article," he replied, and in two places. In on you recommend free:competition; in the other you say that stabilized rates will not prevent rate-cutting."
" I don't see how that is recommending rate-cutting. We've already discussed the second statement, which is a matter of fact.. I say, merely, that statutory rates will apt stop rate-cutting. I am not, in so. saying, to be taken as eta:enraging "
" Well, -perhaps not; but you are when you recommend free competition, and, in any ,case; I do insist that you were at one time an adVocae of standard rates. If I remember' rightly, you Were once engaged, by A.R.O. to help compile a schedule of such rates."
" That is quite correct," I agreed. -At that time the industry, . as represented by A,R.Q., was doing its best to comply with, the recommendations of the Transport Advisory Council, -which were that ,hauliers should build up a rates structure for their own industry, . "-It was, indeed, the experience gained while on that job, supplemented -by what I came to know of the_ proceedings of the Road-and Rail. Central Conference and Area Committees, which convinced me, that-stabiliiied rates were unattainable, and,.more, that the principle was unsound, and that, if statutory rates be ever enforced, they would be the ruin of our industry to the extent of ceasing to exist as we know it to-day." . . ." But, surely," he protested,‘.",if you ,,go •back to free
competition:—" .
Which ,we've. never left". I interrupted. , "Alt right," he 'said. ". I accept that, and I'll put, what I want te say in another way. If, after the war, we again have the free competition you advocate, we shall.-have all ,
the old troubles of rate-cutting against which you, yourself, have fought so hard."
" Not necessarily," I replied, " but, before we go an!, farther, we'd better come toagreement 'on what we 1110,1Y1 by rate-cutting. What have you in mind?. "
" That's easy," he retorted. " Suppose I'm carrying traffic from. here (Manthester) to London for £2 a ton, and a haulier near me offers to do the job for 388.; I reckon lie's cutting my rate."
" Yes," I replied, " that is what might call the typical haulier's interpretation of the term, hut it's all wrong." "All wrong," he almost shouted., " What on earth's wtong with it? "
" Just one little word of two letters—the word ' my.' fir) long as it's only your rate, he is justified in-cutting it if he can do so, and still make a fair and .reasenable profit."
• Well, I'll be ; this is getting us nowhere," be remonstrated.
. " On the contrary," I said; " it is getting us somewhere, if you ivill let me explain.
Who Shall Say it is Price-Cutting? •
" 1 will. begin With an analogy. Before ,the war there were at least four big motor manufacturers turning out a popular type of light car of about 10 b.p. -Every year, at each successive Motor Show, there was a fight between them' • as to which could offer its car .44 the loweSt price. , Notwithstanding this price-cutting—for, according to your standard, such it was—the cars, each. year, seemed to '144,4 better and better.. Moreover, every one of the, manufacturers 'continued to make profits and pay dividends." -'And who got the benefit?" he asked, " It seems to me that everyone benefited," I answered. " More, peoPle were able to buy better cars, the inanufae-hirers made more profit, more and more workpeople earned bigger-wages, add the Government drew more in taxes."
"A very pretty picture, I must say," he grunted, " but there's a lot of difference betWeen making motorcars and heavy haulage."
"A differahce 'in procedure, I grant you, but little or no difference in the underlying principle of price or rate fixing, so that business can be got and a, profit earned."
" But there can't be any difference worth mentioning, between the cost of running one haulage business and that of running another," he objected.
" Can't there? I'll show you that there can, You have 14 lorries, and a total pay-load capacity Of 140 tons.
" Now, I went through 'your costings just before the lA ar, if you remember. For one thing; you were worried about your overheads. They came to round about £5,500 a -year. Iu the end we decided that there wasn't much that could_ be done about that. You were running three depots—one each in Manchester, Cardiff and London; there were three active partners, two managers, and a fairly Well-paid staff. •. And I gave.you My assurance that, for your type of business, the incidence per ton of pay-load—just over 15S.— was not excessive, as compared with other operators of the same class doing the same kind of business.
" Your running costs were rather below the average of The Commercial Motor ' Tables; you *ere buying fuel, oil, vehicles and tyres at—dare I say itcut prices—your vehicle insurance was at fiat rates, so that, instead of 7.97d. per mile for an 8-tonner, your figure was 7.71d.
" Now, with your 8-tonner you were averaging, on
the London trip, two-and-a-half journeys per week. Sometimes you did.three journeys, sometimes two. Your average weekly tonnage was 30, and your average rate per ton, taking the good with the bad, '32s. 641. Your revenue was:
therefore, £48 15s.
-" The average weekly mileage per vehicle, was 1,000, and at 7.71d..kr mile that is £32 2s. 6d. Your overheads .fr,)r the onevehicle were £6, and, on top of that, there weie drivers' subsistence and expenses, etc., amounting to another £2 17S. 6d. per week, so that your total outgoing,. were £41 and your net profit £7 as per week: