RATECUTT O RUINING CONTRA r HAULAGE
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IHAVE, this week. had brought to my notice the most flagrant and outrageous example of rate-cutting with which I have ever had to deal directly in 16 years of continuous contact with the road-haulage industry. I have heard of many cases as bad as this one, but have never had anything to do with one like the example with which I propose to deal.
It arose in connection with an agreement for contract hire and, before I discuss it in these columns, I would like to refer to the matter of contract hire generally. Rate-cutting in. that department of the industry is more prevalent and competition more fierce than in any other, except, perhaps, municipal haulage. In the latter, however, there are some signs of improvement. There is none in connection with contract haulage, rates for which are going from bad to worse and, if the example which I have before me be any criterion, are likely to be much worse still before they are better. .
To appreciate the position and to discover reasons for this state of affairs, it is necessary to realize that this form of haulage work is really almost the only outlet available to energetic and enterprising operators. It is the only means by which, in the majority of cases, the scope of a haulage business can be enlarged. The determination of the Licensing Authorities to maintain 832 that he may render that transport service of which industry is in urgent need.
Actually, this regrettable condition of rate-cutting in connection with contract hire work was initiated some time ago. The more far-sighted of those in the industry realized, before the 1933 Act was even drafted as a Bill, that haulage activities were going to be limited. They started in keen competition for contract haulage when there was nothing more substantial to go upon than rumours of restrictions upon the enterprise of the haulier. Big haulage contractors began to extend their activities in that direction so far back as 1931.
I distinctly remember, towards the close. of that year, investigating a case in which a hard-working owner ot a couple of vehicles was deliberately ousted from a small, but promising, contract by a big contractor. The method employed was simply that of quoting a rate at which a small contractor could not possibly live and which, undoubtedly, the bigger operator would increase, so soon as he had got rid of competition. It was quite clear that the motive underlying this procedure was that of enlarging the sphere of operations as extensively as possible in advance of the passing of any limiting legislation. Th, position, to-day, is that hauliers are fighting for contract business. In the majority of cases, they are obtaining it by that method of quoting which is still the most popular in our industry, namely, finding what the next man's quotation is and offering to do the work for.'something less, without any regard to the possibilities of profit or loss.
The haulier whose little effort has set me on to this subject went even one better, or, perhaps, I should say one worse, than the general rule of his contemporaries. He completely and effectively forestalled any competition of that description by quoting a rate so low that even the most daringly ignorant of his competitors would fight shy of cutting it.
A Comprehensive Form of Contract.
The quotation was in connection with the hire of 10-cwt. vans. There was nothing mean about the requirements stipulated in the contract. It was to be a, van of the capacity named, painted and written to choice of colour and design, taxed, insured under a fully comprehensive policy, the contract to cover provision for all repairs, including replacement of tyres, and maintenance of the paintwork in first-class condition. There was a clause stipulating that the van should be touched up and varnished once every 12 months, and providing for periodic and regular inspection by a fully qualified mechanic, who, at the time of each inspection, was to check over and replenish lubricating oil whenever necessary. There was provision for a spare van to be kept in readiness and available instantly in the event of a breakdown.
Those having experience in this class of work will appreciate that the foregoing is a brief summary of a normal form of contract for hire. The conditions of these contracts are generally fairly stringently applied against the contractor, who is almost invariably expected to live up to the spirit, as well as the letter, of his agreement. The stipulation that the vehicle shall be touched up and varnished annually is an indication of the way in which the contract as a whole is likely to be interpreted. It follows from that alone, apart from the probability of any breakdown, serious or otherwise, that a spare vehicle would be required for at least two weeks out of 52. It is practically certain that, on the average, the spare vehicle would be required for one month in every 12.
Some further particulars of the prospective contract transpired in the course of correspondence. The work involved full-time use of the vehicle for six days per week, during which 450 odd miles would be covered. Readers should note the probable mileage and the fact that servicing operations would have to be carried out on Sunday, involving extra expense on the part of the contractor, Sunday labour having to be paid for at special rates.
£2 10s. a Week Quoted.
Now for the rate quoted, the crux of the whole matter. I warn readers, even the most hardened of them, that they are going to be surprised. The price quoted—and -1 have it in black and white before me at this minute—was £2 10s. per week!
Actually, of course, it needs no consideration by any experienced operator to decide that the price is ridiculous and that neither party will derive permanent satisfaction as the result of entering into a contract at that price. That such a quotation should be made, however, is definite proof that there are still many in the industry in urgent need of guidance. It is, therefore, of interest to demonstrate how hopelessly Made 1334
quate is the figure of 22 10s. per week for the hire of a 10-cwt. van operating 450 miles in a six-day week.
I will assume that everything is in favour of the hirer, 'that he obtains excellent results from the operation of the vehicle, that he is in a position to purchase his supplies at the lowest possible prices and that the cost of maintenance, even taking into consideration that important and expensive necessity of keeping the paintwork in first-class condition, is low.
Taking first the running costs, the petrol-consumption rate of a vehicle of this class is not likely to approach 28 m.p.g., but I will assume that figure as a basis, also that the fuel is purchased at is. 2d. per gallon. That means that the cost per mile for petrol is just id. For oil I will assume 900 m.p.g. and that the price paid is 2s. eid. per gallon. I must apologize to the oil companies for assuming that a lubricant of quality is obtainable at that price, and that extra expenditure on maintenance is not likely to result from its use. It means that the cost for lubricants per mile is 0.03d.
A set of tyres for this size of vehicle, purchased on favourable terms, will cost about £10. If I make the entirely optimistic assumption that a set will average a life of 20,000 miles, my figure for the cost of tyres is
0.12d. per mile. For maintenance, having in mind the special requirements of the case, I should in ordinary circumstances anticipate an expenditure of id. per mile as a minimum. I will assume that this haulier, as the result of fortunate conditions which are rarely, if ever, experienced, can reduce that expenditure to 0.30d. per mile.
For the calculation of depreciation I have assumed a life of 100,000 miles. That will be true and applicable only if this haulier has a ready market for his secondhand vehicles, or can obtain extraordinarily favourable allowances for them in part exchange. Depreciation under those conditions will be at the rate of 0.40d.. per mile. The grand total of running costs is 1.35d. per mile. The running costs alone, therefore, at 450 miles per week, amount to a fraction more than £2 9s. 7d.
There are still the standing charges to be considered before we have arrived at the bare cost of operation of the vehicle itself. With those and with some of the stern, unavoidable conditions of contract haulage I pro-.
pose to deal in a subsequent article. S.T.R.