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ENSURING AN ECONOMIC CHOICE

27th May 1966, Page 136
27th May 1966
Page 136
Page 137
Page 136, 27th May 1966 — ENSURING AN ECONOMIC CHOICE
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Which of the following most accurately describes the problem?

WITH over 2,000 types of commercial vehicle chassis listed in this issue as products of the British commercial vehicle manufacturing industry, the problem of picking the right vehicle for the job obviously is not an easy one. Moreover, the variations in the alternative types of body that can be fitted further complicates the problem.

In addition to the purely technical aspect of vehicle selection the operational conditions in which a vehicle consequently will be employed obviously must have a substantial bearing on its selection. But this presupposes that past experience in this type of operation is already available, which indeed applies to many aspects of road transport in the UK. Exceptional conditions, whether in the UK or overseas, can arise which makes the selection of a suitable vehicle all the more difficult because of the relatively limited experience already available, if indeed any at all exists. Moreover, because the conditions are exceptional by that very definition, there can be no standard costings to provide a reliable yardstick by which comparisons could be made.

In such a situation, where a relatively difficult choice has to be made but with only a limited amount of reliable information as to the effect of local conditions on operating costs, it is worth while reassessing the basic principles of commercial vehicle costing, no matter how much individual items subsequently may have to be reassessed because of those exceptional conditions.

For the larger types of vehicles now permitted to operate in the UK and which now come nearer to the size of vehicle operated overseas, the initial outlay of £7,000 or more understandably becomes a major factor in selection. But the ready availability of the initial cost should not be allowed to over-emphasize its importance in the potential purchaser's mind at the expense of the importance of subsequent operating costs.

Thus, for example, a commercial vehicle with an initial outlay of .0,000 when averaging even a modest mileage relative to its size might well cost the operator £100 a week to run. Over a seven-year life that would be £35,000, or five times the initial cost of the vehicle. If through an unfortunate choice one or more items of operating costs subsequently proves to be higher than were anticipated, a relatively small percentage addition to the total operating cost over its lifetime could represent a substantial amount. By comparison the importance of the initial cost of the vehicle would then be shown in its true perspective.

To some 'extent the operator involved in working a vehicle in exceptional conditions for the first time is in a similar position to a new entrant into haulage—namely, that he has no previous experience of his own on which to estimate accurately his likely costs.

In this connection it should be noted that commercial vehicle costing is concerned with the past, present and future. Admittedly in recent years there has been a trend to discount past or historic costings in favour of budgetary control by which to measure future performance. But whilst records of operation in conditions which no longer apply could be misleading, if not useless, in formulating estimates of likely future costs, some resort still has to be made to past records if valuable experience is not to be totally discounted.

Where exceptional conditions of operation are likely to apply it is particularly necessary to examine each of the items of operating costs in greater detail than usual in an endeavour to make some estimate as to the extent to which they will be effected. In the majority of cases where exceptional conditions apply invariably this will mean that they will be affected adversely. By this process of breaking down the total operating costs there will be ..a better prospect that the resulting total operating cost will pi-dye valid within a reasonable margin, despite the possible paucity of information at the outset.

In such a breakdown of total operating costs, the standard principles still apply. First there is the division into the two main groups of standing costs and running costs, with the former being incurred whether the vehicle is operated or not, whilst running costs are directly related to work done. From past experience it has been found to be convenient to sub-divide these two groups each into five items. Thus standing costs are made up of licences, wages, rent and rates, insurance and interest, whilst the corresponding five items of running costs are fuel, lubricants, tyres, maintenance and depreciation.

The items of costs so far stated can be related directly to the operation of individual vehicles. There are, however, in the running of a haulage business or transport department other costs which cannot be so directly related to individual vehicles as they arise in the running of a business as a whole. These are termed overhead or establishment costs, and even when limited to UK operation can vary substantially. Obviously overseas the variation might be even e marked between individual operators and for that reason will omitted from consideration here. In any event, because they not directly related to individual vehicles, they would at most have indirect relation to the selection of vehicles.

20-ton artic is now selected as the type of vehicle that might be used overseas to provide an example on which to first estie operating costs in normal conditions. By converting the results percentages of the total operating cost, the effect of excepal operating conditions such as might be found overseas can be e readily assessed.

.earing in mind that the basic items of operating costs are such ipply in the UK, the unladen weight of this 20-tonner-9 tons ;wt.—incurs an annual excise duty of £288. On the basis of a week year the cost of licences per week is equivalent to 16s. 10d.

he average weekly mileage of a vehicle, or in other words the :nt of its utilization, obviously has a major effect on subsequent rating costs. It is therefore of great importance that the likely irit of mileage is known beforehand. But because of exceptional ditions, such as the efficiency of terminal facilities in outlandish itions, average weekly mileage, and, moreover, mileage gainfully )loyed, is often one of the factors not known beforehand. There:, for the purpose of this exercise, a relatively low figure of 600 es a week for a vehicle of this size is selected here to compensate possible limitation in terminal facilities.

?stages, again at UK rates, are reckoned here to cost the employer 3s. 6d. a week, inclusive of insurance contributions. Rent and :s in respect of garaging the vehicle are estimated to cost the iivalent of £1 15s. 3d. a week. although it is appreciated that h in the UK and overseas this expense might not be incurred and vehicle left in the open instead.

knowing for comprehensive cover in a medium-risk area and uming that the operator has a reasonably accident-free record, annual premium on this 20-tonner would be £362 10s. Od., or equivalent of £7 5s. Id. a week. Interest at 7+ per cent on the ial outlay of £7,208 amounts to £540 12s. Od. a year or £10 16s. 3d. a week. The total for these five items of standing costs therefore amounts to £46 16s. Ild, a week, or 18.74d. a mile.

Dealing now with running costs, the major of the five items is fuel. Assuming diesel oil is purchased at 4s. 70. a gallon and a rate of consumption of 8 m.p.g. is maintained, the fuel cost per mile would then be 6.97d. Lubricants add 0.33d. and tyres 4.54d., assuming that a mileage life per set of 40,000 is obtained.

Maintenance is here intended to include washing, servicing and major repairs and is reckoned to cost the equivalent of 4.40d. per mile.

In order to calculate the items of depreciation which is here reckoned on a mileage basis, it is first necessary to deduct the cost of the original set of tyres from the initial cost of the vehicle with a further deduction for the differing residual values of both tractive unit and trailer. Allowing for a vehicle life of 300,000 miles, the depreciation cost per mile for the combined tractor and trailer becomes 4.08d. The total running cost is therefore 20.32d. The addition of standing costs and running costs results in a total operating cost of 39.06d. per mile, or £97 12s. lid, a week, still based on an average of 600 miles a week.

Converting these 10 items of operating costs to percentages, the following figures are obtained. Standing costs: licences 5.99, wages 21.68, rent and rates 1.79, insurance 7.43, interest 11.09 (total standing cost 47.98); running costs: fuel 17.84, lubricants 0.85, tyres 11.62, maintenance 11.26, depreciation 10.45 (total running cost 52.02).

Of overwhelming importance are the two items of wages (21.68 per cent) and fuel (17.84 per cent) which together provide nearly 40 per cent of the total operating cost. Allowing the round figure of £35,000 as the total operating cost over a seven-year period, these two items alone will account for nearly £14,000. Accordingly, any variation in the initial expenditure which either increases the efficiency of the driver by improved working conditions or reduces fuel consumption directly or through reduced unladen weight, merits proportional addition to the initial cost where this was likely to be a practical proposition.

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