The Family-owned Concern Presents a Problem
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Solving the Problems of the Carrier
Haulage Contracting Companies which are, ,n Effect, Partnerships of Members of a Family, are in the Majority in Some Areas. They are a Difficulty in the Way of Assessing the Optimum Fleet Size
rr HE figtires given in my previous article, in which I attempted to indicate the optimum size of fleet for the small haulier were, in reality, little more than a basis for discussion. A better way to consider the problem is to lead up to the solution, taking the case of a man starting with two vehicles and gradually working his way up; and adding to his fleet vehicle by vehicle, until the most favourable position is reached.
Unfortunately, there are practical difficulties in the way of treating the problem in that fashion: These difficulties, . although they do not make it impossible to arrive at a solution, do prevent one from giving a cut-and-dried answer to the original question, " What is the best size of fleet for me to run? " Let it be understood, first of all, that I am dealing with normal conditions, as they existed before the war.
An operator cannot, under such conditions, add to his fleet as and when he will by the simple process of purchasing new vehicles. The operation of the Road and Rail Traffic Act prevents that. He must first obtain the Regional Transport Commissioner's permission and, what with opposition on the part of • the railways and by 'interested hauliers, that is by no means easy to get. He can expand only by acquiring the business of some other operator and, even then, must obtain the permission of the R.T.C. for the licences of the vendor to be transferred.
Factors that Raise the Purchase Price Such transactions are rarely so convenient or economical as the simple purchase of new vehicles. Often, assets are acquired which are of no .particular value to the buyer: the vehicle (or vehicles) is not quite the right type, make or size; the licences are seldom just what the purchaser . really desires. There is another aspect, too, quite different from the foregoing. It is one which I have always known to exist, but only recently, however, have I come to appreciate how important it may be I refer to the family-owned and family-operated business which, to all intents and purposes. employs no staff or drives and pays no actual wages.
• My recent realization of the importance of this factor came during a conversation I had, a week or so ago, with a knowledgeable haulier We' were discussing, as I find nearly everyone is to-day, the after-the-war prospects for the industry, and what is likely to happen to it. As usual, the probability of a recurrence of rate-cutting came upfor consideration. He told me that, in certain traffics in the area, it had already started, largely because of the petering out of Air Ministry site haulage work, and the consequent creation of a surplus of vehicles as compared with the traffic available.
I ventured the opinion that rate-cutting could never attain the same proportions as it did pre-war. I gave, as my reason for the belief, that we now had, and would continue to have after the war, a Road Haulage Wages Act, which, I reminded him, did not become effective until after the war started, so that it was true to state that we had not yet had any peace-time experience of the opera tion, of the industry with wages positively fixed. • Exploitation of drivers, by paying them low wages and working them long hours without payment of overtime. was one way in which rate-cutting was made possible and, at the same time, profitable.
He expressed his regret at having to disillusion me, but, • nevertheless, told me that it had been discovered, as the outcome of an actual census, that the Road Haulage Wages Act was a dead letter throughout the whole of his traffic area except for a small proportion, somewhere between 13 and 16 per cent.
Astounded and, as it turned out, almost entirely mis
understanding him, I asked if no steps were being taken to enforce the Act and ensure that proper wages were paid. His reply was that there was no question of evasion of the Act: it was a simple fact that, in that area, 84 to 87 per cent. of the haulage businesses were family-owned and family-run. Father, brothers, sons, nephews, uncles and even their feminine counterparts, joined up and shared the
work as well as the proceeds. The men-folk drove the vehicles: they were not down on any wage sheet as drivers, but were partners in the business and drew their remuneration as such. Consequently, the Wages Act did not affect them.
In effect, this means that each family-owned concern is a group of owner-drivers, and it follows that 84 ,to 87 per cent. of the operators in that traffic area are really ownerdrivers, which can be shown to be a parlous state of affairs for the remaining 16 to 13 per cent. It must be admitted that, from the points of view of rate fixation, and of profit-making from a fleet, this creates a very difficult position indeed for the remaining operators who pay their drivers the statutory wages, find money to run establishments commensurate with the size of their undertaking, and hope to make a profit as well. They just cannot compete on the basis of rates and, unless they have other advantages at their disposal to offer their clients, to justify their higher rates, they cannot hope to continue to exist.
How great may be the disadvantage under which the orthodox concerns may labour can quickly and easily be shown. Take the figures for a six-vehicle-owning operator as given in previous articles. His overheads were shown to amount to £5 8s. 8d. per week for an 8-tonner (13s. 7d. per ton of pay-load). The vehicle-operating cost per week, in which the vehicle covers 1,000 miles, amounts to £36, so that the total cost per week for the vehicle is £41 8s. 8d, To show a reasonable minimum profit the revenue must be not less than £50, which means that the earnings per mile run must average not less than Is. per mile.
In the case of a family-owned fleet of six such vehicles, the establishment costs may quite easily be as little as £1 per week per vehicle (exclusive of directors' fees, to which I shall refer later). The operating cost of the vehicle per 1,000 miles-week, exclusive, of course, of sdriver's wages, total £27 15s., so that establishment costs and operating costs together amount to only £28 15s.
Family Concerns Mostly Rural Operators Most of these family concerns operate in rural areas: their expenses are small. If each member of the family earns, as director's fees, £300 per annum, he thinks he is doing well. At that rate a revenue of £33 15s., say, £34 per week from each vehicle, will suffice. That means that they can operate for 8.16d. per mile, or less than the bare vehicle-operating cost of the non-family-owned concern.
What is the solution? 'Let no one answer " stabilized statutory rates," for if I had any need to look for an argument to justify my opinion that no Government would dare to stabilize rates on a minimum basis, I have it here. The minimum stabilized rate would have to he that which would enable the orthodox type of business to carry on and earn. the profit I have stipulated. That is to say, it would have to enable tlfat concern to earn an average revenue of Is. per mile, giving a profit approximating to £8 11s, 4d. per.
week on an expenditure of £41 8s. 8d. If the family. owned concern is compelled to charge the same rate, it is going to be given a profit of £22 5s. on an expenditure of £27 15s., which is more than 80 per cent. The individual, content with £300 per annum, is going to be compellea--at the direct expense of trade and industry---to take no less than £1,112 profit. • Nor is the alternative of cbmpulsory consolidation, so strongly advocated by " The Eight," likely to be more palatable to trade and industry which, once it is realized that the new development will increase their transport costs by nearly 50 per cent., are likely to become extremely vociferous in their objections.
So far as our present problem is concerned, that of determining the optimum size of the small haulier's fleet, then family concerns are a dual difficulty: They are not merely awkward from the financial angle, as. shown, but they introduce a new factor for consideration, as, obviously, the number of vehicles which they can operate is, to some extent, governed by the numlfer of members of the family who can be persuaded actively to participate in the venture.
However, there is, this about it: the great majority of these family companies is concerned, in the main, with local or short-distance haulage; they seldom operate trunk
services, and it is with the latter that I am dealing. I proposes therefore, to proceed with my argument, ignoring the family concern altogether.
I am going to take our haulier, step by step, through his growth from the beginning, which I shall assume to be -as a two-vehicle operator. I shall use some of the figures from the previous afticle, but introduce various practical considerations which were deliberately omitted then.
In the first place, I will correct the figure for income tax, given in the original schedule as £20, and increase it to £70. That makes his total of overheads £400 per annum instead of £330. That is £8 per week, R-4 per vehicle, or 10s. per ton of pay-load. I should recall that he is taking only £150 for himself each year as his director's fee: let that stand.
The next new point to consider is his loading ratio and his weekly mileage. I have taken a route 200 miles long as. a basis, and did so because the original inquiry concerned a service over that distance, It is, moreover; a good and useful standard, applying to a large number of trunk routes. It is, approximately, the distance between London and Hull, Leeds, Liverpool, Manchester or York; between Leeds and Bristol, Cardiff or Glasgow; between Glasgow and Liverpool or Manchester and between Birmingham and Newcastle. All these routes are fairly trafficthronged, in normal times and, although mane of them is exactly 200mites long, all are round about that distance, some more and some less. The point is that 200 miles is a useful length to serve as a basis for discussion. Next, I assumeda weekly mileage per vehicle of 1,000, which means an average of 2+ round journeys per week. The average loading was taken as 30 tons per week.
Neither of those figures will satisfy Your two-vehicle man; not, that is, if be be the energetic type which he must he if he is trying to build up a business. Remember, he is, for the time being, concentrating the whole of his energies on finding work for only two vehicles: he has only two drivers to control. The factor of brains per vehicle enters here. He is certain to push his average up to three complete journeys per week for each vehicle, that is 1,200 miles per 'seek. His loading will average 7+ tons outwards from his home base, and probably 6 to 6i, say 6 to be on the safe side, on the return trip. We can, therefore, take a round figure of 40 tons per week, and he will be able to keep that figure up, providing he be on a good route and there-he any traffic to be had.
True, he will most likely he using clearing houses, at least, at the outset if not throughout, and it will be neces-' sary now to take that into account in assessing his potential revenue and net profits.
The running cost of his 8-ton oilers canbe taken as 6d. r per mile, which is £30 per week. His standing charges, including overtime payments to the driver, total £9. Then there is the driver's subsistence allowances and his disbursement en route, arimunting, in all probability, to. another £2, and his establishment costs of £4 per -week.
His total outlay is, therefore, £45 per week. • I say he must make at least 20 per cent, profit on his ey_penditure, which means that his minimum weekly revenue must be £54.
We still have to: consider his commissions to clearing houses, or to the larger contractors from which he may obtain traffics. He will probably have to agree to 12+ per cents off the rate. If he does slightly less than half his business that way, the average, spread over all his traffic, may be taken as 6 per_ cent. As 6 per cent. off is approximately 6+ per cent. on, I must add 6+ per cent, to the above £54 in order to arrive at his gross takings, They should be approximately £57 10s. For a total tonnage of 40, that represents £1 8s. 9d. per ton. Probably the rate is 30s., or even 3`2s., per ton, in which case his gross takings are from £60 to £64 per week; his net revenue is frone £56 8s. to £60 3s. per week, and his-net profit from £11 8s. to £15 3s. per vehicle.