SELLING TRANSPORT
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to the trader
Powerful Arguments in Favour of the Use by Traders of Hauliers' Services, in Preference to Running their Own Transport. How Charges for Contract Work Should be Assessed
IHAVE had requests for advice from haulage contractors who are presenting cases to tradesmen in the hope of persuading them to utilize the haulier's services for the whole of their transport, that is, persuading the trader to hire rather than awn his fleet.
The arguments in favour of the trader's hiring his transport instead of owning it are many and cogent Those against are seldom valid: they are founded on lack of appreciation by the trader of the real truth of the case.
Whilst there are many reasons why traders both large and small would find it to their advantage to utilize hired transport, the reasons are not always the same for the large concern as they are for the small one.
A large company brought to consider this matter, and having already had some experience of running its own transport, has in all likelihood come to the conclusion that road transport involves specialized attention. A complete transport organization would be required, capable of dealing with a subject concerning which the directors of the company may have no practical knowledge at all. Realization of that fact may well incline them to decide to place the business in the hands of a specialist.
Another factor which tends to tip the scale Of choice in favour of hiring, as against owning, is the existence of. conditions which involve considerable fluctuation in the VD lume of traffic to be moved from time to time. There is often a tendency to own sufficient vehicles to carry only the minimum flow, hiring when the work offered is in excess of such provision. The outstanding example of this attitude is the Post Office, which for two weeks at Christmas time hires extra vehicles to carry excess traffic.
When Transport is Required Occasionally These conditions are likely to exist both in small and large concerns but there are extreme cases with small undertakings when the actual progress of the enterprize is liable to be severely. handicapped by lack of appreciation of the transport problems involved. This will happen when goods have to be delivered at irregular intervals so that the cost of transport, if owned, will be out of all proportion to the work which has to be done.
In any event the operation of transport is a "wearisome" job under present-day conditions, owing chiefly to the need to interpret and apply the mass of regulations by which it is governed.
The trader is only too glad to be relieved of these worries and troubles even if, as by no means follows, the cost is a little more than it would be if he operated his own fleet. Some traders whom I have known would regard no price as too high to pay for that relief. It is usually the case, too, that a haulage contractor can carry the burden at a cost less than that in which the trader would be involved.
Again, a trader's own transport organization, unless it be a very large one with a margin of vehicles and drivers sufficient to cope, with such eventualities, is likely to be thrown right out of gear at any moment as the result of an accident to any of the vehicles, or if one of the drivers goes sick. If the transport is hired, the responsibility of finding spare vehicles and spare drivers falls on the contractor.
It is true that some trading concerns operating their own transport and faced with the problem of catering for fluctuating or seasonal traffic, endeavour to turn that handicap to advantage by arranging that during the slack season opportunity is taken to overhaul the vehicles in turn. The risk there. and I might put it higher than a risk, is that maintenance and service work may be done at unnecessary expense, just in order to find work for the maintenance staff and to assure the directors that steps are being taken to ensure that the fleet is in perfect order ready for use as and when required.
In other words the cost of maintaining that fleet and therefore the total cost of transport is very much greater than it need be and certainly greater than it would be if done by a contractor.
One important factor which arises here, can also be mentioned as a particularly sound argument against ownership of a fleet of transport vehicles. Space is required both for the fleet and for the maintenance depot, in localities where that space is valuable and all available room is required for the extensions to the premises. To give up valuable warehouse or factory space in order to accommodate a fleet of vehicles at night is obviously uneconomic.
Awkward Garages' If, in addition, provision be made for a renair and maintenance depot, this aspect becomes more serious. Often enough, too, such garage accommodation as is available is quite unsuitable for the purpose, being unduly restricted, imperfectly illuminated and inaccessible or difficult of access to a main thoroughfare.
This condition may in some circumstances constitute a handicap to the commercial advancement of the company concerned, to such an extent that what it may be costing is almost impossible of assessment and may never be taken into consideration.
On this subject of cost, the inquiriog tradesman often brings up this point: How can the haulage contractor possibly run vehicles at less cost than the trader himself and yet make a profit out of it?
The answer is to a certain extent bound up with the fact that the contractor is usually a large operator with a big fleet. As such. he has certain advantages in respect of cost of operation which cannot come the way of the smaller fleet owner: he enjoys the privilege of special terms ia respect of the price of vehicles, fuel, oil, tyres, spare parts. insurance and so on. There may be enough in this difference in cost to give him almost all the profit he desires to make out of the contract.
Haulier at an Advantage His maintenance costs are less, because he has a repair department which is well organized and equipped. His mechanics are always fully employed in useful work; there is no idling because of lack of work, which is so prevalent in the workshop of an ancillary user whose maintenance depot is usually overstaffed.
The haulage contractor keeps'a stock of spares and even of tyres, much larger than a small fleet operator can afford to keep, with the result that replacements, repairs and maintenance are carried out quickly. Any vehicles in need of attention are back on the road with no time wasted and the customer is assured that deliveries are not held up. They would not be held up in the event of an accident to the vehicle or the illness of the driver, because the contractor has spare vehicles and spare drivers
Normally, of course, the vehicles are painted and lettered to the customer's own designs and bear his name. If one of these be involved in an accident, it can immediately be replaced hy a plain vehicle and the difficulty of the Male may he overcome by the use of lettered sideboards which are quickly fixed or removed. So far as the trader is concerned, there is no extra cost involved and no times lose It is indeed in this direction that the haulage contractor is able to economize. He has a large fleet and the maximum use is made of every vehicle. Floating or spare vehicles can be diverted from one customer to another as and when the need arises. It is not necessary, as might he imagined. for him to keep a spare vehicle for every customer. The trader, on the other hand, whose business is of a kind which necessitates that there must never be any delay, is bound to have one or more spare vehicles and drivers available for immediate use. That alone can easily put up his cost or transport by 10 to 15 per cent.
Balancing Peak Loads
The haulage contractor, too, can so arrange his customers that it is rarely that two of them are experiencing the peak of traffic simultaneously and the contractor can thus swing vehicles from one customer to another, overcoming for the customer these difficult peak periods yet maintaining for himself an overall even mileage and tonnage for the vehicles he is operating, Another point of importance is that vehicles operated by a contractor are usually better kept and of better appearance than vehicles owned by the tradesman. There are exceptions to this rule but generally speaking the trader is apt, partly from necessity and lack of opportunity, to allow the condition of his vehicles to lapse. The contractor cannot do this. He is bound by his contract to keep them up to scratch and usually arranges for the vehicles to be overhauled and repainted once a year.
A particular advantage to the tradesman of •having his transport operated for him is that there is no Initial capital outlay involved. Moreover, he knows exactly not only What his transport is costing him now but what-it wilr be•costing him at any time in the future.
Nearly all these contracts are arranged so that the charee is on a mileage basis relating to an approximate yearly mileage which has first been agreed. The contractor bases his estimates on that figure.' As a rule the customer pays a basic charge per annum to cover that agreed mileage, paying an excess for every mile above.
Comparative Costs
The stumbling block for the haulage contractor who is hoping to sell his services to a trader who runs his own transport is actually on the question of comparative cost. The trader does not really know what his operating costs are. If he has ideas about it they are probably quite wrong and likely to err in the direction of under-estimation, There is probably an item "Transport" in the audited accounts but it will most certainly contain no provision for the clerical and administrative work which is so important a part of a trader's expenditure on transport.
Objections, too, are sometimes raised that if the transport be handed over to a contractor, the drivers will not be under the sole control of the trader, who likes to be able to decide on what routes he will employ particular drivers. He likes to arrange that a specific driver is scheduled on a certain route with which he is familiar and on which he knows all the customers and their little preferences and peculiarities..
A good and experienced haulage contractor is careful almost as a matter of course to make provision to overcome that obstacle. He appreciates that in any particular trade the driver must be something of a specialist in that trade. He must know just where different items of the load have to be discharged so that the arrival of the lorry or veil at the point of delivery will cause no delay or inconvenience.
It is usual to instil into every driver the principle that he is responsible not only for the satisfactory performance of the vehicle and for safety on the road, but also that he is expected to exercise his intelligence, to ensure that whatever work his machine does will be performed in the most efficient manner possible. It may be suggested that in endeavouring to serve two masters the man may sometimes fail to keep up to standard. In practice that is not so and one of the earnest endeavours of any haulage contractor undertaking this class of work is to be able to judge the type of driver to allocate to any particular consignment. The user will soon inform him if his choice be wrong.
Of course it is often practicable for the contractor taking over the transport of a trader to continue to employ the drivers who are already doing the work and are accustomed to it. In quite a number of the cases which have come to my notice lately there is no option, for the haulage contractor, whilst he owns the vehicles and in many cases often buys the fleet from the trader, does not take out the licences under the Road and Rail Traffic Act The vehicles are registered in the name of the trader and operate under C licences. In those circumstances, as should be widely known, it is incumbent upon the trader to become the employer of the drivers.
In a particular case which came to my notice recently the haulage contractor told me that he was proposing to buy up the vehicles belonging to a trader (they were eight 15-cwt. vans) and he asked me to indicate the essential clauses of the form of contract to be drawn up between himself and the trader. also for some guidance as to the charges he should make.
So far as the agreement was concerned, I recommended him to apply to. the R.H.A. for the standard form which has been drawn up by that Association and which would cover all the points likely to be raised in a matter of this nature.
Assessment of Charges The assessment of the charge to be made did not raise any difficult points and I will give the figures. stressing only the fact that the price which the contractor paid to the trader for the fleet of vehicles has no bearing upon the charge to be made for the service. It affects the haulage .contractor's costs in one particular only and that is the item "interest" As regards that item of operating cost, the amount charged would be governed by the price paid -for the vehicles instead of, as usual, being related to the price of a new vehicle.
Depreciation: I would emphasize as I did in an article written a foonight ago, must be assessed on the basis of the cost of a new vehicle because, as I then explained, depreciation in these schedules of operating costs as calculated for the purpose of assessing charges is in effect provision for the purchase of new vehicles.
According to the above conditions, then, we have to take it that a new 15-cwt. van, painted and lettered and equipped in the style required by this tradesman, would cost £550 when new. For the purpose of depreciation we take away the cost of a set of tyres which is £25, leaving £525. From that again take the potential residual value of, say £55, and we are left with a net figure of £470. It is perfectly-reasonable to depreciate the vehicles over five years, taking, therefore, a flat rate of £94 per annum for depreciation. Take garage rent at £26 per annum, interest £12, overheads £78. total 1210.
Traders' Responsibility
The reader should note the absence of any debit on account of licences, wages or vehicle insurance. As the machines wcre to be operated under a C licence those items would have to be settled by the trader. The total of fixed costs is therefore £210 per annum.
Running costs are: petrol (18 m.p.g., Is. lid, per gallon), 1.24d.; lubricants, 0.10d.; tyres (20,000 miles per set), 0.30d. For maintenance it is usual to take a figure rather above the average, because of the necessity of frequent painting. lettering and varnishing and so on. For that I take a figure of 1.36d. so that the total running cost amounts to 3d. per mile.
The annual mileage agreed upon was 12,000, so that the total running cost is £150 per annum and the total outgoings to be met by the contractor, £360 per annum. I added 15 per cent to that which is £.54, giving me £414, and I recommended the contractor to •charge £420 per annum plus 410. per mile for excess mileage.