Incidental Expenses
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"The Commercial Motor" Costs Expert Deals with Certain Items in the Tables of Operating Costs whichMay Vary Among Different Classes of User and Affect Charges to the Customer and Profit Capacity
REFERRING again to the letter from a correspondent which I commenced to discuss in my article last week, if I appear to be making rather a lot of it let me say that it is of particular interest. There are so many important matters raised that I am hard put to to deal comprehensively with them all.
The subject of the letter is mainly in reference to " ' The Commercial Motor' Tables of Operating Costs." The letter takes the form of a criticism to the effect that the Tables do not show all the expenses to which a haulier is put in operating a vehicle. That is perfectly true. The views of this correspondent—and I should make it plain that the writer is a man of much experience in haulage—are nevertheless put forward in a friendly way and are obviously designed to help.
The .first thing to note is that whereas his criticisms are such as to make it appear that the costs as quoted in the Tables are less than they should be, the majority of hauliers are inclined to the view that the costs and charges recommended are too high. Their attitude is that the Tables, whilst being extremely helpful as a guide, cannot possibly apply to them because they are sure their costs are less and, therefore, that their charges may profitably be lower than those recommended.
I deny that that is so. I and my correspondent, and many others, too, take the view that they cannot profitably operate at prices less than those recommended in the Tables and that those who think so, or even do so, are just as wrong.
One paragraph in the letter puts the whole case in a nutshell. "There is a number of items," the letter runs, "which may be the subject of some dispute, but as every company operating lorries will have to pay the expenditure on those items, sooner or later some financial allowance should be made."
Sooner or later, yes. But as it is so often later—later, that is, than the date of :the quotation and the completion of the job—it is too late for the haulier to rectify the error or make good the omission. That is at the root of a good deal of misunderstanding of haulage rates and most of the ratecutting which prevails. The Tables themselves, if I may put it that way, are the a20
lowest common denominator of all the items of expense involved in the operation of a vehicle. That must be so, because these Tables must he designed to be of use to the greatest possible number of readers. • In that connection it is essential to keep in mind such users as small traders owning only one machine and using it directly to carry on their businesses, making no attempt to use the vehicle as a source of income. Another example, closely allied to the foregoing, is the small coach owner.
The operating costs of such users, especially those of the trader, are what I would call net, in the sense that they are subject to the minimum of extraneous additions. The trader in particular can take it that the figures in the Tables cover very nearly all his expenses. Indeed, if he is a careful man, avoiding all overloading or excessive speed, employs a good driver and pays him a good wage, and if the work does not involve overtime, he may easily find his expenditure to be somewhat less than set out in the Tables. What he will not discover, however, is a way of avoiding any of the 10 or 11 items of which these Tables are principally composed.
The coach owner in a small way of business is very nearly but not quite in the same class. There are many such, in small provincial towns, who have built up profitable little businesses on recommendations alone and have acquired sufficient custom to keep their vehicles reasonably well occupied throughout the year at moderately profitable rates. Thus their establishment charges, although not non-existent, as some readers may have expected me to say, are nevertheless comparatively small, perhaps as near nil as establishment costs ever can be.
The operating costs of such businesses are, like those of the trader with the one van, nearly net, and the average is precisely that which is given in the Tables for the particular type and size of machine with which the individual may be concerned. This is in fact the class of user whose requirements the Tables exactly fill. They are lowest in the scale of users and they are entitled to have their needs considered. That is especially so as that consideration in no way harms or interferes with the requirements of others or their satisfaction. It is for those differently placed to realize what is
comprised in the Tables and to modify them to suit their own ends if and when the differences arise and can be dealt with.
The Tables, averages though they are, comprise, in the number of items, the irreducible minimum. None of them is in any circumstances avoidable. There may be others than those enumerated but there cannot be fewer.
Let the recalcitrant haulier who wants to delete, say, garage rent, interest on first cost, wages, or any of the 10 (soon to be reckoned as 11) items involved, ponder on that. He will be a little wiser as the result of his cogitations: at least he will if those cogitations are sufficiently deep and prolonged.
Let me now return to the letter and deal with some more of the points raised. The first criticism is that there is nothing about National Insurance payments of Workmen's Compensation premiums which have to be paid. Now I might turn round and tell my correspondent to read the textual introduction to the Tables, wherein that is fully explained. Instead I will repeat the sense of the paragraph for him There is provision for these, and for holidays with pay, in the amount set out as the driver's wages.
Next, my correspondent complains that there is no reference anywhere in the Tables to overtime, which is an important factor in the operator's expenditure. There are few hauliers whose men do not work some overtime every week. Most hauliers' vehicles cover weekly mileages which are impossible without overtime.
I have frequently pointed out that overtime payment is not provided for in the Tables, and added, moreover, that if the operator charges the amounts suggested in the Tables he is covered for overtime, because in the figures for time and mileage or for charges per mile there is sufficient to cover all the weekly standing and establishment costs within the first 44 hours of use. There is no need to add anything for overtime, which is almost as profitable for the master as it is for the man.
Next he refers to the expenses incurred by the driver, particularly when long-distance operation is considered. Ferries, tolls, trunk telephone calls, subsistence, he mentions as items of which there is no obvious provision in the Tables. All these items are likely to arise. Then there are others which admittedly do not apply in every case as, and in particular, the cost of goods-in-transit insurance. Finally, in this preliminary list, he asks for provision for contingent expenses.
"Bad Luck "? I gather that, in so far as this last item is concerned, he has in mind such things as compensation for or on account of breakdowns, accidents, trade depressions, general elections, bad debts, snow, fog and other weather conditions which militate against the smooth working of regular road services,
These factors undoubtedly involve expenditure and none of them is included in the Tables. They are not merely bad luck and even if those who experience these misfortunes insist on referring to them as bad luck, that in no way diminishes, let alone eliminates, the expenditure involved. They are indeed, as my correspondent states, inevitable, sooner or later. It is definitely had management if no allowance is made for them.
Here is the way my correspondent enlarges upon the items named: (A) the amount involved in overtime may quite easily be equivalent to the whole of the allowance for wages set out in the Tables. 1 have agreed that, but insist that in most cases the operator will earn rather than lose by it. (B) drivers' road expenses; in his experience, they may quite easily amount to £3 per week per driver. That amount does not, of course, provide for subsistence. (C) goods-intransit insurance: the amount involved here, in his case, is 21 per cent. of the gross earnings. (D) he can suggest no figure which can be taken, even on an average basis, to cover expenditure on " contingencies " as described above. However favourable the general conditions of work may be, there is none which can be so good as to make it unnecessary to take care that some provision is made to cover these extra expenses. It is no argument, either, to suggest that some of them are small. Every one of the items of operating cost in the Tables is not of tremendous
significance. Consider that of oil, for example. In a vehicle covering 200 miles per week and using only 1 gallon of oil per 800 miles, the cost per week for oil, assuming the price to be no more than 85. per gallon, would be only Is. or even as little as 9d. if the cost were 6s. per gallon. Even the National Insurance stamp costs the operator 5s., which is more than the expenditure on lubricating oil.
In order -to be able to arrive at the comparative importance of each of these items in their relation to the budget of the individual haulier, it is necessary first to ascertain approximately what the actual amounts are likely to be.
The National Insurance item has been assessed. Provision for holidays with pay may be approximately 5s. 6d.6s. per week. I have, however, pointed out that there is provision for these expenses in the Tables: they are not extras nor have they been overlooked, as my friend suggests in his letter. There is only the one item -outstanding with which I have
not dealt—goods-in-transit insurance. That cannot be included directly in the Tables because not every load needs that protection. To insure a load of tobacco or cigarettes is only common sense, but who would want to insure a load of sand or gravel, or even bricks for that matter. In a good many cases the amount is-small, up to £1 per week will suffice in most cases. No Insurance The sixth and last of the items mentioned by my friend, namely that to which he refers as contingencies, is
absolutely incalculable. Some of it can be covered by insurance, although not one in a hundred hauliers appears to take that precaution. The loss of trade involved in an accident as well as that resulting from breakdowns on the road is, to a certain extent, insurable. As a general rule, however, insurance against these losses is not effected. I cannot imagine that many hauliers take the precaution of insuring against loss arising from trade depression, still less from trouble arising from a general election, although such insurance can be effected—indeed has been done so many times.
Bad debts are always a problem: no business is entirely free from the risk and whilst we do not have such tremendous interference with road transport as was occasioned by the heavy snowfall of some two or three years ago. scarcely a winter passes but there is sufficient snow in some parts of the country as seriously to interfere with traffic. However, year by year the provision of means for combating the effects of snow are brought forward and it may not be long before only the heaviest of falls will be a trouble to hauliers. Rarely does a winter pass without the interference caused by fog and that is much more of a nuisance than snow.
Actually, however, these matters are largely covered by provision in the establishment costs to which I have so often to refer in these articles. As a wind-up to his letter, my friend quoted a flagrant case of rate-cutting, using, incidentally figures from the Tables to back his argument.
The case related to a contract of haulage of 60 tons per week. The cost to the haulier, including provision for establishment costs, was stated to be £124 per week, rather more than £2 per ton. When my friend remonstrated with the rate-cutter (he was charging the railway rate of 35s. per ton) his answer was that he anticipated being able to pick up return loads. He said he believed it possible to get such loads in the locality to which he was taking the outward-bound traffic and, although the return rate was only £1 per ton, that would help him. To such a statement there is, to my mind, no adequate rejoinder. I quite anticipate that there will not be much
difficulty in obtaining loads at per ton in relation to a traffic which is worth at least £3 per ton, nor do I feel at all friendly to the customer who is taking advantage of these conditions. There is no future in taking traffic at an extravagantly cut rate in order to make a profit on another job of haulage and that one also at a cut rate.
S.T.R. B23