PITFALLS in the C-licence Hiring Margin
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The Only Outlet Available to Enterprising Operators Carries Responsibilities Far More Onerous Than Jobbing Haulage. These May Not Always be Apparent to the Inexperienced
MANY hauliers, including some who have been dispossessed of their businesses, are turning to the C-licensee, offering to run his transport under conditions which approximate to those under which the haulier carried on business. before the Transport Act came into force. I also know of several cases in which a haulier's old customers have tamed to him and asked him to do this work for them.
This form of haulage is almost the only outlet available to energetic and enterprising operators. It is the only means by which, in most cases, the scope of a haulage business can to-day be enlarged. The 25-mite limit does not apply. Vehicles are licensed in the name of the customer, who, of course, is responsible for the employment of the drivers and the payment of their wages. Apart from the, fact that the haulage contractor operates the vehicles in almost the same way as he did before the -Act, the conditions to-day are the same as if the vehicles were ran by the C-licensee himself. There is no limit to the distance that the vehicles may run so long as they are carrying only the C-licensee's goods.
It is regrettable that rate-cutting in this class of work has already started. Many small operators have seen the possibilities of this type of business, but, in the majority of cases, they are obtaining it by that method of quoting which has always been the most poputar in the industry—finding what the next man's quotation is and offering to do the work for less.
Forestalled Competition The haulier who set me on to this subject went one better, or perhaps I should say one worse, than his competitors. He completely forestalled any competition by quoting a rate so low that even the most ignorant of his competitors would fight shy of cutting it.
The quotation was in connection with the hire of l0-cwt. vans. There was nothing mean about the requirements stipulated in the contract. It was to be for a van painted and written to choice of colour and design, insured under a 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 provision for regular inspection by a qualified mechanic, who was to replenish lubricating oil whenever necessary. There was provision for a spare van to be kept available instanily in case of a breakdown.
Those having experience in this class of work will appre ciate that this is a brief summary of a normal form of contract ,for hire. The conditions of these contracts are generally stringently applied against the contractor, who is almost invariably expected to live up to the spirit as well as the letter of his agreement. Indeed, it is the habit of reputable hauliers to do sà.., The stipulation that the vehicles shall be touched up and varnished annually is an indication of the way in which th; contract as a whole' is likely to be interpreted. It follow froth that alone, apart from the probability of any breaks.down, that a spare vehicle would be required for at least two weeks out of 52. probably four.
The work involved, full-time use of the vehicle for six 'days per week, during which 450 miles would be covered. Readers should note the mileage and the fact that servicing Operations would, have to be carried out on Sundays. This would involve extra expense on the part of the contractor, because he would have to pay Sunday overtime rates.
Ridiculous Price
The price the haulier. quoted _was .£7 10s. per week! Actually, of course, it needs no consideration by any experi7 enced operator to decide that that price was ridiculous and that neither party would derive satisfaction as the result of entering into such a contract. That Such a qticitation should be made, however, is proof that there are still many in the industry in need of guidance. It is, therefore, of interest to•demonstrate how hopelessly inadequate £7 10s. per week is for the hire of a. 10-cwt. van covering 450 miles in a, six-day week. In passing, I should perhaps suggest that the fact that the operator is not paying the driver his wages, has contributed to this uneconomic quotation.
In my estimate, I will assume first that everything is in favour of the contractor, that he obtains excellent resulti. from the operation of the vehicle, that he is in a position to purchase his supplies at the lowest prices and that the cost of maintenance, even taking into consideration the expensive necessity of keeping the paintwork in first-class condition, is low.
Taking first the running costs, the petrol-consumption rate of a vehicle in this class is not likely to approach 28 tn.p.g., but I will assume that figure, also that fuel is purchased at 2s. gd. per gallon. The cost per mile for petrol is therefore 1.17d. For oil:I will assume 800 m.p.g., and that the price paid is 5s. per gallon. That means that the cost of lubricants per mile is 0.07d.
A set of tyres for this type of vehicle will cost approxi-. matey £25. If I make the entirely, optimistic assumption-. A413
that a set will average a life of 20,000 miles, my figure for the cost of tyres is 0.3d, per mile. For maintenance, having in mind the special-requirements of the case, I should in ordinary circumstances expect an expenditure of Id. per mile as the minimum. I will assume that this haulier, ,as the result of fortunate conditions, can reduce that expenditure to 0.8d.
For the calculation of deprejation, I have assumed a life of 100,000 miles and that the vehicle costs £420. Depreciation under these conditions, making full allowance for tyres and residual value, will be at the rate of Id. per mile.
It may be as well to set out these costs in tabular form, so:that the matter shall be perfectly" clear. Details are as follows:—
There still remain the standing charges, and these, again' at a modest estimate, must total £1 6s, per Week, made up of tax, 6s.; insurance, 5s.; garage, 5s.; and interest on first cost,.I0s. The bare cost of operating this vehiCle, therefore; must be at least £7. I Is: 3d. per week. "
it should be appreciated that overhead costs and establishment "charges in connection with contract hire are considerably' ia excess of those normally encountered, 'and] ant again being modest when I suggest El 10s. per week for that item Experienced operators will appreciate that that is just adg optimistic as the figures for running costs. The' operator who enters mkt this contract is therefore faced with a minimum expenditure of £9 Is. 3d. per week, and his minimum reasonable quotation, based on the above almost absurdly low figures-for cost of operation, should be £10 10s.
It is worth while to consider what the costs and charges are likely to be, assuming ordinary average figures for cost of operation. The running costs per mile are more likely
On the above basis, the total of running costs alone per 450-mile week is 17 12s. 3d. That figure is more likely to be in accordance with fact.
Higher Premiums
It is fair to assume that the standing charges will remain unaffected, except that there is a risk that the insurance companies will treat this vehicle as being in the ownership of a haulage contractor, in which casa the premium will increase by 100 per cent., to 10s. per week instead of 5s. The standing charges on that basis will total £1 1 Is. per week and the total operating costs of the vehicle will be £9 3s. 3d. per week.
Taking a more reasonable view of establishment charges, overhead costs and allowance for contingencies, and providing £1 16s. 9d. on that aCcount. the operator's expenditure will amount to £10 per week, so that even if he be content with £2 per week profit he must charge £12 per week for the hire of that vehicle-7-a considerable increase on £7 10s:
Readers who are considering entering into such contracts should realize that they -undertake responsibilities far more onerous than the much more simple risks attendant upon day-by-day or week-hy-week haulage. Some a these extra risks have already, been indicated" when the term of contract, to which this £7 10s. applies, were summarized.
544 The following references are all clauses in the usual form of contract, and I have selected for consideration those which, by reason of the fact that they involve the haulier in extra expense, have a bearing upon the discussion of a fair charge for such work
Perhaps the most important is that in which the con-. tractor binds himself in the event of the vehicle on contract being unable to run, to provide another vehicle. What it may cost to fulfil this clause in the contract cannot easily" be estimated. Some guidance is afforded by consideration of the probable extent of the replacement period per annum. In the first place, as vehicles engaged on such contracts require varnishing and other attentions annually, there will be a period of two weeks in each year during which the substitute vehicle will be required while the contract van is undergoing essential maintenance operations. Probably during the year another week will be required, made up of separate days, while the van is receiving .attentions such as decarbonizing, brake-refacing and the .like. and possibly a further two weeks, or even more, on account
of accident. . , .
Expensive and Unsatisfactory .
That will be equivalent to an expen.dittare of at least £30 and is more likely to reach £50, the actual amount depending to some. extent upon the size of the operator's bisiness, which will determine whether -he has many similar , vans available for replacement purposes. In the case of a small operator, this convenient state of affairs is not likely, to exist and he will, therefore, be faced with the need either fpr getting a -tried vehicle or hiring. The former will be expensive and the latter means in most cases proves unsatisfactory.
The figures of £30 and £50 which I have, given are no exaggeration.....in the event of failure to supply this sparevehicle, the hirer is at liberty to make his own arrangements practically regardless of expense, and charge the contractor accordingly.
' Another clause provides that the contractor must insure the vehicle against fire, accident or damage and against all third-party claims, to make good all damage to or loss of the van and damage to property or persons. Compliance with the terms of this clause means that the operator must take out a full comprehensive policy of insurance. The risky habit of some operators of taking out a policy covering third-party risks only and so save apound. or two per annum is inadmissible.
Results 0 Overloading
Another clause appears to be directed towards saving the, contractor from excessive expenditure resulting from over loading, because it stipulates that the hirer shall not at any time load the vehicle beyond the tonnage laid down in the contract. It needs little consideration to come to realize how extremely difficult it will be to enforce such a clause and how likely it is, in the case of a certain class of hirer, that overloading will take place. " A particular difficulty" which arises in connection with this form of contract is that the hirer pays the wages of the drivers and these presumably are in his employ. lust how that will work out in practice depends upon conditions, but a difficulty is likely to arise in connection with cases wherein the driver exceeds the speed limit. There is, as a rule, a clause in the contract by which the hirer agrees to discourage such a practice. There is, however, obviously no means of ensuring adherence to this clause, and it has little meaning.
' Another clause stipulates that the hirers agree to let the contractors have the vehicle for one day in every month and at least a fortnight in every year for overhauling and painting. During that period, proceeds the clause, the contractor must provide a suitable replacement vehicle. To comply with this clause alone involves the provision of a spare vehicle for four weeks. In view of the foregoing it is small wonder that experienced haulage contractors allow for considerably more
than the, average amount to be debited against establish-. ment costs an-d contingent expenses. Those who are less experienced, those who are looking to this operation of C-licensed vehicles as a means for earning a livelihood,, should bear this fact in mind when preparing their; quotations, otherwise they will find themselves in heavy, financial difficulties.