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PROFIT or Loss on GOVERNMENT'

30th August 1940, Page 20
30th August 1940
Page 20
Page 21
Page 20, 30th August 1940 — PROFIT or Loss on GOVERNMENT'
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Which of the following most accurately describes the problem?

:ONTRACT ?

Solving the Problems of the Carrier

W eddy Mileage a Governing Factor in Quoting a Rate Per Mile: A Problem of Demurrage IHAVE just returned from a visit to the Cotswolds, looking up old friends and making new ones. Of that visit more anon. I hope it may be a forerunner of several to there and other parts of the country. While in the district, I was able to offer some little assistance: certain of the problems put before me brought something new for consideration: some of them did not. Here is one of the former.

The story demonstrates in the first place the folly of attempting to deal with the problem when the inforination is not complete or accurate. I am telling it partly with the idea of impressing inquirers with the need for giving the fullest information if they want the best of assistance. Other points arose, of course, as will become apparent as the story develops.

I met a haulier one evening in one of the smaller towns of Gloucester. He told me he was doing some Government contracting and he would like my views of the rates be was charging. He wanted to make sure that he was really making a profit and would like 'me to check the figures. He told ifie that he was using four 8-10-ton six-wheeled off-engined vehicles, carrying materials distances of 200-300 miles.

• Factors Associated with the Job •

The traffic was light in weight but bulky, and he was not charging a tonnage rate, but a mileage rate. Agreement had been come to as to fair periods of loading and unloading and he was getting is. Cid. per mile run and charging 12s per hour demurrage whenever the agreed periods for terminal delays were over-stepped. His drivers were working sometimes long hours, not always, and the average wage was about £7 per week, including subsistence allowance. No second man was employed. What did I think of it?

As I was seeing him again the next morning, I thought it might be a good idea if I left the answer over until then and did a little bit of figuring on my own. I judged that, on the basis of 200-300-mile hauls, his weekly mileage would be about 800, and I proceeded to calculate what his charges should be on that basis.

Taking the running costs first, I assumed that his vehicles would cover 10 miles to the gallon of oil fuel and that, at is. 9d. per gallon, gave me 2.10d. per mile. Lubricants at 0.20d., tyres 1.25d., maintenance 1.75d., depreciation 2.20d. The total of the running costs was thus 7-id. per mile and on the basis of an 800-mile week that was £25.

For the standing charges there was tax, 36s. per week; wages, as quoted, £7 per week; garage rent, 10s.; insurance, 30s.; interest 26s.; and overheads at £5 per week. That gave me a total of £17 2s. and a grand total of operating costs comprising running costs, standing charges and overheads, of £42 2s. Adding 20 per cent. for profit, which is approximately £8 8s., I concluded that he ought to make £50 10s. per week per vehicle. Dividing that by 800 gave me Is. 3d. per mile. So, I thought to myself, there is no rate cutting here if this fellow is getting. is. 6d. per mile.

Then I turned to consider his 12s. per hour for demurrage. Already I had come to the conclusion that that was a pretty steep figure even for a six-wheeler of 10 tons load capacity. His standing charges and overheads I have already given as £17 2s. per week. Twenty per cent. on to that is £3 8s., so that for the standing vehicle I concluded he might well be satisfied with £20 10s. per week and as the vehicle is apparently working an average of about 60 hours per week, 7s. per hour ought to satisfy him. Again, I thought, here is a fellow who is really making money out of hauling.

• 800 Miles Weekly the Basis of Calculations •

However, when, the next morning, I told him my conclusions, he seemed rather surprised when I told him that I had taken 800 miles per week as the basis of my calculations.

"Oh, but," he exclaimed, "I don't do that mileage as a regular thing. Very often 400 or 500 miles per week is as much as the vehicle covers."

" What are the vehicles doing half the time? " I asked. "If you are covering journeys of from 200 to 300 miles out and home and only standing about five to six hours on terminals, you ought quite easily to cover R00 miles a week."

" Ah, but those are my longest journeys," he replied. " I have quite a number of short trips as well, and when I have those to do my mileage comes down to half the figures you have got.— " Why didn't you tell me that before? " I said. "The weekly mileage makes a tremendous difference to your cost per mile, However, I will go into the figures again and will take 500 miles per week as a basis."

proceded to do so, revising the figures for maintenance and depreciation as was necessary because of the lower weekly mileage. The running costs under those conditions would be, per mile: fuel, 2.10d.; oil, 0.20d.; tyres, 1.25d.; maintenance, 2.00d.; .depreciation, 2.90d. Total, 8.45d. per mile. For a 500-mile week the running costs would total £17 12s. and an odd penny

which, for the sake of cenvenience, the remaining calculations. I will leave out of The standing charges and overheads remained as before at £17 2s., so the total became £34 14s. Adding 20 per cent. for profit, which is roughly £7, I obtained a total of £41 14s., which is what his weekly revenue should be on the basis of a 500-mile week. Dividing that by 500 miles gives me almost exactly Is. 8d. per mile.

I showed him these figures and told him the outcome.

"Does that mean," he asked, "that I am losing whenever I do a 500-mile week? "

"No," I answered, "I can tell you approximately what your profit is if you are getting only Is. 6d. Your costs, including running costs, standing charges and overheads total £34 "1 4s. per week, and if you divide that by 500 you get a little short of ls. 5d. per mile, so that when you are running only 500 miles per week you are making rather more than ld. per mile profit." "But Id. per mile profit is no good on the operation of a vehicle of this size! "

• Arriving at the Profit Per Mile •

"I agree, and if you be doing only 500 miles every week I would recommend you to increase your rate to at least is. 8d. per mile. That, however, is not so. Some weeks your vehicle is doing 800 miles per week, and at Is. ed. per mile you are making rather more than 5d. per mile profit. If you set that 5d. against the penny and take an average you are probably doing

very nicely. .

" Of course, " I continued, "a good deal depends upon the proportion of 500-mile weeks to 800-mile weeks. If you have too many of the short weeks and not many of the long ones you are probably not making enough profit. The only way in which I can deal with that problem for you is to go into your records over a period of time and balance up the figures."

" I have not been on the job long enough to be able to tell you that, but up to now they have been about half and half."

"In that case I should say that you are making a fair profit, not an unreasonable one from the point of view of the taxpayer, and not too mean a one from your own point of view."

" What about this demurrage? " he asked.

"Well," I answered, "it doesn't need me to go into figures to be able to say, without fear of contradiction,

Recently supplied N a Derbyshire concern, this E.R.F. 6-cubic-yd. lorry has an end-tipping body actuated by the chassis maker's power-operated twin-ram-type gear. The vehicle is equipped with a Gardner 4LW oil engine. that you are on the safe side in charging 1 2s, per hour

for a standing vehicle, but it is easy to get' at the details," and I showed him the figures set out in the calculations described at the beginning of this article.

"But that is not a fair way to reckon demurrage," he protested. "In the first place," he continued, "I reckon I ought to make the same net profit per hour with the vehicle standing idle as I should if it were running." He went through my figures and pointed out that the weekly profit on the 800-mile week is £8 8s. "That is the amount," he said, "that I think you should add to the standing charges of 342s. per week. It gives a total of £25 10s. per week and on the basis of a 48-hour week that is more than 12s. per hour."

"But your vehicle is in operation for 60 hours a week," I objected, "and all the standing charges and overheads should fairly be spread over that total, in which case you would be entitled to only 8s. 6d, per hour."

"Perhaps you're right there," he said, "and I will at any rate accept your opinion that, if I am to make only the profit I want out of the standing vehicle, 8s. 6d. per hour will be sufficient. This, however, brings me to the other point about demurrage. I found in the beginning, before I had come to this arrangement, that there were apt to be excessive delays. I didn't like that. I may say I objected to it on principle as being bad from the economics aspect. It was wasting the time of the vehicle, which I presumed to • be engaged on urgent Government work, and it was wasting the taxpayers' money, since whatever I charged for demurrage, whether it were much or little, that something was an expense which ought not to be incurred. This 12s. per hour, therefore, is fixed with the idea that it will never be paid. The charge is so excessive that the people for whom I am working will take good care that there is never any demurrage charge incurred. That is what I aimed at and that, up to now, has been the outcome."

" On that basis," I replied, " I have no criticism."

• Are Drivers Receiving Right Wages? •

"There is another point I would like to raise with you," he said, "before you go. I am paying my men the basic wage for long-distance drivers, that is 78s. per week plus 10s. per load delivered, plus, of course, the appropriate allowance for subsistence whenever they are away from home. How do I stand about that? Is it legal? Or shall I get into trouble about it? "

"It all depends," I replied. "You are bound to pay as a minimum the wages prescribed in R.H.4. Now, if one of your drivers works 70 hours in a week, his wage, apart from subsistence or any other expenses, should be not less than £6 1s. Id. per week. You say you pay him £3 18s. plus 10s. per drop. If, therefore, he delivers only four loads in the week he is not being paid enough, and before I can give you a complete answer to your question I must know what hours they work and how many loads they deliver, but you told me that you paid £7 per week."

"That is the average figure, including subsistence."

" Taking subsistence for two nights, that is 12s. away from your £7, leaving £6 8s. In that case, as long as the man does not work much over 70 hours in a week S.T .R: his wages are satisfactory."

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Locations: Gloucester

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