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TOO BIG or Too Small?

28th February 1958
Page 74
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Page 74, 28th February 1958 — TOO BIG or Too Small?
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Which of the following most accurately describes the problem?

Salesmanship Is Essential to Success in Road Haulage Today: Importance of Selecting Economic Size of Vehicle

U. NDAUNTED by repeated reports of surplus lorries, declining traffic and subsequent accusations of ratecutting, would-be °Orators continue to ask me how to make a start in haulage. A touch of humour is added by the comment that " the very business of obtaining a licence is not clear to me at all," but the reader shows some appreciation of the difficulties when he admits that he understands it is practically impossible for a newcomer to obtain an A licence.

Despite every immediate and subsequent problem that will be encountered in such a venture, there are, and will remain, men who prefer to be their own employers, rather than accept one of the many jobs which this era of almost full employment has to offer. Despite reports of an overall decline in traffic and rate margins, the newcomer could point to post-war successes in haulage. For example, one company has increased its annual turnover from £20,000 to over £750,000 in under 10 years. . As with so many items of commercial-vehicle operating costs, the factors of immediate concern to the prospective haulier are closely interrelated. Most inquirers, beyond expressing a desire to set up on their own, seldom seem aware of more than one of two of the problems. In this particular instance the reader was aware of the initial hurdle which licensing provided, but had little knowledge of the varied classes of licence, In other cases, whilst information is often required as to which type of vehicle is considered to be the best for the job on hand, particularly if the reader happens to be of a mechanical turn of mind, advice on the recommended size of vehicle is seldom requested. It is, indeed, surprising how many readers who wish to start in haulage either completely ignore any reference to the type and quantity of traffic they hope to carry, or attach little importance to such matters.

Look Before Leaping

The obvious fact that a commercial vehicle must from the outset be looked upon as a business undertaking in itself, rather than an example of mechanical engineering, however excellent it may be as such, is frequently overlooked. Even if it were 'not necessary to prove the need for a licence, it would seem to be the height of imprudence to commit oneself to the purchase of a vehicle before surveying potential traffic.

I often suspect that the newcomer would be much more at home at the driving wheel or service bench than canvassing for prospective customers. If that is the case, he would be well advised to seek or continue employment as a driver or fitter. Under the present competitive conditions in the transport industry, salesmanship is essential.

Once traffic is secured, operational efficiency of the undertaking should ensure that it is not lost to competitors, but MO efficiency cannot be expected, of itself, to secure regular additions to tonnage, excellent though the self-recommendation of a good service may be. The initial survey of potential traffic may well be the basis on which a subsequently successful organization is built. In a recent example of success, traffic was being carried for companies with national reputations. Because of their own efficiency they demand a similar efficiency from hauliers and, in return, give their contractors stability. However internally eflicient a road transport operator may be, his success is inevitably tied up, to a large extent, with the success or otherwise of his customers. Whilst such variations in fortune are outside his control, he can safeguard his own position by spreading his traffic.

Careful Consideration If prospective hauliers are discouraged by this emphasis on the importance of salesmanship before they enter into commitments, there is at least no financial loss incurred. In addition to ascertaining whether the proposed locality of activity is likely to provide d' balance of profitable traffic, it is most important that' careful consideration should be given to the most economic size of vehicle.

Whilst most C-licence operators have only a. limited class of traffic to deal with, and to that extent, have an easier problem to solve when selecting vehicles, even the established haulier has invariably to strike a cornpromise so as to accommodate a wide range of traffic. The newcomer is in a still more difficult position, because the type and amount of traffic he may be carrying later in the vehicle's life are seldom known.

On the other hand, it would be impracticable to exchange a vehicle after a comparatively short period for one of larger capacity, assuming that the operator was fortunate enough to have experienced some expansion in turnover, although insufficient to justify a second vehicle. It was this aspect which another inquirer had in mind when asking for comparative operating costs of 5-ton and 7-ton platform lorries—both oilers—with some indication of the effect on varying weekly tonnages of the difference between them.

• The initial cost price of the 5-tonner, ready for the road, is placed at £1,350 and the unladen weight 3 tons 1 cwt., with a resulting annual duty of £38 15s. The first of the five items of weekly standing costs—licence—would be 16s. 4d., in which allowance has also been made for a carrier's licence fee and for two non-revenue-earning weeks per year.

Wages are calculated at £8 us. 6d., based on current R.H.(62) ratesand with allowance for two weeks' holiday with pay. Rent and rates are assessed at 10s. a week and insurance premiums at £1 14s. Interest, based on a rate of

3 per cent., would amount to 16s. Total standing costs for the week would be £12 7s. 10d.

Turning now to running costs, fuel is estimated to cost 2.50d. per mile, assuming a consumption figure of 20 m.p.g. and allowing for the slight, but acceptable, recent price reduction. Lubricant costs are assessed at 0.21d. per mile.

Tyres are estimated to cost £180 per set and, allowing for a mileage life of 30,000 would cost 1.44d. per mile, whilst main tenance is estimated to cost 1.86d'. per mile. "

Deducting the cost of the initial set of tyres from the price of the vehicle, together with £135, the arbitrarily assessed residual value, a balance of £1,035 remains on which to base depreciation. Assuming a vehicle life of 120,000 miles, the depreciation cost per mile would then be 2.07d. Total running costs per mile for the 5-ton oiler would be 8.08d.

In contrast, the 7-tanner would cost £1,850 and its unladen weight would be 3 tons 9 cwt., incurring an annual duty of £42 108. The weekly cost of licensing would be 17s. 10d., whilst the weekly wage bill would increase to £8 18s. 7d. Rent and fates are assumed to remain at 10s., but because of the increase in the value of the vehicle, the estimated weekly proportion of the insurance premium has been raised to £2 10s. Relative to the higher initial cost, interest would now be 11 2s. per week, giving a total for the five items of weekly standing costs of £13 18s. 5d.

On an estimated consumption rate of 16 mpg., fuel would cost 3.13d. per mile, and lubricants would 'cost 0.24d. per mile. A set of .tyres would post approximately £200, which, again based on a mileage life of 30,000, would amount to 1.60d. per mile. Maintenance is calculated at 120d. per mile.

Depreciation Cost

Adopting the same procedure to calculate depreciation from the initial cost of £1,850, £200 has been deducted on account of tyres and £185 for residual value, giving a .depreciation cost per mile of 2.93d. Total running costs are 10.10d. per mile. • Estimation of operating costs in this manner is simple.: but when one tries to apply these to the problems confronting the newcomer difficulty arises. This is because neither weekly mileage nor tonnage is known. Nevertheless, although it admittedly involves arbitrary estimation, the principles, if not the details, of relative operating costs and subsequent profit under such conditions as a newcomer is likely to meet, can be more clearly understood by considering possible alternatives.

Because the haulier is making a start in business it is assumed that the average .weekly mileage would be comparatively low, say 400. In that event, the running costs of. the 5-tonner for the week would then be 400 x8.08d., or £13 9s. 4d., which, when added to the weekly standing cost of £12 7s. 10d., gives

ja. total weekly operating cost of 125 17s. 2d. If, to this figure, an estimated amount of £4 45. is added in respect of establishment or overhead costs, a final total of about £30 is obtained.

Similarly, for the 7-ton vehicle, running costs for the 400mile week would amount to £16 16s. 8d., which, when added to. the appropriately higher standing costs of £13 18s. 5d. and establishment cost of £5 5s., gives the final total of almost 136.

Turning now to the traffic side of the business, possible variation. in weekly tonnage is, of course, virtually infinite under such conditions as the newcomer is likely to meet. It is limited only by maximum carrying capacity. Four possibilities have, however, been chosen as examples, assuming that the vehicle is normally carrying one load per day, six days per week, and that traffic is available as one of four options, all at a rate of £1 5s. per ton.

Weekly Revenues The first week only 13 tons are offered on three days and 5 tons On the reniaining three days, giving a total of 24 tons. The second offer is of 5' tons for six days—total 30 tons—whilst on the third week -5tons are available on three days and 7 tons on the remainder (total 36 tons). As a fourth offer, 7 tons are available on six successive •days. or 42 tons in all. The respective weekly revenues 'wouldbe '£30, £37 10s., £45 -and £52 Ws.

With the 5-tonner, the operator would just about break even with his overall costs .on the first week and earn a profit of approximately 1,7 10s. on the second week's operation. On. the third and fourth weeks, however, even if he were allowed to take a part-load when 7 tons was offered" his profit would remain at £7 10s. and he Would be unable to improve upon this figure to provide a margin for slack periods.

Where a 7 tanner was available, whilst there would be a loss on the first week's operation of approximately £6 and only a slight rise of £1 10s. above overall costs on the second week, a profit of £9 could be made on the third week and £16 10s_ on the fourth Week. When only the smaller lorry was available, if circumstances were such that it was not permissible to take. a 5-ton load when 7 tons was offered, the greater flexibility of the larger vehicle to accommodate varying loads would result in its being still more profitable by comParison with the 5-tonner.

As pdinted out earlier, the day-to-day activities of every haulier are so complex that conditions as enumerated are seldom likely to occur in the exaet form detailed here. Nevertheless, the newcomer, and, to some extent, the established haulier expanding his fleet, has often to make decisions involving the outlay of substantial. amounts of capital on just such variable and problematical data.—S.B.

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