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Charges for Furniture Storage

27th April 1951, Page 43
27th April 1951
Page 43
Page 44
Page 43, 27th April 1951 — Charges for Furniture Storage
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Which of the following most accurately describes the problem?

THE correspondent who asked me to write the two articles just concluded on costs and rates for furnieure removal also asked that I should deal with charges for storage. That is a subject on which I have little knowledge. I have, therefore, taken as the basis of this article a paper on the subject of storage rates which was read by Mr. E. B. Haynes at the Harrogate Conference of the National Association of Furniture Warehousemen and Removers in 1949. I present the facts as Mr. Haynes gave them, but as an ordinary article.

In considering the rates that must be charged for storage, the effect of taxation, national and local, must not be overlooked. The standard rate for income tax at 9s. in the pound [This article was compiled before the recent Budget.-En.] is a direct cost to free hauliers and although lessees who have built depositories have escaped part of this tax, they will nevertheless have to provide amortization against the termination of their leases.

How these taxes have grown during the years may best be indicated by an example. In 1908, a company of furniture removers and warehousemen had an assessment of £997. Income tax was at the rate of Is. in the pound so that the schedule-A demand was just under £50. To-day, the assessment of precisely the same buildings is £1,650 and the tax is at the rate of 9s. in the pound, so that the schedule-A assessment amounts to £743; almost 15 times what it was .50 years ago.

Rates which in 1900 were 5s. 11d, in the pound, are now 17s. 3d. These facts and figures emphasize the importance of the schedule-A assessment and rates in the cost of running a depository.

Another, and perhaps still more important cost is interest on capital. Building costs were once 4d. per cubic ft.; they rose to 6d. before 1914 and are now Is. 6d. That means that a 250,000 cubic ft. unit was once built for £4,166, rose to £6,250 and now costs £18,750. Adding land costs and the cost of fittings it is considered that a warehouse which used to cost £10,000 will now involve an expenditure of something like £25,000 in inner London, and perhaps more if a development charge has to be met also.

In this connection, the same point as that which I have often put forward in assessing the costs of operating commercial vehicles arises, namely, that it is not the actual initial cost of the vehicle which must be taken as a basis for assessment of rates. but the expenditure which would be involved in the replacement of that vehicle at present-day prices. So far as the depository is concerned, this item is reflected most directly in the interest on capital charges.

A Question of Interest

For example, a warehouse built some time ago for £10.000 has now actually appreciated to approximately £25,000. The question arises: Is the established owner to charge as a cost interest on the present-day value of his building or is he to charge it on the original cost? in considering that question, regard must be had to the position in which the builder of a new warehouse would find himself. He is bound to charge, as a cost, interest on the £25,000. How then can he compete with an old-established company which considers that it is not necessary to charge interest on the present value but on the original cost? It is unlikely that the newcomer will be able to charge a storage 'rate sufficiently high to cover the difference, which would at 41 per cent. amount to £675 per annum.

Surely, the answer to this is that the established owner is entitled to charge as a fair cost interest on the real capital tied up in his warehouse. He would receive that interes. if he sold out and invested the proceeds. It would be reasonable for him to estimate the value of his older buildings at something less than the cost of new ones and, in his cost; and rates assessment, charge interest on that value. Neglecting taxation, the interest he will then receive will be worth no more than the interest he used to receive when the value of the pound was approximately in proportion to the capita: invested and the capital as now assessed. Whatever the attitude of the individual towards this matter may be, it is surely bad finance to budget for interest en £10,000 in respect of a building which is worth £25,000. Such a course merely depresses storage rates against the interest of the owner, against common sense, and against the interest of similar traders. It is more than probable that non-recognition of this principle largely explains the difficulty of establishing and acting upon a more or less standard rate for storage.

Reference has been made to a single unit warehouse of 250,000 cubic ft. It will be of interest to take that as an example and consider the subject of costs and charges in connection with such a depository. The first thing to consider is what can he got into such a warehouse, and so far as that aspect of the matter is concerned it is of no significance whether the building be old or new.

The figure of 250,000 cubic ft. is arrived at from the outside measurement. The first thing to do then is to deduct the footage of walls, floors and roofs. That leaves little more than 200,000 cubic ft. of interior space. Not all of this, of course, is available for storage. There are access passages to deduct, space for a warehouseman's office, perhaps for partitions or for a lift, and space for empty cases and other stores. In some instances it is usual to garage the vans on the ground floor and if this be done, the diminution of the available net space is carried a little further.

Reduction of Space The warehouse may be well or badly laid out, but, at the best, between three-ninths and four-ninths of the floor area will be required for other purposes, mainly for passages. This a:cluces the available storage space to approximately 132,000 ethic ft. or 220 standard van loads of 600-cubic-ft. capacity.

That is a theoretical maximum which is unattainable in practice. No depository is permanently full. Goods go out, the gap may remain for a time and when filled is likely to receive a quantity smaller than that which is replaced. Slowly and surely the space is lost and it may be five years before a thorough re-stocking is undertaken which will increase the immediate storage space by as much as 20 per cent. and bring it back to the original capacity. For this reason, it 's common practice to regard a year as 10 months in calculating the yield; this is the same as saying that the practical capacity of the depository is one-sixth less than the theoretical capacity. It thus becomes 183 standard loads instead of 220.

That assessment of the situation is not the correct one. It was applicable only when a single consignment of four, five or even six loads was as usual or common as consignments of one or two loads. That is not the case to-day. The average size of a deposit is shortened to something like two loads, possibly less, disregarding luggage lots, for it is impossible to stow 25 small deposits 'of two loads each as economically as 10.deposits of five loads each. The total is apparently the same, namely 50 loads, but the former must go into the same space as the latter, which means a further diminution in the net actual capacity of the depository. To provide for that further loss, the old deduction of one-sixth described and calculated above should now be increased to one-fifth. For the reduced capacity of the unit warehouses I am taking 176 full-time permanent loads as the possible maximum.

Theoretical Income

The maximum theoretical income, therefore, from such a unit store would he £2,640 at 25s. per load per month, £3,168 at 30s. and £4,224 at 40s.

For the example I have in mind, a charge of 25s. has been generally in force for some time, but there are still numbers of pre-war deposits contracted for at lower than that and still occupying space in the warehouses. In the experience of this particular operator, the revenue is as much as 15 per cent, less favourable than that outlined above. It may be the case that some of this extra deficit is because it is much more difficult to keep the warehouse tightly stowed with to-day's less efficient labour.

Taking it, for the time being, that the above figures for theoretical incomes apply, the next thing to do is to estimate a comparable theoretical cost, and in this connection reference should be made to Table A. This and Table B

A34 are reproduced from Mr. Haynes' paper, except that in Table A I have omitted the column in which the author set out the proportion of the income which would pass to the Government in the form of local rates and national taxes.

It is to be appreciated that these figures may not apply precisely to the operations of any particular warehouseman. He should regard them as an example of how to set out his costs, and if he substitutes his own figures for those which appear in the Table, the results should be particularly useful to him in his estimate cf what he should earn in order that his revenue should bring him in a reasonable profit.

Readers may regard some of the cost figures as low, particularly the last item. It is essential, however, to avoid any inflation of costs and the figures do represent one concern's experience, giving a total close enough to the convenient figure of £3,000 as the minimum amount of rent required per unit store necessary to operate it without a loss.

Avoiding a Loss

It is reasonable, however, to regard the matter in the light of the fact that no one engages in business just to avoid a loss. The usual purpose is that of making a profit and a real and practical profit from which something can be put to reserve for the replacement of capital goods and purchase of new types of equipment, to enable it to meet bad trading years or unexpected losses, and to provide a dividend for the owners or shareholders who have accepted the risks.

It has been suggested that 4/ per cent, be allowed on the capital invested. Some part of the total amount of £22,000 may have been provided by mortgagees or a bank. If so, they will be well secured and a certain 41 per cent. per annum will be acceptable. The balance will have to be found by shareholders or principals of the business and they will not think 4/ per cent, an adequate return for the risks they take. Assume this balance to be £12,000, the least it should earn for those who found it is 10 per cent. Provision has been made already for 41 per cent., so that another 51 per cent, is desirable for a minimum profit. That represents a figure of £660, which appears in the last item of Table A.

From the figures quoted in the table, it is apparent that the rental of £3,500 per annum is essential in respect of this particular size and type of warehouse if the enterprise is to be well run and worthwhile for its proprietors.

Standard Figure

That means that a revenue of £3,500 per annum must be divided from 176 full-time van loads. The nearest round figure to this is 33s. per month per load, which would bring in £3,485, but 33s. is an awkward figure to deal with, neither is it perhaps desirable to aim at a standard. If the same rate be charged to everyone, then either a wealthy man with a house full of valuable antiques pays too little or a working man pays too much. Moreover, accommodation in a depository is not identical from the basement to the top floor.

It will be logical to assess rental on the basis of two factors, bulk and value, and it is suggested that the following method should be applied. The minimum storage rate per van load of 600 cubic ft. in inner London should be 30s. in respect of what might be called a working man's effects or lodging house furniture; that the ordinary furniture of the middle classes should pay a rate of 33s. 4d. per load for £5 per quarter), and that still better deposits should pay 35s., rising in exceptional instances to a maximum of 40s. per load.

So far as his own company is concerned, Mr. Haynes stated that rates are expected to give an average of 35s. per load and leave a reasonable scope for differentiation between cheap and expensive furniture. How those figures would suit provincial concerns is not given, but in Table B a series of examples of graduated rent totals allotted so as to produce a required annual revenue of approximately

£3,500 is set out. S.T.R.

[The previous articles in this short series on the costs of furniture removing and warehousing appeared in the issues of "The Commercial Motor" dated April 6 and 13.]


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