A Transport Commissioner's False Idea of Costs
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A Collection of Figures Purporting to Be the Gross Working Costs of Motor Coaches, but which, in Actuality, Would Provide for Rates at Less than Vehicle Operating Costs SOME weeks ago I received a document. The circumstances were such that I was compelled, at the time, to, regard it as confidential. Recent events have eliminated the need for secrecy, and I now propose to reveal its nature and to be critical of its contents.
It is entitled "A Note on the Cost of Operating Public Service Vehicles," and is by Sir Arnold Itelusto, C.I.E., M.Inst.C.E., who is, as is well known, the Midland Regional Transport Commissioner. It consists of 14 closely typed foolscap sheets, of which five are compact tables of operating costs and charges. The latter are being used as a yardstick to measure the rate of hire of coaches and buses being operated in the Midland Region.
If I state that, in my opinion, the rates of hire enumerated are so low as not to cover the bare operating costs of the vehicles concerned, readers will appreciate the urgent need for criticism, , . Complete Document is Open to Considerable Criticism Its length, and tne fact that it offers scope for criticism in almost every line, makes it impossible to deal with it fully. I shall, therefore, have to content myself with extracts. I shall follow this criticism by a corresponding set of notes and statistical tables relating to a couple of the most popular sizes of vehicle " in rebuttal," as the law would say, of the evidence this tlocurnent purports to disclose. Sir Arnold begins:— " In preparing the attached tables of costs of operating public service vehicles, it was desired to obtain average results which could be applied particularly to the small operators, owning anything from one to 20 vehicles. It will be fealized that most of the factors vary more or less in each individual case, depending on:— , " (a) The size of the undertaking; .(b) its financial standing and ability to buy cheaply; (c) the standard of wages paid to drivers and staff; (d) the standard of maintenance of vehicles; (e) the class of vehicle owned, e.g., from luxury type to cheapest possible chassis and body; (f) the clerical, inspecting and supervisory staff maintained; (g) last, but not least, the net profit ' expected by operator on actual expenditure.
" With regard to f, no allowance is made for this in the attached tables, as with most of the smaller operators this is a very small item and is considered to be covered by the lower wages usually paid by such. On the other hand, the large operators wh6 spend more on such ." overheads" are also able to buy vehicles and all supplies at lower rates, and by means of better organization can reduce the cost of maintenance and obtain higher efficiency from their vehicles. On the whole, therefore, it is considered that the total working costs given in the tables can be applied, with a close degree of fairness, to all classes of operators."
The assumption, that any coach-operating concern can carry on business without administrative charges is a surprising one. It is not true, even in peace-time, that a characteristic of the smaller operator is that of paying wages less than those paid by larger concerns. In war-time, any such distinction, did it exist, would inevitably disappear, because drivers are generally, able to command high wages.
Nor is it true, in the case of larger concerns, that the economies achieved by buying in balk and by (alleged) more efficient operation, are. sufficient to offset their administrative expenditure.
It can be shown that an average expenditure on administrative and management costs may be anything from £4 to £8 per week per vehicle. Further, the smaller operator may well have to bear an expenditure, per vehicle, in excess of that incurred by a competitor operating a bigger fleet, for the simple reason that the small man cannot always reduce his total of overheads in proportion to the size of his fleet.
Next, it is stated that: " With regard to g, I have assunied that 10 per cent, of gross working costs may be considered a fair rate of profit for the smaller operators, considering the very fluctuating risks and prospects of this class of work. FOr instance, a serious accident to a vehicle may put it out of commission for many weeks, and although the cost of repairs and of compensation for any injury to passengers should be covered by the insurance rates allowed in the tables, these would not cover loss of earning capacity, which would reduce the annual profit allowed very considerably. Similarly, severe weather may have effects, and "the 10 per cent rate is, therefore, considered reasonable, and one at which operators should be content to work "
It seems, from the wording of this paragraph, that Sir Arnold regards 10 per cent, as a generous allowance for net profits, presumably only in view of the untoward conditions of operation which he names, The Minimum Return on Gross Working Costs Actually, a return of ,10 per cent, of the gross working costs is insufficient for the class of operation under review. It may be enough in the case of stabilized routes over which public services are run and in connection with long-period contracts. For the catchpenny type of work which is now being done by operators in connectien with workmen's services and the like, 20 per cent, of the gross working costs should be regarded as a minimum.
Three of the 14 pages are devoted to a demonstration of, the axiom that, the greater the weekly mileage, the less the charge per mile need be. That part of the document could have been passed without comment, but for the use which is being made of the data therein comprised. It is being employed dictatorially to determine the charges which any operator is permitted to make for the hire of his vehicle, in this way. If, by good fortune, or good and efficient management, he is able to operate two contracts with one vehicle, the basis of his charge to both clients must be that calculated by reference to his total mileage. In this connection it should be borne in mind that Sir Arnold has precise knowledge of the work which every operator is doing, because he must allocate fuel for the vehicles. The procedure just described is pernicious in two ways. In the first place, it discourages operators from trying to make the most of their vehicles. Secondly, it strikes at the root of any scheme of stabilization of rates, and, in many cases, creates, this absurd situation. There may be two operators engaged in precisely similar contracts for the same contractor, one of whom, by reason of, the. fact that he uses the vehicle concerned. elsewhere, is not permitted to charge a rate much more than half that of a competitor, who has not been able to get further work for his vehicle.
Such arbitrary interference with the ordinary enterprise of a vehicle owner is quite unjustified, even in war-time, and will lead to all sorts of anomalies if it be allowed to continue, It is stated, with reference to depreciation, that the average life of a vehicle is $00,000 miles. This is absurdly high. It is the experience of most operators that after 200,000 miles are passed it is wiser to replace the vehicle than to attempt to keep it in service and incur the steadily rising operating costs which are involved.
That operators on a lower scale of reputability buy vehicles when the 200,000 miles have been run and the original operator has disposed of them, is well known. Their costs are not comparable on the same basis with those of the better class of operator. Their initial outlay and, therefore, their depreciation figure, may be lower, but every other individual item of running costs—fuel, oil, tyres, maintenance and repairs—is increased. It is reasonably accurate to assume that the total operating costs are not lower than those of the original -operator who discarded the vehicles when they had covered about 200,000 miles.
The Basis on Which Depreciation Should Be Reckoned
• In my opinion, the figure for depreciation should be based on the life of 200,000 miles, allowing for a residual value of 10 per cent, of the original cost and assessing that figure for depreciation per mile according to the annual mileage, so that provision can be made for obsolescence, in respect of vehicles which cover a small annual mileage. In fact, the figures for depreciation, as set down in Sir Arnold's • schedules, should be increased by /50 per cent.
• In his figures for maintenance, Sir Arnold seems to have in mind only the cost of major overhauls. • At least it is a fact that the amounts which he has set down are. approximately those which are being paid to-day for major overhauls of chassis and bodywork.
• In addition to this expenditure; however, there is the day-to-day cost of maintenance and repairs, which must be added to Sir Arnold's figures, Normally, these approximate to 50 per cent, of the cost of major overhauls, but at the present time they are further augmented by the hazards of driving in the black-out, as the result of which minor repairs of some kind are needed almost daily. Additionally, in respect of many of these workmen's services, the vehicles leave the main roads and suffer additional maintenance expense because of the rough going which
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is encountered. At least 75 per cent. shcculd..be added to Sir Arnold's figures for maintenance.
The Commissioner is, in my view, and in the view of many operators whom I have consulted, just as inaccurate in his estimate of the expectation of life of tyres, as he is in the assumption that a vehicle is good for a life of 500,000 miles. He is of opinion that it is fair to take 50,000 miles as the average life of tyres. It cannot be denied that there are occasions when tyres do run that distance, but to take that as an average figure is obviously incorrect.
Erroneous Assessment of , Potential Tyre Mileage There is no justification whatever for assuming that the average life of tyres is 50,000 miles. Pre-war experience would have suggested 30,000 miles as the appropriate figure. rTo-day, the quality of tyres is not so good as it used to be and, bearing in mind the bad going already mentioned in connection with maintenance, it is reasonable to assume that tyres to-day can be expected to average only 24,000 miles per set. Sir Arnold's figures for tyre costs should, therefore, be doubled. . The figure for wages quoted in these schedules of costs appears to be the net amount paid to the driver. Provision should be made, in addition to that amount, for National Health Insurance, National Unemployment Insurance, insurance under the Workmen's Compensation Acts and for holidays with pay. That involves an addition of approxi-, mately Ss. per week to the net amount.
The standing charges, it is stated, are based on 50 working weeks per year. It is the experience of operators that an average of 48 working weeks per year is the most that can be expected. The figures for standing charges given should, therefore, be increased by 4 per cent.
To sum up, it appears that Sir Arnold's figures should be considerably modified, as follow:—Increase in the amount allowed for depreciation by 150 per. cent.; increase of the maintenance figure by 75 per cent.; increase of the figure for tyres by 100 per cent.; increase of standing charges by 4 per cent.; increase of drivers' and conductors' wages by 5s. each. There should be a substantial addition to the total on account of administrative expenses and overheads and the ratio of profit should be 20 per cent., instead of 10 per cent. S.T.R.
(To be continued.)'