osts, Charges and Control
Page 75
Page 76
If you've noticed an error in this article please click here to report it so we can fix it.
i ascertaining costs so much more has yet to be done. Even after the costs ure known, considerable research will have to be undertaken to ascertain how these costs should be apportioned between the various classes of users." So E. G. Whitaker, president of the Institute of Transport, set the tone of lent proceedings in h:s introductory address to the Institute's Week-end nice held at New College, Oxford, last Friday.
her a policy of highly regulated regulated transport was adopted, nowledge was a prerequisite to udgment, Mr. Whitaker continued. u.t was a much regulated industry t countries. Relative to rail and ransport it was right and proper circumstances and at the time it roduced.
he rapid growth of road transport Lde effective competition possible but a few directions and he :d the Conference should give consideration as to the extent if any, regulation was still C.
y regulations were essential but adered whether, particularly in to railways, some of the safety ons were in keeping with technodevelopment.
me European countries road haul s regulated as to entry to the quotas. charges and limitations so possibly inhibiting expansion. nenting on the direction in which Government's transport policy Wing, Mr. Whitaker understood be the allowance of a larger : of freedom to transport underto develop on commercial lines :ompetition.
ate to the question of subsidies, .ation needed to be given as to transport should be used, for as a medium for subsidizing geographical areas or groups Ie. If so, the circumstances justiich action needed consideration ether such subsidies should be lefined and openly declared.
User's Position
1 these matters, Mr. Whitaker the user's position had to be Led should charges be regulated. tude of traders demanding coni on charges for services for sere is effective competition was ible. They should not have any the matter of charges beyond herent in normal commercial on.
onsequences of relating charges Freight to cost for each individual at would be disastrous even if it done. Provision of specialized t at costs within the market rather niversal service, was an objective :lan for reshaping British Railthe competitive market is what a-, not necessarily the traffic, will These were salient points made by Mr. J. H. Bustard, chief shipping and Irish services manager, British Railways (L.M. Region) when opening Saturday's session with an address on "Freight Traffic ".
Regarding the relating of freight charges to costs, Mr. Bustard instanced his own experience with the inauguration of the roll-on, roll-off ferry service. They knew exactly what their operating costs would be and correspondingly the revenue needed to keep them going. Therefore, regardless of the freight carried, the charge was worked out per square foot 15 years ago and the same method still applies.
Simple Method
It was just about the most simple method of charging possible, although it limited profits. to a fixed amount. But customers were satisfied they were paying only their fair share of the total.
When considering the relation ef freight charges to costs on British Railways, however, Mr. Bustard continued, two types of services had to be examined —ancillary service and main conveyance. Charges for ancillary services nearly always bore direct relationship to costs. This was because cost units (such as cartage per mile and storage per square yard) were readily determinable. The charge was direct cost plus profit. Demurrage was an exception to this approach.
Developments within the reshaping plan will proceed over the next few years and there will be no sudden change in a new-style railway freight service. Therefore, present rates action or short-term approach to costs can only be pursued with the plan in the background—not :n the foreground.
Mr. Bustard then reminded delegates that it was the final total profit-and-loss account which mattered. But the constituents could not cross-subsidize each other or be left out on a limb if they Were to be efficient and profitable.
It was coincident with the Merchandise Charges Scheme of 1957 that the railways developed costings as a more specific art. The relative frccdom permitted by that scheme enabled them to charge a market price but to have the benefit of a traffic costing service to provide individual yardsticks to compare a competitive market with the cost of doing the job.
Rail freight costing could not be clearcut because in any service, and especially rail transport, the units of cost were
variable not only within themselves but from time to time.
Overall, Mr. Bustard continued, there was a massive deficit between rail revenue and costs. To eliminate this deficit charges would have to exceed the market and "we should price ourselves out of the market ".
The apparent advantages of railway charges based on cost plus" presuppose —wrongly—the existence of costing techniques which will accurately determine the actual costs of every individual movement of traffic. Unfortunately, Mr. Bustard admitted, such techniques did not exist. Costing information now given can only be "averages of averages ". Charges must take account of market as well as cost and no system of "cost plus" could succeed where competition exists.
In the long term a specialized rail system incurring the costs of a modern transport service may well increasingly reflect a relationship between charges and costs because it will be more possible to do so. But the competitive market must not be ignored.
Mr. Bustard said that whilst statutory regulations to relate charges to cost could be good national economics within a planning policy, they would be incongruous within a free-for-all climate. When traders' freedom was paramount and when road costs were not real there could be only disadvantage to the railways if they were obliged to use their present costs to compete with those of road haulage.
The secret of the success of the roll-on. roll-off ferry services was not primarily the roll-on, roll-off principle, but the application of unit loads to cross-Channel services. Mr. Bustard added: " It is patent to me that in a relatively short time all cross-Channel freight will be carried in unit loads ".
Unit Loads
"Passenger transport by its nature is a wasteful service. A seat unoccupied is wasted for ever, but people must be able to rely so far as is practicable on getting on the train, bus or aeroplane of their choice." This was the underlying problem in relating passenger charges to cost. said Mr. W. M. Dravers, an executive of British Electric Tractive Co. Ltd., when speaking on "Passenger Traffic ".
A first essential in relating charges to costs was to get the timetable correct so that available traffic was carried as economically as possible. Whilst it is possible to relate charges to cost on a particular route the practical answer must be that an overall view had to be taken of the undertaking as a whole. Some routes would show a profit, others a loss, but on average one would hope to balance out.
The first consequence of relating fares to cost must be that public transport cannot survive in its present form. There must be a lopping off of dead wood.
The extent to which unremunerative services need to be maintained in the public interest, Mr. Prayers continued. was one of the major problems facing the transport industry and the Government. There was great opposition to many of the proposed railway closures. But it must be assumed that there was no economical justification for them.
Social Service As to whether there was a social obligation and, if so, whether it was the transport operator's concern, Mr. Dravers suggested it was, to a degree. But transport was not a social service.
Operators were entitled to expect that Governments did not impose artificial costs. It was absurd that whilst urging the maintenance of rural services they should exact a levy from providers and users of those services. As a result of the fuel tax of 2s. 9d. a gallon the Government made a profit on every unprofitable mile run on rural routes.
Cross-subsidization of routes would continue and some passengers would have to pay more than they need to keep marginal services maintained. On the hopelessly unremunerative routes Mr. Dravers suggested experiment might be made with a drastic fare increase, though still competitive with the alternative of hiring a taxi. In contrast with the railways, it was the short-distance bus passenger who helped to pay for the country routes or long-distance passenger.
As to whether cross-subsidization was unfair to passengers on profitable routes, Mr. Dravers claimed it was not, provided they were not paying more per mile than those on marginal or non-paying routes. Cross-subsidization was not peculiar to transport—it applied to almost everything one bought.
Mr. Dravers recalled that the Minister of Transport had stated that the principle of cross-subsidization was desirable. Moreover, it had been contended that before it was concluded that this principle had been carried too far it would have to be shown that the services concerned were unnecessary, or that their maintenance imposed an unreasonable burden on the urban passengers.
Unless costs and fares .were related, Mr. Dravers said, there was no incentive to economy. Transport management had an unceasing duty to itself, to the travelling public and the proprietors, to ensure that costs were kept as low as possible..
In reply to a suggestion that, to be efficient, management most have costings of individual services available, Mr. Dravers said there was scope for varying charges as between services. One company operating around 500 vehicles applied eight different rates, with the highest fares being payable on the least remunerative services.
Higher fares had also been adopted at week-ends when operating costs were B48 higher. But circumstances have changed with the growing use of the car to the extent that application to remove such surcharges were now being made.
Referring to the pamphlet just published by Mr. John Hibbs entitled "Transport for Passengers" and advocating the abolition of passenger licensing, Mr. Dravers contended that, although well presented, the arguments put forward would prove invalid on close examination. As to whether the freedom DOW given to rail to fix fares should be extended to road passenger operation Mr. Dravers said there were two points of view. If such freedom were granted it could be argued that responsible bus companies would not then price themselves out of business, being sensitive to the car-owning problem.
Under the present arrangement, however, justice was not only done but seen to be done by public applications to the Traffic Commissioners for fare adjustments. Mr. Dravers suggested that if this procedure was abandoned, no matter how fair an operating company was in meeting its obligations to the travelling public, passengers would still claim that they were being exploited.
On staggering of hours of work to ease peak travel, Mr. Dravers claimed that London was a special problem, but he felt there were opportunities for practical steps to be taken in this direction in towns of, say, around 60,000 population. Here, only a slight adjustment in working hours could considerably improve peak hour travel conditions for both provider and user. There was, unfortunately, a misapprehension that staggering of hours meant substantial adjustment of hours—say, from an 8 a.m. to 10 a.m. start.
He suggested that Junior Chambers of Commerce in such towns might usefully do some research on this problem in their respective areas. Their results could be of benefit to all parties.
"Standee" Buses
Experience had been very mixed as to public reaction to " standee " buses as an alternative to higher fares. The U.K. was backward in this approach to curbing fares increases and easing peak travel. Where introduced they had been well received in some towns but dubbed "cattle trucks" in others.
"The place of statutory regulation when transport charges arc related to cost" was the title of the third paper presented to the conference on Sunday. It was given by Mr. C. D. Foster, senior research Fellow in the Economics and Organization of Transport, Oxford.
Mr. Foster claimed there were six purposes of regulation in transport—intentional or not. They were: (I) As factory legislation to protect consumers or third parties.
(2) As a national policy having no immediate connection with transport.
(3) To regulate competition between different undertakings in the same form of transport. (4) To regulate competition between different forms of transport.
(5) Through licensing to regulate charges on road services.
(6) To control investment and pricing policy of public enterprises.
But a regulation intended for one purpose could achieve another, said Mr. Foster. Regarding factory type legislation as applied to transport some forms of such regulation were more onerous than in other industries and in some types of transport. More easily defended was the regulation to control the safety of workers in the bus and haulage industries.
Regarding the requirements of bits operators to run some unprofitable services as a condition of running profitable ones, the chief objection was that it was becoming unworkable because of declining revenues. It was becoming clearer that if rural services were to be maintained support from the Treasury in some form would have to be obtained.
Mr. Foster considered there was a case for regulating competition in road haulage. Risks in transport operation were great and there were few economies of scale in transport. This made it harder for the small man to set up in competition with the big firm. Moreover, the small man was likely to be overoptimistic, lose capital and so depress the market.
Cost and Usage Mr. Foster contended that the main disadvantage of licensing was that it prevented competition between the same . form of transport. His own conviction was that the purpose of licensing could better be achieved by the price mechanism. Whatever the regulation, there was always an alternative. As distinct from relating costs to charges, regulations could be used to bring cost and usage together.
Replying to questions Mr. Foster said there was a great danger in waiting until all information was available before taking any action. He was able to say that within a year it would be possible to measure a lorry's actual usage of a road. Within three years a licensing system could put the principle into effect.
Commenting on the growth of the number of C-licensed vehicles, Mr. Foster thought it significant that no survey had been made as to the satisfaction, or otherwise, which this implied with road haulage.
Expanding on the provision of subsidies for transport in rural areas, he suggested there could be competition for the issue of a licence to run a subsidized service. The responsible agency could subsidize not only bus services but taxis, retail deliveries, scooters and even assist with driving •tests when suspension of public services was inevitable.
Questioned on rate cutting, he contended that, in general, it was not necessarily a bad thing. In practice it was relatively rare for operators to be put out of business for this reason alone. Unfortunately, limited or insufficient capital was so often associated with ignorance.