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Milk to be Carried for Scandalously Low Rate of Profit

26th October 1945
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Page 22, 26th October 1945 — Milk to be Carried for Scandalously Low Rate of Profit
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Which of the following most accurately describes the problem?

Allowed by the Milk Marketing

Next to Nothing! Board to Hauliers Engaged Upon

the Carriage of Milk

TIIE Milk Marketing Board is nothing if not consistent. For years I have pointed out that it has steadily been depressing the profits (if any) which hauliers make on the carriage of milk. The Board is still conducting much of its activities in that same direction.

The distribution of milk, and particularly its collection from farms and its delivery to dairies, has for some time been undergoing a process called " rationalization." So far as the haulier is concerned that means his round of collections is being revised, his delivery points varied, and the rate which be is to receive for conveying the milk, reduced. The number of miles he may have to cover in his round may rise or fall; the gallons he may have to collect on his round may rise or fall. One thing is certain, the rate which he is asked to accept always falls; at least. I have never heard of a rise.

Unfortunately, in 99 cases out of 100, the haulier, afraid of losing his business, accepts the reduction with little more than a protest. lithe haulier happens to be made of sterner stuff, or if the reduction in rates be too drastic even for a haulage contractor to stand, he has the option of bringing the matter before what is called a Joint Haulage Committee. This comprises six representatives of the haulier, six of the Milk Marketing Board, and three of the dairies. His case is then adjudicated upon.

Regular readers of these articles may recall that in the issue dated October 3, 1943, I referred to a sitting of this Committee which I attended. I described the proceedings as fair, making one criticism only, that the Board representative -was not called upon to retire as was the haulier's representative while the decision was arrived at by the Committee.

I have recently attended another meeting of the Committee and I find that that criticism does not now apply. I have, however, other criticisms and the principal one is this, that in my view the hauliers' representatives are either not sufficiently strong to make their opinions felt or they do not .do as much as they should on behalf of those whom they represent.

With this article I reproduce two sets of figures. These refer to the proceedings in the case of a haulier who had previously been carrying milk at the rate of I id. per gallon; his round of collections a n d deliveries had been " rationalized." The mileage covered under the new arrangement was practically the same as before. Admittedly, the gallon

age was a little more. The Milk Marketing Board advised him that his rate was to be reduced from lid. per gallon to Id. As his records showed ,that he was not making excessive profits at lid. per gallon, he became one of the few to

register a protest and make that protest effective by having this matter referred to this Joint Haulage Committee.

The basis for my opening remarks, the justification for the strictures I have passed upon the haulier members ofthat Committee, lie in the last paragraph of Table I, which, it should be noted, represents the case put forward by the Milk Marketing Board for the reduction of the rate to I.04d. per gallon.

The last line of figures is " overhead expenses (and profit):-102,200 (gallons) at lid., £639." That sum of £639 has to ccwei the establishment costs and profit relating to the operation of five vehicles. Let us consider that figure from two aspects.

In the first place, the Milk Marketing Board's own figures for expenditure which, as might be expected, are considerably below those which the haulier can demonstrate to apply are, in round figures, £4,200, that is without provision for establishment costs at .all. The £639 is little more than 15 per cent, of the operator's bare_operating costs for his vehicle, and I am of the opinion that no haulier attending the Committee ought to have passed that amount. because it must be obvious that it is totally inadequate That is, considering it on a percentage basis, for even operator knows that if his business is to be run at a reasonable profit he should have a minimum of 15 per cent.. net profit over and above his total expenditure, i.e., his operating costs plus establishment costs.

Now, look at those figures front another angle, and for this I would refer. the reader to the corresponding portion of Table II, wherein are set out the haulier's auditor's figures for actual expenditure. Let me take only the first three items in that list. Motorcar and garage are set down at £156 per annum. Is that amount reasonable ? I am -quite confident that his expenses on his motorcar, in connection with the organization of this milk haulier's business, could fairly be expected to exceed that sum which, in actual fact, is barely sufficient to cover 7,000 miles of running per annum: The second item is for clerical services.The sum stated is £104, i.e., £2per week for the services of a clerk not merely to tot up the number of gallons of milk conveyed, the number of miles run, the returns, but also to comply with the numerous regulations which every milk haulier is to-day, called upon to follow in the course of his business. The sum is ridiculously small.

The third item is, " sundry expenses—rent. heating, accountancy, etc., £104." No one, I am sure, can suggest that the sum set down is excessive.

The total of those three items is £364 and, if that be. subtracted from the total of £639 allowed by the Milk Marketing Board, £275 is left. And that is all that is allowed to this milk haulier to cover his own services as manager and as an engineer, supervising the maintenance of his fleet, as well as profit for the operation of five vehicles —five vehicles engaged in one of the most onerous types of haulage in the country, which involves seven days' work every week for 52 weeks in the year.

I could go a .step farther and reasonably deduct from that £275 the amount set down as the fourth item near the bottom of Table 11, namely, interest (£130) on the capital invested in _the business. That leaves £145 as the net profit for the operation of this milk haulier's business and, in my opinion, it it scandalous that that figure should be allowed to stand.

I have dealt with those figures separately and first of all because there is sufficient to justify this operator in complaining that he has had a raw deal. In actual fact, in this particular instance, the -haulier's situation was rendered far worse because, apparently, the Committee decided -to pay no attention whatever to the auditor's figures for actual-expenditure. These showed that the haulier's operating costs alone, without reference to the items of establishment costs with which I have already dealt, totalled not £4,200 but very nearly £4,800.

Accordingly, on operating costs alone, be has already lost, by having to submit to the estimated figures of the Milk Marketing Board, as against the figures of his own auditor, £600, without the-£630 the Board has graciously allowed him for establishment costs plus profit. Little wonder that when the verdict of the Committee was announced the operator was completely nonplussed, because it must be appreciated that his option is either to accept the ruling of the Committee or to refuse to carry.

I have no criticism of that for, in the very rare event (if it has ever occurred) of the Committee ruling being entirely in favour of the haulier, the Milk Marketing Board is likewise bound to accept that decision. The only difference is, of course, that the Milk Marketing Board goes on for ever, whereas this haulier, like many others in a similar position, is equipped and possibly licensed to carry only milk, so that his alternative is either the dole or acceptance of the Board's terms.

Now, to turn to .a discussion of the figures in the body of the Tables. I should first of all explain that whilst the

data relate to five vehicles, it was known and accepted by both parties that only four had been operating from May of this year up to October; the fifth vehicle was about to be put uponthe road. The four vehicles had been doing the

work, but at some inconvenience, not so much to the operator as to the Milk Marketing Board, because the use of no more than four involved one of the ,vehicles doing a second journey in a day; and in summer that meant that milk was delivered late and liable to be going sour.

The Milk Marketing Board, therefore, accepted the figures as applying to five vehicles, that is, up to a point, and to that I will return.

The figures for annual gallonage were agreed, also the figures for annual mileage. The Board gave a little more in respect cif wages than was claimed, because I understand it allowed a 54-week year so as to provide for holidays with pay. Instead of appreciating that this was an error on the part of the operator in preparing his figures, the representativeof the Board made a great point of the fact that it had been magnanimous in respect of the amount for wages!

One item which appears in the haulier's figures is absent from those of the Milk Marketing Board; namely, the sum of £180 claimed as the expenditure on the hire of outside haulage. The contention of the Board's representative was-that as five vehicles were now available to do the work of four, that should not be allowed. He made no attempt to explain how five vehicles working seven days per week, for 52 weeks per annum, are going to be kept in the efficient state which milk haulage demands, without the occasional need for laying-up for maintenance and overhaul. Quite apart from the fact that there are such things as accidents and breakdowns which are-unavoidable but which still involve the hire of ether vehicles at considerable expense in order to maintain the service. In effect, the absence of that 2180, notwithstanding the generosity of the Board in respect of wages, means that the tdtal of standing -charges is, according to the Milk Marketing Board; £1,958. as against the auditor's figures of 22,060.

To turn now to the running costs. Ten miles per gallon had-been agreed as a basis for the calculation of expenditure on fuel, and this had to be charged at Is. Eltd. per gallon, that being an agreed average figure.

The Board's representative again made much of the fact that .12d. had been allowed for oil as against the operator's claim for .108d.

A considerable difference is to be noted between the two sets of figures in respect of the expenditure on tyres. The Board estimated 1.22d. per mile. The operator produced figures to show that, in the course of 12 months, covering the same mileage as is necessitated by the new contract and operating under pOssibly better conditions than those brought about by the rationalization of his round, he had actually spent £846 on tyres and tubes, equivalent to 1.987d, per mile—id. per mile more than the allowance made by the Board His claim to have spent this amount was dismissed quite airily with a comment suggesting in effect, although not actually, that the tyres on his vehicles were good for many more thousands of miles, and he was attempting to overcharge the Board on that item. On the contrary, the figures given indicate an average mileage approximating to 9,000 per set, and my contacts with hauliers all over the country suggest that that is a fair and reasonable estimete.

On the item of maintenance there was virtual agreement, although, here again, the Milk Marketing Board's figures were on the safe side-1.10d. as against 1.174d.

As regards depreciation, the Board's figure of .75d, involving, in the case of these vehicles, a life of seven-anda-half years of the most arduous work that commercial vehicles are called upon to perform, is quite inadequate The operator's suggestion that 1.08d., say id., per mile should be allowed, is, to my mind, fair and reasonable.

The net result of the difference between the two sets of figures is that, whereas the Milk Marketing Board estimates that this man can run his vehicles for £2,286 per annum (running costs), his actual expenditure is shown to be 22,732, a difference of almost 2500 per annum, nearly £10 per week.

In the previous article, in which 1 dealt with this matter. I expressed regret that the haulier did not provide adequate information as to his costs to serve as a basis for fair anl reasonable adjudication by the Committee.

In this case no such complaint can be made. Not only were the figures available but the operator brought with him his own auditor to vouch for them. The figures were, in effect, ignored, the Board adhered to its totally inadequate allowance of 2639 for establishment costs and profit. but added .06d. to the rate, bringing it to 1.1d. That is to say, it added £25 to the total, so that this operator will enjoy the spending of a clear net profit of £170 per annum from the operation of five commercial vehicles engaged on milk haulage. I hope he will be wise in the spending of it


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