Assessing A FAIR RATE
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THERE are three main items which must be coniidered when assessing rates and charges: vehicle operating costs, overheads or establishment costs, and profit, In the ordinary way there are no labour charges, but if, as is the case with some traffics, extra help has to be provided to facilitate loading and unloading, the cost of that extra labour must he provided ft:ir in assessing the rate.
My present purpose, however, is not logo deeply into the actual methods of assessing charges. What I am going to try and do just now is to make clear to readers how, important a factor is the size of the ‘-rehicle when tonnage rates are being determined or, having been determined, ate
being criticized by competitors. .
I have shown, more than once,that the size of the vehicle affects the matter, but now I wish to make 'the underlying principle properly understood.
If the reader will refer to " ' The Commercial Motor' Tables of OPerating Costs," he will find that nmst of the -data he requires in order to assess his charges are set out. He will find, in 'respect of all types and sizes of vehicle, information as to running costs per mile, -standing charges per week, establishment charges and profit.
Not Exact Figures Now Of these four, the 'first and second .approximate fairly closely to the actual amounts which. will have to be '
expended by every owner, They may not be the exact figures, but they will be near—at least-sufficiently near for my present purpose, and I shall assume that they-arc exactly. right. Bear' in _mind that it is the principle.! am consider ing, rather than actual rates and Charges. .
Of the,third and fourth items,! am not so sure, Establish ment charges vary a good dealand there is no, standard suitable for purposes of comparison. An amount which to one man may, in his circumstances, aeem reasonable, may appear to another to be excessive.•
The figures in the Tables arc at least reasonable. A man may spend the amounts quoted and face the Official Receiver with a clear conscience, that is supposing he is unfortunate as to have to explain his expenditure to that officer. Perhaps it will sound less ominous if I state that the amounts quoted are not likely to cause any uplift of the eyebrows of the income-tax assessor.
At any rate, suppose I take it for granted that the figures for establishment costs are admissible equally with those for the running costs and standing charges. Actually, the c3/
establishment costs and profits arc run together, leaving it . to the reader to divide the, total in proportion to his -experience. So far as the two items are concerned, takentogether they give what may be termed "gross profit," and I should emphasize that those figures are minima. • • Readers have written to me stating that, in their opinion the rates quoted are unobtainable. My reply ha S been, and -always will be, that the rates quoted are the least that are acceptable if a fair and proper profit is to be earned. In what follows I am, therefore, going to adhere to the figures given in 'the Tables, qualifying them 'only by the statement that the amounts earned -shotild he -greater rather than less than those I adVocate.
Now I must make certain assumptions so as to put all the various sizes of vehicle on a common basis. I shall take an 8-HtOur day aS standard: I am going to assume that thereis no actnal running on, Saturday—the " shed' day, . Terminal Delays shall assume that the average time needed to load a ton is 12 minutes and that only eight minutes are required for unloading. That makes the terminal delays amount to .20 'minutes per ton, no matter what may be the size of the vehicle.
Speed of travel is obviously important, and the following :estimates of travelling; speeds should be carefully considered. I am going to take it that the average speeds are half the legal maximum for distances of less than five miles from point to Point; two-thirds the legal limit when the out or . home distance is over five miles but less -than 10 miles; and up to four-fifths of the legal limit when the distance is 10 miles or Over.
The meaning' of the foregoing is that, for all capacities of vehicle up to and. including 6 tons (and some 7 tons) for . which the legal limit is 30 m.p.h., the average speed oa.ier a.. run of less than five miles will be assumed to
For distances over five miles but less than 10 Miles, the. average Will be 20 M.p.h. but if the journey .be 10 Miles or. -over the aVerage speed will be taken to be 24 m.p.h. For heavier vehicles, those Which are still limited to 20. m.p.h., the corresponding figures for speed are: 10 m.p.h. in respect of a run of five miles; 14 m.p.h. in respect of leads' ot up to 10 miles; and 16 mp.h. for all journeys in excess of 10 miles.
Let me point out that the speeds are calculated to the nearest mile and that I am abiding by the rules in that I 'must assume that the legal speeds arc not exceeded. Before proceeding further I will cite a couple of examples of the application of the data given. First of all, take a 5-tonner. It needs 100 minutes for terminals (20 minutes per ton). If it is to carry its full load for a distance of only one mile, it will do so at an average speed of 15 m.p.h. and will therefore be occupied for a period of eight minutes (four minutes each way) for travelling. The total time for a complete trip will thus be 108 minutes, which is 54 minutes per mile run.
Now imagine the same vehicle taking a full load for a distance of 120 miles. The time for loading and unloading will be the same as before, 100 minutes, but the travelling time will now be 10 hours or 600 minutes (240 miles at an average speed of 24 m.p.h.). The total time is thus 700 minutes, or 11 hours 40 minutes. (There will have to be some adjustment of rest periods if this is to be done by one driver.) That is equivalent to 2 11/12 minutes per mile as compared with the 54 minutes per mile in the first example.
Let us take the case of a 'much larger vehicle, say a 12-ton rigid-type six-wheeler. For the mile lead, always' assuming that anyone would employ as large a vehicle on such a job, the times would be as follows: Loading and unloading at 20 minutes per ton, four
hours. Travelling two miles at 10 m.p.h., 12 minutes, total four hours 12 minutes, which is equivalent to two
hours six minutes per mile run. For the 120-mile lead the travelling time, which is, of course, all that differs, would be 15 hours and the total 19 hours, which is just 4+ minutes per mile. I am not, at this juncture, taking into consideration the provision which will have to be made for subsistence, etc.
There should be something in these four examples which will give readers an inkling of the point that I am going to make. Over the short run the 5-tonner takes 54 minutes per mile, as against the large vehicle's 126 minutes. On the long run, however, the small vehicle takes 2 11/12 minutes per mile, whilst the big one needs 41 minutes. The small vehicle has, therefore, a tremendous advantage over the large one when engaged on short runs, but loses that advantage when the lead distance increases. In any case, that advantage disappears almost entirely when the weight of the load is taken into consideration, I can show that by taking the times per ton-mile.
Journey Time
For the 5-tonner, a total time of 108 minutes was shown to be necessary for the round journey of one mile each way so that the time per ton per mile is 21.6 minutes. On the long journey, taking, as we must, the total time, 700 minutes are necessary to carry 5 tons for 120 miles (240 altogether). The time per ton per mile is therefore 140 minutes.
Turning now to the large vehicle, for the short journey the time per ton-mile is the total divided by 12, that is, 21 minutes, and on the long run the time per ton per mile is 95 minutes.
Our chief interest is, however, with cost rather than time and, although time is money, it is not possible to equate them exactly. The question is how much these jobs should cost. The basic figures for the 5-tonner are 70. per mile for running costs; 10 per week for standing charges; and £2 10s. per week for establishment costs (a total of £12 10s. per week for fixed costs). Take profit as £5 per week, Spreading the fixed expenses over a 44-hour week
they are equivalent to 5s. 8d. per hour; the profit is at the rate of 2s. 3d. per hour.
The charge for the one-mile lead job is thus 15s. 5d., made up of: fixed costs, 1.8 hours at 5s. 8d. per hour, 10s. 2d.; profit at 2s. 3d. per hour, 4s.; running costs at 70. per mile, Is. 3d. The cost per ton is thus 3s. Id.
Make-up of Charge
On the longer run the total time is 700 minutes, which is 11.7 hours. The cost is: for fixed expenses at 5s. 8d. per hour, £3 6s. 3d.; profit, 11.7 hours at 2s. 3d., which is £1 6s. 4d.: for 240 miles at 70. per mile, £7 10s. The total is £12 2s. 7d., which is 12 8s. 6d. per ton.
Now take the larger vehicle. The fixed charges, comprising £15 per week standing charges, plus £5 per week establishment costs, £20 in all. The profit should be at least £7 10s. per week. The running costs amount to Is. Id. per mile.
Weekly, the corresponding amounts are 11s. per hour,
approximately, for fixed expenses and 3s. 6d. for profit. The running costs, at Is. Id. per mile for two miles, are 2s. 2d. The time needed for the short lead has been shown to be 4.2 hours, which means that the fixed charges will total £2 6s. 3d. Add 14s. 9d, allowance for profit and the total charge is shown to be £3 3s, 2d,, or 5s. 3d. per ton, to the nearest penny.
On the long run provision must be made for 19 hours travelling and 240 miles running. The standing charges and establishment costs total £10 9s.; profit £3 6s. 6d.; mileage £13. The grand total of all these is £26 15s. 6d., or £2 4s. 8d. per ton. The saving effected by the use of the larger vehicle is thus 3s. 10d. per ton on the long lead, whereas it loses on the short run by about 2s. 2d. per ton.
It will have been noted that there is one item which has to be taken for granted, namely the £2 10s. per week in the case of the 5-tonner but £5 per week in the case of the 12-twiner for establishment costs.
It is, as a matter of fact, just that difficulty of overheads or establishment costs which makes it so hard to state definitely that any rate is a cut rate. Every haulier has overhead costs to meet. They are unavoidable and are not generally in any way to be blamed for any lack of success from which he may be suffering. If there appears to be any difficulty arising therefrom, it is more likely to be due to his own lack of understanding of the matter than to that matter itself.
There is therefore ample justification for devoting a little time and space to the discussion of the subject of overheads in its special application to the business of haulage con tracting. Of that, however, more anon. S.T.R.