Historic or Replacement
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Value • The "Ultimate Statistic"
• Road Haulage History
DErRECIATION is the subject of an inquiry from an ancillary operator in the Home Counties. He states that whilst realizing the distinction between the calculating depreciation costs on either a mileage or time basis he would like further comment on the meaning of hifitoric or replacement Value and their respeetive merits as a basis for calculating depreciation.
As with several of the terms used in the costing of commercial vehicle operation, the actual meaning given to them in this context may be to some extent peculiar to the subject and not Strictly accurate in the literal sense. Thus, the commonly-used term "standing costs" does, in fact, refer to those costs which have to be met whether a vehicle is in use or not.
Similarly the term "maintenance" as applied to a motor vehicle could be held—by the perfectionist—to mean just what is says—namely, to maintain the vehicle in its original condition. Accordingly it would be illogical at the same time to accept " depreciation " as one of the standard items of operating costs.
But, of course, such an attitude would be academic M the extreme and would be of no practical use in the costing of transport operation.
The connection, however, between maintenance and depreciation is of significance when considering historic or replacement values. Just as maintenance costs are estimated (and subsequently confirmed or adjusted in the light of future experience) in relation to a particular and existing
vehicle, .so depreciation costs should be dealt with accordingly. Thus, if a vehicle costs .E1,000 to put on the road then the balance to be written off is basically determined by that figure. From this initial price. the amount of the equivalent cost of the initial set of tyres should be deducted, together with the amount of the estimated residual Value. The resulting balance is then divided by the estimated mileage life of the vehicle or, alternatively, by the number of years it is to be run if depreciation is being calculated on a time basis.
Unfortunately, throughout the post-war years there have been successive increases in the initial price of vehicles. So, despite accurate costing in the first place and adequate financial provision for ultimate replacement, nevertheless, when the time comes, there have not been sufficient funds available by way of depreciation to purchase a similar replacement vehicle because of this increase in cost Other reserves have, therefore, had to be drawn on to make bp the balance.
Whilst an underlying assumption in connection with commercial vehicle costing is continuity of operation, this factor does not justify calculating replacement on the enhanced price of the new vehicle when that is due to take place. Admittedly, when calculating operating costs, several estimates have to be made, but it would seem unwarranted to introduce yet one more through calculating depreciation on replacement values, and so endeavour to estimate what total increase will have occurred in the price of a particular vehicle, say, five years hence. It could well be that that particular model may not still be available, so that the entife exercise becomes hypothetical.
Even if some enhanced price were known there does not seem any justification for including in the total charps made to today's customers, or in this reader's case the several departments of his company requiring transport services, the depreciation cost of a vehicle not yet purchased.
For these reasons depreciation is calculated on historic values; that is, the initial price of the vehicle, throughout this series of articles arid in "The Commercial Motor Tables of Operating Costs ", as this is considered the most appropriate and practical method.
Operational Performance
An agricultural merchant in the North West is endeavouring to decide on the "ultimate statistic" to be used in assessing the operational performance of a large fleet of vehicles. He does not consider that cost per ton-mile is a very useful figure as it only enables comparison to be made between parallel groups of vehicles within a fleet. No information exists for making it possible to compare. the actual unit figure with that of other operators. . He adds that, particularly with his type of deliveries in mind, calculating a true cost per ton-mile would involve a considerable degree of clerical work. It would be questionable whether the gain, if any, was worth the effort involved.
As a possible solution he asks for comment on,a method by which all his fleet costs would be amalgamated into one total monthly cost, which would then becompared with a notional credit charge for each job a vehicle has done based on what hired hauliers would charge for similar work.
The crux to successful transport operation is largely dependent on finding a solution to the problem of arriving at a fair assessment of the operational performance of a fleet of vehicles. Even when an appropriate method has been evolved, sound judgment based on long experience is daily needed to make those necessary adjustments in assessments caused through variations in operational conditions.
Briefly, where a fleet is sufficiently large to have groups of similar, if not identical, types of vehicles then two or more valid comparisons can usefully be made. First current performance within a particular group can be compared with past experience. Then, providing the loading factor is similar, the comparative merits of these several groups could be assessed.
Outside Yardstick Needed
It is appreciated, however, that all such comparisons are a measure of efficiency—or inefficiency—internally within the company or department concerned. Thus, whilst one group of vehicles may seem to be more efficient than another, the whole fleet may be operating inefficiently. To meet this situation some outside yardstick has to be employed and "The Commercial Motor Tables of Operating Costs" provide such a standard and impartial costings with which to make such comparisons. Additionally, and failing the likely opportunity to have access to other operators' costs in similar conditions, outside haulage rates, as suggested by this reader, could be used for further comparison.
But it is doubted whether the amalgamation of all costs on the lines suggested would enable the operator to arrive at a useful conclusion. Rather, I would suggest, such a method would also result in an amalgamation of hidden subsidies as between the efficient and inefficient vehicle or groups of vehicles.
When determining costing policy the amount of clerical work involved must undoubtedly influence the decision as to which method is ultimately employed. Both in general haulage and ancillary operation much of the work is similar or repetitive, at least for a substantial proportion of the work. Where this applies a possible solution to obtaining reasonable accuracy without undue clerical work might lie in rnaking sample costings at periodic intervals. If this were done data consisting of both mileage and tonnage could be compiled for useful comparisons to be made.
Growth of Road Transport
A uniVersity student states he is preparing a thesis on the early history and growth of road haulage in this country and asks for information, particularly the underlying factors to such growth.
As compared with other industries, and even other forms of transport, road haulage has been singularly lacking in reliable and comprehensive information as to the size and scope of the service it provides. This criticism is valid even of current operation and is, therefore, understandably relevant to the early history of the industry.
If, for practical purposes, road haulage is considered in terms of mechanically-propelled vehicles (as distinct from pack horses or horse-drawn vehicles which are virtually as old as history itself) then there is a generally accepted belief that the road haulage industry as we know it today commenced immediately after the 1914-18 War. Then many ex-servicemen acquired second-hand vehicles from the Disposal Board, particularly at the Slough site. Whilst this is generally correct, the very first edition of Tables of Operating Costs which appeared in this journal on February 16, 1911, did include eight types of petrol engine lorries ranging from 14-6 tons capacity, as well as four "steamers ". Significantly, the standard " daily mileage of this latter group was shown as 40.
The import of this low mileage figure by modern-day standards has confirmation in the Beeching Report in which it is stated that the railways were developed to their fullest extent at a time when the horse and cart were the only means of feeding to and distributing from them.
It is, therefore, important when considering the growth of the road transport industry to appreciate fully that in its first stages it was little more than ancillary to the then well.
established railway system which until then trade and industry had accepted as a backbone of the national transport system.
But as with many major changes which ultimately resulted in the present-day position of road haulage being the major sector of the national transport system, there were several reasons for this reversal of priorities. As already mentioned the availability of both ex-service men and ex-service vehicles immediately after the First World War undoubtedly provided an impetus in the growth of road haulage. Concurrently, however, mass-production of commercial vehicles expanded in both volume and range, with obvious benefits to the growth of the industry.
Though possibly not so readily recognized as such, a further reason for the rapid growth of road transport is the vast change in living standards and national productivity generally. Since the early 1920s there has been a veritable multiplicity of new industries. Significantly, their products have often been particularly suitable for distribution by road. Additionally, the higher standard of living throughout the entire country has also meant that such products have been required to be delivered in increasing
volume to outlying as well as populated areas. Here again, of course, such a trend was favourable to road transport.
But the rapid growth of the 1920s brought its problems —namely, instability in such matters as rates charged, conditions of both vehicles and labour. In consequence, in 1932, the Salter Conference proposed the establishment of a Transport Advisory Council to report to the Minister of Transport. As a result, there followed the 1933 Road andRail Traffic Act introducing goods vehicle licences, limitations of drivers' hours and fitness of vehicles. This was undoubtedly a landmark in the road transport industry from which has accrued both advantages from its recognition as a major sector of the national economy and disadvantages in that road transport has never since been completely free from political interference. '