Elementary Rates Assessment
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Figures for Oil-engined Vehicles. Reckoning Establishment Costs: Adding a Percentage for Profit and Deciding Upon Rates
IN the previous article 1 dealt with operating costs, and I am proceeding on the same lines as those which I used to adopt in-pre-war years. I explained, in last week's issue, that the procedure is not so much one of recording costs but of estimating, as regards many items, what in the long run the average cost will be, and this precaution is particularly necessary in respect of tyres, maintenance, and depreciation.
By the time 1 had finished I had come to the stage of assessing the total cost of operation of a petrol-engined vehicle carrying 6-ton loads, explaining each item in detail. The results are shown in Tables 1 and II, reproduced here from that article.
Before 1 go any farther, I shall deal, in the same way, with an oil-engined vehicle carrying 6-ton loads, as the oil engine is becoming more popular for this light-capacity machine so that information concerning it is becoming essential to the operator.
It should be observed that there are two matters of importance to bear in mind. One is the considerable diminution in fuel cost per mile with the oiler as compared with the petrol-engined machine; the other is the considerably enhanced first cost of the oil-engined vehicle, and these two items tend to offset each other.
1 will take first fuel costs. In the previous article I took an average figure of Is. 9d. per gallon for petrol as the basis for calculations I made. For oil fuel the price to-day varies from Is. Sid. to Is. 8d., so I will take as an average figure Is. 7d. per gallon.
For fuel consumption I assume 10 m.p.g. as being applicable in the case of the vehicle under consideration, namely, a 5-tonner, habitually, if unfortunately, loaded with 6 tons. Under corresponding conditions it is safe to assume that the oil-engined vehicle would run 171 m.p.g.
Now if we divide Is, 7d. by In we get the cost per mile for fuel as being a fraction under 1 1-10d.
While we are about it we might link oil fuel and lubricating oil, just as in the previous article I linked petrol and lubricating oil. Lubricating oil for oil engines is more expensive than that used for petrol engines. Moreover, it is essential that the crankcase be emptied and replenished with greater frequency so that in this case I propose to take the cost of the oil as bs. 3d. per gallon and assuming that these more frequent replenishments of the sump are taken into account the mileage per gallon is 500, which gives me 3-20d. per gallon, and if I add that to 1 1-10d. for fuel oil I get a total of lid, as being the expenditure on fuel and lubricants.
Now let me turn to the other important matter which I said must be considered, and that is the greater first cost of the oil-engined vehicle. I assume that the petrol-engined machine costs £615. A similar vehicle, fitted with an oil engine instead of a petrol engine, will cost £865.
This increase in costs affects two of the items which appear in Tables I and II. It affects interest in Table I and depreciation in Table II.
The interest, as I pointed out in the previous article, is reckoned at approximately 4 per cent., which means that we must estimate on the basis of £35 per annum for the oil-engined machine, instead of £24 for the petrol-engined vehicle.
In dealing with depreciation I must first of all deduct £85 for tyres, which leaves £780. Then I must make sonic assumption as regards the mileage which the vehicle vill do before the operator decides to discard it, and what he will get for it when he wishes to replace it.
I propose to take the same figure for mileage as in the case of the petrol-engined vehicle, namely 120,000, but I shall assume that the operator will get a much better figure for a used oil-engined vehicle than he would for one equipped with a petrol engine, and I propose to take £100 as the figure. Deducting the £100 from the £780 we get a figure £680 for the calculation of depreciation, and if the operator likes to work out that sum for himself he will get I.36d., approximately lid as being the depreciation per mile.
The point about this item is that the operator must ~ealize that so soonas he begins to use his vehicle it is wearing out at the rate of lId. per mile, so that if he runs 480 miles per week be is losing £2 15s. worth of vehjcle every week of operation.
Why the Cost of Tyre Equipment Is Deducted
I must emphasize, too, that I deduct £85 for tyres because the cost and the wearing out of tyres is regarded separately, as will be noticed by reference to Table II.
There is another item from Table 11 which needs some consideration in dealing with oil-engined vehicles, and that is repairs and overhauls. It is now generally established as the experience of users that, taken over a long period and given careful maintenance, the cost of repairs and overhauls in the case of an oil-engined vehicle is less than it is with a petrol-engined vehicle. Instead of lid, for that item as quoted in Table II, for the oil engine I shall take lid.
We can now set out tables corresponding to Tables I and II, inserting the figures appropriate to an oil-engined vehicle. They are as follow:—
Standing Charges per Annum for Vehicle Carrying 6-ton Loads (Oil-engined) 1 am going to regard this as £431. This is to be divided by 260, that being the number of working days which a vehicle can be expected to operate per annum, and the amount is Li 13s. Id. per day, reckoned to the nearest penny. • Now for the running costs, carefully described in the previous article, we have the following: Running Costs per Mile for Vehicle Carrying 6-too Loads (Oil-engined) Item. d.
Fuel and lubricants I Tyres 1 Routine maintenance Repairs and overhauls Depreciation We now come to an entirely different aspect of tin, haulier's costs, that is the cost of operating his business. Many operators think that they have no such costs-that their business costs them nothing to run.
In the assessment which I am about to make I am going to take minimum figures with the full knowledge that it would be almost impossible for any operator to keep the costs of operating his business, or establishment costs as they are called, at so low a figure as I shall suggest. Again I emphasize that we are -dealing with this subject in a way that a business man of any standing would, if he wanted to run his establishment in a business-like manner and not give anything away.
First of all he must put something down for the rent and rates of his office. It is quite likely that this is a room in his own home, but the fact remains that it is part of his own premises which is being used for the purpose of his business and should be charged for accordingly.
I am going to take for that an absolutely irreducible minimum of 2s. per week, which is £5 a year.
Various Office Expenses that Must Be Given Consideration While he is working in that office he will be using light and heat which he would not otherwise do, and will be consuming gas, electricity, coal or coke. In view of the fact that he will not use much of them during the summer I will assess that as a total of 12 10s. per annum.
Now he is bound to have a telephone. Here, again, for a minimum assessment. I am going to take £6 per annum.
He will have to have his accounts audited, and as I have already been in trouble once for under-estimating auditors' fees I am not going to get into that difficulty again, and I am going to take it as being £4. He may have certain law costs, at least he will have to pay someone to help him with his business in the Traffic Courts, and I am going to put down 30s. for that.
I will not, in the case of this small operator. debit anything for travelling expenses, and certainly not for clerk's wages, but I am going to put something down as manager s salary. Even if the operator be an owner-driver and, perhaps. a specialist, he will be working over the week-end doing odd repair jobs to his vehicle or supervising them, and he will have to spend quite a lot of time making up his accOunts, writing letters and so on, and if he does not think he is worth £100 a year for that then I think he is governed with a superabundance of modesty.
He ought to be a member of a haulage association, and I will put down £1 10s. for this. He will have some bank charges to pay, so I will put a further £2 10s. per annum for that.
He must have some notepaper and billheads. and to-day even the most modest of these costs a lot of money, and I should think he will find it difficult to get away with less than 30s. a year. He will have some postages. and even at Is. per week it is going to cost him £2 10s. in a year.
Finally, and this is the last item I shall take, there is the A licence for his vehicle, which is LI 10s. per annum. (If it be a B licence it is £1 15s., so I am on the safe side there).
Now, these items add up to £128 10s. per annum and. as near as makes no matter, that is £2 10s. per week, which, curiously enough, is almost exactly what I should have estimated for the small man. because I should have taken 10s. per ton per week for the 5-ton lorry.
However, on the basis of our 260-day year, this £128 10s. is almost exactly 10s. per day. That must be added to the £1 12s. 8d.. the total of standing charges per day for ti.e petrol-engined vehicle, so now we have a figure of £2 2s. 8d. as the fixed charge per day for operating his vehicle and his business.
Up to now I have been dealing with costs. I turn now to the problem of rates, and the first thing to do is to decide upon a fair profit percentage. Now this varies according to the class of work. If the operator be m a regular contract and has little to worry about then he can take the minimum profit percentage upon wh:ch any operator could work, that is 15.
If he has no regular contract and is engaged on jobbing la haulage he should take 20 per cent. as the basic figure for profit.
If the Haulage Work Be of a Seasonal Character
If the work be sporadic or seasonal, if he be, for example, working for a local authority on the basis of doing a job for them when he is called upon ,to do it, then his profit percentage should be 25.
This percentage must be added both to the fixed ,:harge of. £2 2s. 8d. per day, which includes vehicle standing charges and establishment costs, and to tit running cost per mile. which has been shown to be 51d. in the case of the petrolengined vehicle, and 5d. for the oil-engined vehicle.
I propose to deal with the middle of the three as being of widest application, and thal is being on general haulage work, for which the profit arcentage should be 20.
Dealing first with the petrol-engined vehicle: 20 per cent. of £2 2s. 8d. is 8s. 6d. to the nearest penny, and by adding 85. 6d. to £2 2s. 8d. we get £2 I Is, 2d. per day.
Increasing 5fd. by 20 per cent. give§ us about 7d. That means that. in assessing the rate for any job, the operator must take £2 I Is. 2d. as being the price for the use of the vehicle per day, plus 7d. for every mile it runs. , As an example of how this works, let me assume that the operator concerned has a job of haulage to do which is going to take him a whole day and involves him in running 48 miles out and back again, a total of 96 miles. For the day he must charge £2 I Is. 2d., for the 96 miles at 7d.
per mile he must charge £2 16s., his total being £5 7s. 2d.
Suppose that it is a job which does not involve much delay in loading and unloading, but he manages to run the same 96 miles which only takes half a day, and he charges £1 5s. 7d. for half a day, plus, once again. £2 16s. for the 96 miles at 7d. per mile, his total charge must be £4 Is. 7d.
Thne Assessment Based on the Hour Instead of the Day
Now. the foregoing is the logical method of assessing rates for haulage, and if the operator would prefer to have the time assessment on the basis of an hour instead of a day, all he has to do is divide £2 its. 2d. by 8f and he will get approximately 6s. per hour. With that as a basis he can quite easily reckon up the cost of any job. A joh which takes him 40 hrs. to do, running again, say, 96 miles.. must be charged as follows: 40 times 6s., which is £12, plus £2 16s. for the mileage, £14 16s. in all.
If he has a little job to do which takes but an, hour and involves, say, six miles of running, then his figures are 6s. for the hour plus six miles at 7d., which is 3s. 6d., a total 9s. 6d., say 10s. per hour-and that is a fair charge.
In the case of the oil-engined vehicle, although there is a small addition to the weekly charge, which should now be £2 1 ls. 8d. instead of £2 I Is. 2d., it is so small as not to be worth bothering about.
On the other hand, the running cost is only 5d. per mile. and that plus 20 per cent. is 6d.. so that with the oilengined vehicle he could make the appropriate profits by charging at 6s. per hour and 6d. per mile, instead of is. per hour and 7d. per mile.
The point now arises, what should the operator of an oil-engined vehicle do? Should he work on the basis of 6d. per mile and thus cut the rates of competitors who are using a petrol-engined vehicle and charging 7d. per mile?
The answer is that he must work according to circumstances. My advice to him is that if he can get 7d. per mile he should get it and earn the extra Id. as the reward for his enterprise for selecting an MI-engined vehicle.