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Assessing Rates for FARM HAULAGE

A Rural Haulier may incur Lower Establishment Costs than Town Contractors, but these Expenses Must Nevertheless be taken into Account and Allocated to the Vehicles in a Proper Manner AFEW weeks ago 1 wrote two articles in which I compared costs of operation, and corresponding rates and charges for operators living in towns and those in rural areas. My principal purpose was to show how difficult it is to provide for any stabilized rates schedule for the extremes of costs which I showed to prevail as between an operator having several vehicles established in

an industrial area and an owner-driver living in a village. .

soon after the articles appeared, some of the figures were challenged by a•correspondent. He was particularly anxious to deal with the question of establishment costs, as he did not agree with the figures quoted. 1 did not argue as, to toy mind, there is not much point in arguing about these expenses, because they differ so much as between one operator and another, although they may live in the same street. Instead. 1 askea him for his experience, so that I could, if necessary, criticize it With that conversation in Mind I propose to discuss the cost of haulage of farm produce in a manner contrary to the usual; dealing first with those costs which are not directly concerned with the operation of the vehicle, and treating them in a particular way, by reference to the experience of this haulier.

He has three vehicles, a 5-tonner engaged on cattle and live-stock haulage, a long-wheelbase 2-tonner and a 30-cwt. tipper. He brought up the question of establishment costs by producing. from an old article of mine, that schedule of those costs which has been published from time to time in these pages and is familiar to most of my readers. It appears in "Cost Recording Made Easy," a publication of which I am the author, and which can be obtained from the offices of The Commercial Motor,

He insisted that several of the items in that schedule were not applicable in his case, and he began by referring to five, namely, office rent, office rates, lighting and power, heating and water.

No Extra Cost

None of those expenses was incurred, he said. because he does all his writing at home in the evening on the kitchen table, which at once cuts out any expenditure on office rent and rates. There is no extra cost for lighting and heating, because if a fire or light were necessary it would be there whether he were writing or not, also he was not put to extra charge on account of water.

I could not accept his point of view altogether, for, as I pointed out, there must be times when he would work late. and therefore use more light and heat than if he did not work at home. In the end he said he would accept a nominal amount of £5 per annum to cover those items. He told me that he paid £15 per annum for telephone charges and that his audit fees were £4 4s. per annum.

Nothing could be set down against legal expenses, because he had not had a lawyer's bill to pay since he went into business, nor was there anything to be debited under my heading of "Fines." He had had no trouble with the police in his district, they were as a whole helpful, and be did not encourage his drivers to exceed the speed limit.

On the question of travelling expenses he disagreed with me in the contrary direction, stating that in his view my estimate was not sufficient, and he thought at least £120 per Lanum should be debited on account of the small car he is28 had to run for business. Obviously, nothing could go down under the heading of clerical wages or national insurance on account of his clerks, for he had none, but he did claim that he was worth more than £2 per week as a manager, and said that he allocated himself £150 per year under that heading.

On the question of depreciation on garage fixtures, he was inclined to omit this, as he had one old petrol pump which, surely, was written off by now, a couple of jacks and a tyre pump. However, in the end we compromised at £2 a year for this item

He is not a member of any association, so there was nothing to be debited under "subscriptions" and he told me that £5 per annum was about right for his bank charges.

Typical Attitude , His attitude towards the cost of .printing and stationery was typical of the rural operator. He had no printing and did not propose to have any, and what he used for letters and bills was an old exercise book, one of those, costing a shilling, lasted him for years, so there was nothing under that item, or for insurance of his buildings, as he never insured them, but he agreed to accept the figure of £4 10s. for maintenance of the shed in which he housed his three vehicles, also to £3 per annum for postage and £4 10s. for his A and B licences.

There remained only the sundries and again, as a cornpromise, the amount of £10 per annum was allowed.. The total came to £323 4s. per annum.

Having got so far I had thought that the going would be easy, but he wanted to allocate a third of that, or £108 per annum to each vehicle, to which 1 could not agree. 1 told him that the only logical way was to divide it amongst the vehicles in proportion to their load capacity. I explained the method in this way: There are 8i tons of payload capacity in the fleet. Divide £323 4s. by 8i to get the amount of establishment expenses to be debited to each ton of payload per annum, i.e., £38. Taking a 50-week year. that is approximately 15s, per ton of payload per week, or £3 15s. for the. 5-tonner. £1 10s. per week for the 2-tonner and £1 2s ficl. per week for the 30-cwt. vehicle.

The allocation of the costs worried him. For one thing he was afraid or the £3 15s, per week for the 5-tonner, which, he said, seemed heavy, and he wanted to know what was the justification for loading that vehicle with such a large sum per week. I explained that this was the usual method, but that was not good enough for him.

"Look at it this way," I said, "we are trying to work out your costs so as to get at the rates on the basis of price per ton. The cost per ton carried on a 30-cwt. vehicle is bound to be higher than that on a 5-tonner. If you debit the smaller model with the same amount of establishment costs as the 5-tonner, you are increasing the cost per ton on it in proportion to that on the larger vehicle. Indeed, the cost per ton on the smaller will be out of all proportion.

" Assume that you carry 30 tons per week on the latter and insist on loading it with £2 3s. 6d. per week establishment costs, that means you will have to charge nearly Is. 6d. per ton on account of establishment costs alone.

"Now, in the same proportion, the 5-tonner would carry 10'0 tons per week, and the cost per ton on account of establishment costs would be less than 6d.

" According to my method,. that is to say, allocating £1 2s. 6d. per week to the 30-cwt. vehicle, then if it carries 30 tons per week the charge per ton on account of the establishment costs would be 9d. With the 5-tonner carrying100 tons per week, the debit on account of establishment costs is again 9d. per ton, so that all the three vehicles. are beit.4 treated alike, and that, I think, is justification of the method."

In the end he agreed and accepted my figures, but he was still worried about them and wanted to know how he could reduce the, to him, excessive amount. of £3 15s, per week on the biggest vehicle.

I explained to him that there were two ways, one was to reduce the total of establishment costs, but he promptly assured me that this could not be done, and I was as prompt in agreeing with him that he could not; the other was to increase the size of the fleet without adding to those establishment costs in the same proportion. That, as he pointed out, was equally hopeless, as the prospect of obtaining additional licences was remote, and even if successful he might not find work for the vehicles.

-So far as establishment costs are concerned then we agreed, and I put the above figures forward as being generally 'applicable to operators of this type, also those having two, three or four vehicles working in the country, doing without clerical assistance, without office expenditure and so .on. The establishment costs per week will work out at about £3 10s. to £4 for a 5-tonner. £1 15s. for a 2-tonner, and ..£1 to £1 5s. per week for a 30-cwt: vehicle.

-Next we turned to the matter of operating costs proper, anti-ion this .aspect -of the matter, too, he had views quite as -strong.. and in some senses "quite as inaccurate, as his original siews on establishment costs. He suggested in the first place that the -average . figures for costs such as those published in "1-he Commercial Motor Tables of Operating Costs" could not be applied in his case. The roads in his area are "shocking." The main road only a two-track: the secondary-which he uses mostly-only one track, with provision occasionally for passing. The many other roads arc little better than cart tracks.

Rough Conditions

Since the war little or nothing has been done in the way of repairs to these roads and as a result they abound in potholes and deep ruts. Moreover, as often as not, the vehicles have to go on to the fields to pick up the produce which they cart to market, and it is quite a common thing to have a lorry bogged for an hour or more, at the end of which time the farmer's tractor has to be sent for to haul it off the field.

All these conditions, which do not trouble the city haulier, accelerate the wear and tear of the machine, and increase the costs to such an extent as to make the ordinary figures, as quoted in the Tables, inapplicable. He wanted to discuss with me some suggestions as to the variations in the average figures which he should make in order that they should be more directly useful to him in dealing with his own business. After that, of course, he wished me to discuss rates, in the case of the 5-tonner on live-stock haulage, and in the case of the others on general farmwork. I will deal with the 5-tonner first, and to simplify the discussion will refer in the beginning to the standing charges as not being affected to any degree by the different operating conditions.

1 had no difficulty in agreeing with my friend that these were as follows, per week: tax, 14s.; wages, including insurance and holiday pay, £5 15s.; rent and rates, 4s.; insurance, 16s.; establishment costs, as already discussed, £3 15s. He would not hear of anything being debited on account of interest on first cost. He did not understand it, and as it was not an actual expenditure he preferred to include it in his profits. The total, therefore, was £11 4s. per week. So far as running costs are concerned, he had a petrol consumption rate of 9 m.p.g.. and as he was paying 3s. 3d. per gallon, that meant his petrol cost per mile was 4.33d. This comparatively high figure is no doubt in part due to the difficult conditions of working to which he referred, for although he does not actually go into the fields for cattle, he does have to go into stock yards and do a lot of manoeuvring, both at the loading and unloading ends, with each cargo. For the same reason he suggested a higher average figure for oil consumption. and we agreed upon 0.25d. per mile.

He seems to obtain quite good results from his tyres, and taking a set at £160 and allowing 24,000 miles, that gave him 1.60d. per mile for that item. Maintenance, as expected, provided a snag. As to theactual costing, he had not a clue; moreover, he flatly refused to include anything for what we call ip "The Commercial Motor Tables of Operating Costs," maintenance (d). A cattle truck has to be washed out after each delivery, but as that is done by his drivers during the ordinary day's work, he thought that it was not otherwise a chargeable item, and I had•to agree. The figure for maintenance (e) in the tables is 1.34d., so that taking it as read that his maintenance would cost the average, we eventually settled on Qd. per mile.

As to depreciation there was no difficulty. The vehicle was doing over 40,000 miles per annum, so that the vexed question of obsolescence did not enter into this calculation, The original cost was £1,660, and I worked out the depreciation in the usual way as 2d. per mile. The total of the foregoing is seen to be 9.94d„ which he could reasonably take as 10d. per mile.

When I asked on what basis he wished his rates to be assessed he was somewhat at a loss, and eventually I decided that the only practical way was to take a typical week's work, assess a charge that he should make, and then try t-) find some method of itemising the charge in respect of each beast carried.

Carrying Cattle We took three typical days' work. On the-.Monday of one week he carried 40 small sheep and 20 calves 'for 54 miles, returning empty. the vehicle being in use eight hours. On Tuesday he carried 30 small sheep and 18 calves 120 miles, also returning empty. The vehicle was stated to have been in use 11 hours. On Wednesday he conveyed 40 small sheep and 28 calves 94 miles, and on the return journey picked up 50 small sheep, which he carried for six miles. Again the total of hours worked was stated to be II.

To get some data for a full week's work it was agreed that I should repeat for Thursday the work done on Monday, and for Friday the work done on Tuesday.

This is the suggestion I made to him as to the method of calculating his charges per head of cattle or other animals carried: First I took the Ministry'of Food figures for" units," according to which a small sheep counts as two units and a calf as five. On the first day • there were 40 small sheep, representing 80 units, and 20 calves which meant 100 units; total, 180 units carried 54 miles, giving 9,720 unit-miles for that day.

The second day's work covered 30 small sheep or 60 units, and 18 calves, 90 units, so that 150 units were carried 120 miles, which amounts to 18,000 unit-miles. By applying that method to all the journeys throughout a week I reached a total of 76,720 units. The weekly mileage was 884.

Ascertaining Cost

The next step was to ascertain the cost and the revenue which the operator should have obtained in this work. First there is the total of fixed charges, given above as 1 4s. for the week. To that must he added 4s. 8d. for overtime. For the running costs we have 884 miles at 10d, per mile, which is £36 16s. 8d. The total expenditure for that week is thus £48 5s. 4d.

On work of this kind the haulier is justified in applying a profit margin of 20 per cent., which in this case ;t1 £9 14s. 8d., so that his total revenue in the week should have been not less than £58, that is 13,920d. and he completed 76,720 unit-miles. His charge is therefore 76,720 divided into 13,920, which is about two-elevenths of a penny per unit-mile.

Taking the first day's work as an example and dealing first with the small sheep, 20 of them, that is 40 units were carried 54 miles. giving 5,400 unit-miles. At the same figure elevenths d. each, that is nearly 400d., or 20d. per sheep, so that the correct charge for each sheep on that journey is Is. 8d.

On the same journey 20 calves, that is 100 units, were carried 54 miles, giving 5,400 unit-miles. At the same figure per unit-mile, the total is practically 82s., so that each calf must be charged at the rite of 4s. 2d. That method can be applied to all the journeys in just the same way,

The discussion of the work done by the smaller vehicles and the method of charging must be left to another article.