Solving the Problems of the Carrier
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A Variety of Uses for Operating Costs Tables
Besides Indicating What Are the Costs and What Should be the Charges for All Types and Sizes of Vehicle, the Statistics Given are also Useful for
Comparing the Operator's Own Costs with Those Put Forward as Normal, and They Indicate a Basis for Simple Cost recording
COME years ago, when rate-cutting was rife. I well remember discussing a particular rate with a Yorkshire operator. It was pretty obvious that if he were to do the work at the price which was being offered to him he would hardly be able to cover his own costs, and he finally summed up the situation by saying, "Well, I might as well play for nowt, as work for nowt," and play he did, so far as that particular lob was concerned.
I remember another occasion when I was asked by an operator whether he should carry traffic at a rate which was offered. I said it would not pay him. His retort was that, 'if he did not do it, he would have to lay-up his vehicles. I said I appreciated what lay behind that, but, in the cir-• cumstances, it was better to lay-up one or two machines than to take traffic at a loss.
He followed my advice and, at the end of the year, he was good enough to tell me that, as a result, he had saved a considerable. sum of money as compared with the previous year.
All these knotty problems about costs and what rates should -he if they are to show a reasonable profit, can be solved fairly simply by use of " The Commercial Motor"
Tables of Operating Costs. Last week I gave a few typical examples of the application of these Tables to a variety of problems of this kind. This week I have one or two more, and, in addition, I have selected a few inquiries I have received which show that the Tables can be used for purposes other than just the direct assessment of costs an4 of rates or fares to be charged. What I would like -to emphasize before I •proceed with these particular problems is that all the examples which I dealt with last week, and those I shall deal with this week, are practical problems which have actually been put to me.
Using the Tables to Ensure a Reasonable Profit
Undoubtedly, the outstanding advantage of the Tables of Operating Costs is that they show the operator what he should charge for his work on the basis of covering his vehicle costs and his establishment costs so as to show a moderate and reasonable profit.
In pre-war days, when rate-cutting was so prevalent, and when operators had not learnt or appreciated that common trick practised by some transport buyers of setting one operator against another by pretending that lower quotations had been received, many operators used to tell me that it was impossible to get the' rates indicated in the Tables. I could always rebut that by the evidence of others who found it a simple matter to obtain those rates and to keep on obtaining them even in the face .of competition, but the weaker ones in the industry could not be persuaded. What a change since then ! The general attitude of most operators, notwithstanding the fact that the Tables have been revised from' time to time and brought up to date as regards costs and charges, is that the rates suggested in the Tables are, to-day, insufficient. I leave readers to draw the moral from the above contrasts, and I leave them to consider what is likely to be the position when the war is over. They will revert to ordinary commercial usage and must compete, not only one with another, but with the railways and with C-licensees who will weigh matters up as to whether it is more profitable for them to operate their own vehicles or to make use of haulage contrasiPtors.
One thing is certain: whatever may be the after-the-war conditions, as to competition being keen because the supply of transport exceeds the demand, or whether the situation be just the reverse of that, hauliers will still require to know the over-all cost of operating their vehicles, including, in that total, the items which the ordinary operator is apt to overlook or, at the very least, under-estimate.
Arriving at Charges for Carrying Concrete Blocks
Dealing with the first of the examples of the use of the Tables, it is a type of query of which I receive a considerable proportion, probably because some more or less intricate calculations are necessary in order to arrive at the required result. A reader asked me to let him know what he should charge for a 5-tanner, weighing under 21 tons unladen (this again is a pre-war inquiry), carrying concrete blocks. He 'informed pie that it took half an hour to load
tons and the same time to unload, and he wanted, first of all, to know what he should charge per load over leads of 5, 10, 15. 25 and up to 50 miles, advancing by five-mile stages. Would I also indicate a rate per ton?
This is another example which goes to prove the utility of the last paragraph in each of most of the Tables, entitled " Time and Mileage Charges."
The first thing to do is to work out the travelling times for each distance and, in so doing, it is necessary to take into consideration the fact that, over the short lead, the average speed of travel will not be so high, and I do this by setting out a little table as follows:— The next thing to do is to refer to Table II of the Tables of Operating Costs and, in the particular paragraph to which I have already referred, in the column headed 5 tons will be found the figures, 5s. charge per hour and 81d. charge per mile. Now comes another little table:—
Table H Lead -miles. hrs. miles. s. d. s. d. s. d.
5 11 10 7 6 + 7 1 = 14 7 10 21 30 10 8 421 3 = 31 11 20 21 40 12 6 + 28 4 = 40 10
25 25/6 50 14 2 + 35 5 = 49.7 Each additional five miles 1 hr + 10 miles; is 8d. + 75. Id. = 8s. 9d, The last column in the above table gives the total charge for the use of the 5-ton vehicle over each lead.
For the charge per ton it is necessary to divide the above figures by five and give an approximate result. The rates will seem to be, for a five-mile lead, 3s.; 10 miles, 4s. 6d.; 15 miles, 6s. 6c1.; 20 miles, 8s, 2d.; 25 miles, 10s., and each additional five miles, Is. 9d.
Now comes a problem of assessing rates for parcels carrying The difficulty here is that, whilst it is easy to assess the cost of the journey from the Tables, the rate to charge per parcel can be assessed only by experience of how much traffic is going to be available, and below I show how I dealt with this particular problem.
The round journey over which the parcels were to be picked up and delivered was 80 miles, and this was to be run every day, six days a week, so that, with some allowance for dead mileage, the total would be 500 miles per week. The operator was using a 3-ton van, and under the heading of " Minimum Charges per Mile" in Table H, for a 3-tonner, opposite 500 miles per week, is quoted 111d. per mile. On that basis his daily run of 80 miles should bring in a revenue of 75s.
Next, I supposed that taking the whole journey the vehicle would be carrying only one-third of its capacity. on the average, so that the operator would really want to obtain a rate of 75s, per ton. I, therefore, recommended him to charge 4s. per parcel weighing 56 lb. and less than 4 cwt.; 2s. 3d. for a parcel weighing 28 lb. and not more than 56 lb.; Is. 6d. for from 14 lb to 28 lb.; is. for from 7 lb. to 14 lb.; 9dr minimum. In addition, I warned him that he would have to 4arge an additional Is. for bulky packets, or items difficult' to handle.
Costs Facts and Figures for
Operating 20-seater Buses *
Last in this series of problems involving direct use of the Tables is one relating to a bus service. An operator running 20-seater buses had been asked to extend his service by n miles, making two journeys per day on two days per week, and he wanted to know what fares he ought to charge.
For this information he would have to refer tb Table XIII, which gives operating costs and charges for four. wheeled petrol-engined buses. He did not, as he should have done, tell me what mileage the bus was already doing per week. That is essential as a basis for running costs so. in my reply, I took a chance and guessed at 400 miles (it was a country bus service in connection with which weekly mileages are not, as a rule, very great).
To operate this service would involve him in running his bus an additional 28 miles per week. The addition to his expenditure would, therefore, be at least 70. per mile. The actual figure. as quoted in the column headed 20 passengers in the second paragraph of Table XIII, is 7.39d., and 28 miles at 7141. is 17s. 6d.
It is reasonable to assume that he would have to arrange for the driver to work more hours per week, and there might be an additional cost of 10s, on that account. His total net increase in operating costs would thus be 27s. 6d. per week and, making provision for some slight addition to his establishment costs, cost of tickets and things of that sort, he should sec a. return of not less than 40s. per week if it were going to be worth while for him to run this extra service.
A passenger-vehicle service is similar to a parcels service In that you have to set the number of passengers against the cost to find what the fare should be, and the number of passengers is an estimate, at least in the beginning, until some experierke has been gained It is usual, when making this estimate, to take it that the bus will be one-third full
on each journey. This bus makes eight journeys per week, four each way, and reckoning on an average of seven passengers each journey travelling all the time, that means that 56 fares for the full journey will be collected and, in order to be sure of earning 40s. per week, the fare for the full distance must be 9d.
Another use of the Tables is to compare such figures as the operator already has for ,his cost of operation, with the corresponding items in the tables to see whether his costs are higher or lower than they should be; in pre-war days I used to get quite a lot of inquiries of that kind, as operators sent me their costs and I was asked to criticize them. It is not possible, in this article, to deal in full with even one such inquiry, because there is such a bulk of figures put outfor comparison. The schedule I have before me embodies, in all, some half-a-dozen foolscap sheets. I will, therefore, take only one item—the petrol consumption of each of five 2-ton lorries.
The work involved quite small mileages, not more than 200 per week, and referring to Table I (last column), the cost per mile for fuel is given as 2.03d.
In the experience of this particular operator, the cost per mile for fuel for the five different vehicles was 2.70d., 2.13d., 1.90d., 2.15d. and 1.82d., so that I was able to tell him, as regards three of his vehicles, his cost was above the average and for the other two it was below it. I dealt with a whole series of costs and, subsequently, discussed with him the reasons why they *ere high in some cases and low in others. We both got a lot of useful information out of the discussion, using "The Commercial Motor" Tables of Operating Costs as a basis.
A Simple Basic Method for Keeping Records of Costs
Finally, whenever I am asked by an operator to suggest a simple method of keeping cost records I always recommend him to take the make-up of "The Commercial Motor" Tables as a basis for the system he should adopt. He should make provision for the 10 items enumerated. The five standing charges—licences, wages, rent and rates, insurance and interest and the five running costs—fuel, lubricants, tyres, maintenance and depreciation.
Then I point out to him, as a further simplification, that he should, at once, obtain the permanent figure covering four of the standing charges, that is, all but wages, thus further simplifying the work of keeping the records.
Wages he can, and must, enter each week, and expenditure on fuel and oil should be recorded as and when it is incurred. I then warn him that he should make provision, in advance, for future expenditure on tyres, maintenance (including repairs), and on new vehicles which is provided for in the item depreciation, and I suggest that, for the time being, he should, besides recording actual expenditure on tyres and maintenance, use the figures in the Tables as indicating the provision which he should make, from day to day, and from week to week, for that future expenditure. I do this so that the operator who is not very well acquainted with. what I might term the facts of life as they relate to the operation of commercial vehicles, shall not overlook the necessity of making provision for such expenditure which will have to be met at s'ome time in the future.
This is a matter Of sufficient importance to justify some enlargement. in the earlier days of road haulage there were many small operators who had no business experience whatever and kept no books at all. The items of cost which impressed themselves upon them were those which they had to meet from day to day or from week to week, such as expenditure on petrol and oil, wages, and the weekly rent of the garage.
Inmany cases this gave them false ideas of the profit they were making. They subtracted the sum total of these direct expenses from their total earnings each week, imagining that the balance was net profit. They overlooked the fact that, in the near or distant future, money would he needed for new tyres and for repairs and overhauls and, eventually, to buy new vehicles. "The Commercial Motor" Tables of Operating Costs were helpful in those days, in that they called attention to these pending expenses, thus tending to rectify operators' mistaken ideas about profit, which encouraged them to cut rates below the economic
level. S.T.R.