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Rough Work
Methods of Calculating Charges for the Jobbing Haulier Have to be Varied in Abnormal Circumstances : This Week a Special Case is Quoted and Particular Rates Assessed to Provide a Fair Profit
THE method of calculating time and mileage rates set out in the previous article is not orthodox, as I
pointed out. According to the usual method, the fixed charges are totalled and then subjected to a percentage increase to provide profit. The total thus obtained is then reduced to an hourly rate by dividing by 44, the number of hours in the standard week. The running coSts are similarly dealt with, so that the mileage charge also contains a profit element.
The procedure can be exemplified by referring to the figures quoted in the previous articles relating to a 5-tonner. The standing charges were given as £7 Os. 6d. and the establishment costs at £.3 per week. The total of fixed charge.s. is thus £10 6s. 6d. The running costs were 5.87d. per mile.
It is customary to take 20 per ecru. as the profit margin. That, on a fixed charge of £10 6s. 6d., is £2 Is. 3d.. so that the weekly figure for the time charge is.£12 7s. 9d. If this he divided by 44, we set 5s. 714.1. as the charge per hour. The running cost of 5.87d. per mile is also subject to a 20 per cent. increase, which brings it up to 7d. The point to mite about this method and the way in which it differs in its results from the previous one described, is that the actual amount of net profit varies according to the mileage run. It consists of the profit on the fixed charges, £2 Is. 3d., plus 1.13d. per mile run, so that if the weekly mileage be approximately 200, the profit is £3, which is the amount stipulated by the inquirer whose letter initiated these articles.
When Mileage is Low
For every additional mile, however, the operator using this method of assessing his charges makes a further 1.13d., so that if he does another 240 miles in a week he would have a further profit of £1 3s. That seems to me to be reasonable. There is, however, a set of conditions in which it would be wise to adopt the method given in the previous article, whereby a minimum profit of £3 per week is ensured by adding that amount to the fixed charges, so that it is provided in the time charge. That comes about when the potential mileage per week is low.
The operator using this latter method would earn his minimum profit of £3 per week only if the vehicle ran 200 miles. If the weekly mileage were less, the £.3 per week would not be earnecl, and as the conditions are such that it is most unlikely that he will ever run beyond 200 miles per week, the only way in which to ensure his profit is that described in the first article.
The more orthodox method of calculating time and mileage charges is suitable for general application and is strictly correct. It meets the requirements of the jobbing haulier, constantly being asked for quotations for odd jobs and who wishes to be able quickly to arrive at an appropriate price. It is, however, not quite so good when the problem to be tackled is the assessment of the price to be quoted for a contract covering a year or more.
An operator quoting for a contract of this sort is in much the same position as the one to whom I have already referred; he foresees that there is a maximum mileage. which the vehicle is likely to run and be must therefore provide against diminution of that mileage to ensure that he will still earn a profit.
The two cases are not quite similar. The operator quoting for a contract does at least stipulate the minimum mileage, but he is faced with this problem. He. wishes to quote an attractive price for the contract, but he would like to make Provision for a bonus on that profit if, as is usual, c24 the stipulated mileage be exceeded and he is to he in a position to be able to charge for excess mileage.
What he has to do is to keep his basic contract rate as low as he reasonably can, but put the excess mileage charge at such a figure as will show an extra profit over the normal percentage on the miles run.
The principal difference between the two methods is that in the one with which I shall deal now some of the items of the operating costs are transferred from the running costs column to the standing charges.
Insurance in Establishment Costs
First let me set out in detail the items which go to make up the totals of £7 6s. 6d. standing charges and 5.87d. running costs given in the example quoted-above. Standing charges comprise: Tax 12s. per Week, wages (including insurance payments and provision for holidays with pay)
£5 12s., '-.rent 9s., insurance 7s., interest 6s. 6d. Total, £7 6s. 6d. (The extra cost of insurance which the haulage contractor has to pay over the 7s. mentioned is provided. for in establishment costs.) Establishment costs are taken at £3 per week, so that the total of fixed charges is .£10 Os. 6d., the profit margin is 1.2 Is, 3d., giving a grand total of £12 7s. 9d. per Wtek, which is 5s. 70. per hour, assuming 44 hours in the week, " The running costs per mile comprise: Petrol 1:92d., ltibricams 0.16d.; tyres 0.8d., maintenance (d) 0.33d., maintenance ,(e) 1.22d., depreciation 1.44d., total 5.87d., plus 20 per cent., giving 7d. -as the mileage charge. It may be as well to point out, for the benefit of those who do not habitually use The Commercial Motor" Tables of Operating Costs. that maintenance (d) relates to items of maintenance expenditure which are based on time. Maintenance (et relates to items of maintenance costs which are based on mileage.
When quoting for a contract, the following arrangement 'is preferable, in my view. Standing charges: Tax 12s., wages (including insurance and holiday pay) £5 12s., rent 9s., insurance 7s.. interest Os. 6d,, depreciation £1 Ns. 10d., maintenance (d) 6s. 8d., total £9 2s. • The establishment costs are £3, as before, making the total for fixed costs €12 2s. Add 20 per cent. for profit, E2 8s., and our grand total for time charge per week is £14 10s. That is equivalent to Os. 7d. per hour for a 44-hour week.
20 per cent. Extra
Running costs comprise: Petrol 1.92d. per mile, lubricants 0.16d., tyres 0.8d., maintenance (c) 1.22d. Total, 4.1d. Add 20 per cent., which is 0.8el and we get the charge of 4.9d.
To calculate the charge to he made for a contract iovolving 480 miles per week, acording to the first method we have 44 hours at 5s. 7Ad., £12 7s. 9d., plus 480 miles at„7d., £14; total, £26 7s. 9d. Provision for excess mileage would be at the rate of Sd. per mile.
According to the second means, there would be 44 hours at Os, 7d., £14 10s., plus 480 miles at 4.9d., 19 16s., total, £24 Os., plus excess again at 8d. per mile. This quotation is obviously likely to be much more acceptable to the potential customer than the first one. It is unfortunate, of course, that if we consider the bare 480 miles per week it shows the operator a diminished, profit.
The profit in the, first case is Made up of £2 Is. 3d., the 20 per cent.. on the fixed charges, plus 480 times 1.17d.-. and the profit on the running cost, which is. £2 6x 9d.
£4 8s. per week.
ifn the second case, the profit on the fixed charges is again at £2 8s. 6d., but that on the running costs is less, being 480 times 0.8d., £1 12s., giving a total of £4 Os. 6d., which is 7s: 6d. -a week less than in the other case.
These quotations, however, are always made on the assumption that excess mileage will be run, and that is almost invariably justified by results. In this case, let me assume that the average excess is 60 miles per week. According to the first method of calculating, the net profit per mile is 8d. less 5.83d., which is 2.17d. .per mile, and for 60 miles that is 10s. 10d. Add that to the £4 8s. basic profit and we get a total of £4 18s. 10d., and the actual net profit per week, including what is gained by running 60 miles excess.
According to the second method, the net profit per excess mile is 8d. less 4.Id.. 3.9d., and for 60 miles that is 19s. 6d. per week, but in the second case the profit is a little more than in the first case, being £5 per week instead of £4 18s. 10d.
There is not a great deal of difference, and unless the excess mileage does approach 60, there is not likely to be anything in favour of the second method; except that the basic quotation is more favourable to the customer.
Up the Airy Mountain
It will have been noted that up till now I have used figures from "The Commercial Motor" Tables of 'Operating Costs as the basis for all calculations. Generally, that is perfectly safe, subject to the warning that if there be any unusual and difficult conditions involved in the contract the operator should make some provision in his calculations.
I remember on one occasion some years ago being given a problem which involved some modification of the figures for operating costs. I was asked to help a man to tender for haulage up a mountain. The distance was only seven miles along a path, but the gradient was 1 in n at the steepest and I in 4i for the most part. The contract was to haul 1,500 tons of building material. Bricks, mortar, cement and aggregate were the materials involved in the contract, which was for the building of a hydropathic establishment. One interesting feature of this problem is the manner in which it exemplifies the way in which particular use of commercial .vehicles may involve expenditure far removed from the average as typified in "The Commercial Motor" Tables of Operating Costs.
The actual details of the contract were as follows:1,500 tons of material were to be conveyed up seven miles of mountainside within six months, say, 25 weeks. The contractor proposed to use two 4-ton lorries, loading each with only 3 tons and covering two journeys per day per vehicle. That would give an average of 12 tons per day. 60 per five-day week and 1,500 tons in 25 weeks, as specified. Saturday morning of each week was to be devoted to maintenance of the vehicles.
Greater Consumption
The whole of the journey up the hill would necessitate the use of first speed, the same gear being engaged for safety's sake on the downward run. The immediate effect of such use is greatly to increase the consumption of petrol and lubricating oil. In the ordinary way, a 44onner runs 80 per cent. to 90 per cent, of its time in top gear. In first speed, the engine revolutions would be approximately four times as many to the mile as usual and the petrol consumption would increase in proportion, bearing in mind that on the upward journey the engine would be pulling hard all the time with the throttle wide open.
The average consumption of a 4-ton lorry is about 14 m.p.g., and that, with petrol at Is. lid, per gallon, costs 1.64d, per mile. Fuel consumption on this particular contract would probably average a rate of 3i m.p.g., that is to say, it would cost 61d. per mile for petrol.
Oil consumption would increase in two ways: It would first increase in proportion with that of petrol, because of the greater number of engine revolutiont per mile. It would also be affected by the fact that the engine would he running at high speed most of the time. I should here state that the contractor advised me that he proposed to instruct his drivers never to exceed 6 m.p.h. in either direction. Altogether, it is probable that the oil consumption would be six times normal and the cost would approximate to id. per mile.
The wear of the tyres would inevitably be heavy. It should be understood that there is no hard road in the accepted sense of the term, but only a rough, boulder-strewn path, which would soon be deeply rutted and in a condition to play havoc with tyres. It is probable that one set would just about last the contract, which involves 4,000 miles per vehicle. Assuming the cost of a set of six 38 by 7 tyres. to be £100, the tyre cost would be about 6d. per mile as against an average of 0.65.1 quoted in the Tables.
New Vehicles on the Work
The effect on maintenance cost is a little hard to judge, but it is probable that it would not be affected to anything like the same extent as the three items just discussed. For one thing, new vehicles were to be put on the work and naturally new machines do not, even on most arduous work such as this, cost their owner as much in the way of repairs. A:little extra expenditure on brake facings Will, no doubt., be unavoidable. The engine will have worked as hard 'during the 4,000 miles as it would in 16,000 to 20,000 of ordinary running but, even so, it will probably by the end of the contract have reached only the stage of being ready for a "top" overhaul.
• The clutch, gearbox and rear axle will have an easier time than they have iri the majority of heavy vehicles on ordinary work, because there should be no stops en route and practically no gear-changing. I think it would be reasonable to put maintenance at 1.2d. per mile instead of Id. quoted in the Tables.
Depreciation would hardly be affected—at any rate not if the vehicles be properly maintained, having regard to the unusual character of the work. The running costs per mile ate therefore: Petrol 6.5d., oil 0.5d., tyres 6d., maintenance 1.2d., and depreciation 1.5d, making a total of 15.7d., or 15/d. per mile, as compared with 5.37d., the average figure for a 4-ton lorry engaged on ordinary work.
The standing charges will not be seriously affected, neither will the establishment costs. For the former I take the figure from the Tables. £7 5s. 6d., and if I assume £2 14s. 6d. for establishment costs I get a total of fixed costs of £10.
Rate of Profit
To apply our time and mileage chargesin a special job of this kind it is fair to add 25 per cent. to cost to arrive at the charge. Adding 25 per cent. to £10 gives us £12 10s. per week as the time charge. • Adding 25 per cent. to 151d. gives us approximately' Is. 8d.
The total cost of the job is therefore for 25 Week §. at £12 10s. per week, £312 10s., phis the-cost of 8,000 miles at is. 8d. per mile, £666. The total is therefore £978 10s., say £1,000, and that would be the price I should quote.
The letter from this inquirer included a clause stipulating that the vehicles should be sold as socin as the contract was completed. That affects the item of depreciation considerably, and in order to appreciate how great that affect is, it should be realized that each vehicle costing £520 in the first place would be unlikely to fetch more than £320 on resale. .
On that basis, depreciation per vehicle would be £200 and the tOtal debit relating to the contract would be £400. Actual allowance for depreciation made in the calculations just completed is at the rate of lid. per mile for 8.000 mites, which is equivalent to only £50. There is, therefore, an additional cost of £350 to be. added to the result of the previous Calculations, and even if we allow no profit for that, it means that the price quoted must be £1,350. If we allow a profit on that extra allowance the price for the job is 11,450. S.T.R.