Four Ways of Quoting For Hire
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The Prospect of Denationalization May Give Rise to Rate-cutting Again and a Return of the Returnload Bogey. "The Commercial Motor" Costs Expert Describes Different Methods of Tendering So That Costs May Be Adequately Covered and a Profit Earned THE prospect of denationalization is viewed with mixed feelings by nearly all the hauliers still left to the enjoyment of free-enterprise working. Numbers envisage a return to rate-cutting in its most malevolent forms. This is curious, for if it comes to pass haulage will be almost the only service in which the tendency is to lower prices instead of increasing them. Freedom to extend operations beyond the 25-mile limit is likely, according to some of my friends, to bring to life again the old bogey of carrying return loads for next to nothing as was so widespread a feature of pre-war haulage days.
There is no doubt that in the between-war period the twin worries of most operators were the owner-driver and the return-loads question, and of these perhaps the second caused the more anxiety. This was the problem of the operator who sent out his drivers with the standard instruction to pick up loads if they could and anticipated that his vehicles would more often than not be located many miles away with the .journey home already paid for.
Return-load Profit In those circumstances a return load at any price produced a revenue which under those conditions was all profit. A . load for a return journey in any circumstances has an appeal which it is practically impossible to resist, however low may be the rate offered. If the haulier be properly paid for any contract upon which he is engaged—and when I use the term properly paid I mean that his revenue shows a reasonable profit—and if that contract,consists of loads in one direction only, then obviously anything at all which he may 'obtain for any return load is net profit.
Further, if his contract be not quite so profitable as it should; if it be one upon which he has already exercised his innate tendency to cut the rate, then every penny from the return load goes towards making the original contract profitable. It appears thus that it is never the case that there is no profit on a return load. The difficulty is, of course, that none of these conditions is stable; rates are apt to fluctuate and if there be ratecutting of any kind, the tendency is emphasized and is more than liable to take place in an uneconomic direction. Moreover, the prices accepted for return loads tend to become the highest which the customer will pay for a load so that the tates for return loads become standard, or, at least, they become those which the customer is prepared to offer.
Prices Scorned •
The man with a load to offer having once experienced the ,advantage of handing it to a haulier who is looking for a return load, looks again for that advantage when he has another load to offer and, consequently, is apt to be scornful of the prices which are tendered by local operators to whom these loads are outward. As this return-load bogey is not confined to any one locality, the evil spreads and in the end, as I have hinted, there is a strong tendency for a reduction of the general standard of rates to the return-load figures.
At the same time, in the absence of any standard, it is difficult when quoting a price, which must under the conditions of the industry be a keen one, not to take into account in preparing the quotation any possibility of return loads, which may help to make the profit on the double journey.
Here is a case in point. A haulier writes that he is offered a contract by a manufacturer who has regular loads in an outward direction to a destination 18 miles away. Each load is 5 tons, which more or less determines the size of the vehicle which can be engaged upon the traffic. This haulier has been asked to quote, and he thinks that his quotation will have to be a keen one because the prospective customer has for some time been doing the work himself with his own vehicles.
Out for Low Rate Moreover, this same customer has been in the fortunate position of being able to use his vehicles from time to time on their return journey to pick up loads of raw material fatthe factory. Furthermore, the prospective customer has suggested to the haulier that it will be up to him to bring back these loads of raw material and, because of his greater freedom as a haulier, to engage himself to pick up other traffics as well on the return journey. The manufacturer concerned has obviously studied the subject of haulage and is all out for a rate as low as he can get. In his letter to me describing his difficulty, this operator gives me quite a lot of information about the job and about his costs. He says that the outward loads are regular, but the return loads are not quite so steady. A round journey involves 38 miles running, which obviously means that there is a detour on the return journey of 18 miles to pick up some of the return-load traffic.
He says that he is paying a driver a flat rate of 16 per week as a wage, that being a little more than standard. There is, he adds, no overtime. His garage rent is 7s. 6d. per meek and his insurance 18s. 6d. To that can be added, of course, his licence at 12s. per week, and there should also be provision for employees' insurances and holidays with pay, which amount to another 10s. 6d. per week.
Charge for 5-tonner He tells me that his vehicle cost £950 and the tyres £160. Interest at 3 per cent, per annum would amount to us. 6d. per week. His standing charges therefore amount to £9 per week. He gives no information as to his establishment costs, and I am going to assume that these are perhaps a little lower than usual at £2 10s. per week. That makes his fixed charges £11 10s. He has his own ideas about profit; he thinks that he should earn £5 per week. In a case of this sort, a satisfactory procedure is to add that £5 to the fixed expenses, so that we have the amount of £16 10s. which must be earned, plus the actual running cost. Thus the rate for a 5-tonner is likely to total Sid. per mile.
Assuming, for the sake of argument, that the vehicle covers 240 miles per waek, and the running costs amount to £8 5s. per week altogether, the sum which he must earn per week is made up of £16 10s. plus £8 5s., which is £24 15s. in all. If, of course, the mileage be more than 240 per week, then more than £24 15s. will have to be received, and if the mileage be less, a revenue somewhat lower than that wotild be sufficient, but the variation is not so great in proportion as the difference in mileage.
In advising an inquirer concerning a problem such as this, there are two ways which can be suggested. Either a fixed daily charge can be made providing for a maximum mileage and a certain number of hours, excess for either being charged for, or alternatively, a regular charge for time can be made and a distance charge added to it.
Of the £24 I5s. quoted previously, £16. 10s. is for time and E8 5s. for mileage (at 81d. per mile). Assuming a 44-hour week, £16 10s. is exactly 7s. 6d. per hour. Additional mileage should be reckoned on rather more than the bare cost and I propose to take 9d. per mile as the minimum.
Taking a standard day as 81 hours, and the standard mileage (at the rate of 5 rn.p.h:) as 421, then we shall have to charge 63s, 9d.. for the time and 31s. 10.id, for the mileage, making a total of £4 I5s. 7/(1. per day. To this, 7s. 6d. per hour should be added for each hour or portion of an hour cver the maximum of 81 hours per day. taking each day separately, and Is. per mile for each mile' over 421, provided that the extra mileage is executed within 81 hours.
Extra-mileage .Basis
Extra mileage over the number of 5 m.p.h. is covered by an additional charge per hour, and on that basis my correspondent can calculate his charge.
Consideration of this problem gives rise to the thought that there are . four principal ways of assessing charges according to the conditions under which the work is to be done, and it may be of 'interest to deal with these methods of assessment.
The first and easiest way of calculating the price to charge for any complete job of haulage occurs only when the work which the vehicle is doing is such that the weekly mileage is maintained at approximately the same figure throughout the year. In that case, by reference to "The Commercial Motor" Tables of Operating Costs the charge per mile can be ascertained and the rate built up from that figure as a basis.
Another method of charging is to take time as a basis. to hire a lorry out at a regular figure for so much per day. This is usually adopted when the mileage to he .covered low and when a lot of time is taken up waiting for loads and waking to discharge them. Under those conditions, a rate per mile would be absurdly high because of the low weekly mileage. For this method of reckoning prices there is again provision in the tables.
Van-hire System
Another method of charging—one which is popular with people who let out vans on hire—is to fix a charge per hour, per day or per period of a number of hours or days, etc., with an extra charge per mile, or per hour, whenever the stated mileage or time is exceeded. In these Circumstances, the customer is allowed a certain number of miles per hour, and he is charged extra if he exceeds that mileage Alternatively, he may be given a stated number of miles, which he may cover in the period for which the vehicle is hired, paying the excess mileage rate when that agreed mileage is exceeded.
None of these ways is open to the jobbing haulier, who holds himself out to take on mileage contracts of any description. He is usually asked to quote a specific price, either per ton or per mile, for some job which will take up only a portion of a week, and may leave him with the vehicle on his hands for the rest of the time. It is to jobs of this kind that the method described in the first part of this article is applicable.
The haulier reckons up how much his time is worth and should also have in mind an additional amount per mile which he must get on any job if it is to be profitable. If he has these figures in mind, the time and mileage figures as they are called, he should be ready to estimate any job which comes his way. • Now for examples of the various kind of job which may be offered, showing how to apply these various methods of tender. So far as the first and second methods are concerned, examples can quickly be given, and to facilitate understanding of the article, I shall take the figures direct from the current issue of "The Commercial Motor" Tables of Operating • Costs, ignoring that in several items these figures are out-of-date and less than what they should be.
A typical case in which the first method will apply is thai in which the haulage contractor receives an offer of regular work from a manufacturer in a big city, involving the
carriage of products to a variety of places, all of them within the 25-mile radius„-an examination of the conditions discloses that the weekly mileage Wilt average .480. and that the machine itself will need to have the capacity of 5 tons.
Referring to the Tables, the quotation will be ls. 3d. per mile, that being the minimum figure at which the haulier should undertake the job. In tendering he will quote, say. Is. 6d. per mile, or even more, making his decision on his knowledge of the circumstances and of 'what his customer may be expecting to pay..
C-hiring Contract Another example in which the same method applies but not, perhaps, so directly would be where a haulier is asked to undertake a C-hiring-margin contract to travel regularly between Manchester and London carrying a load of 10 tons each Way. His mileage, on the assumption that he does two complete trips per week, would be nearly 800, and for that the minimum charge in the ordinary waY of haulage, and according to the Tables, would be £58 14s.; say, £60.
From that, however, he must deduct the wages paid to the driver, £6 per week, so that his charge becomes £54, in all probability his quotation will have to be in terms of rate per ton. Since, therefore, in the week he moves 40 tons in all, his quotation per ton will be at a minimum £54 divided by 40, which is LI 7s. per ton. Here I should emphasize that this is a minimum charge and subject to corrections to the figures in the Tables, probably to £2 per ton.
I will now take a case in which it is better to charge according to time. A typical case of this sort is in connection with road-making or building contracts. I will again assume the use of a 5-tonner. The mileage would probably be around 40 per day or say, approximately 200 per week. On the basis of the figures in the Tables for a 5-ton petrol vehicle, the revenue should be £21 10s. per week or 10s. per hour.
Now I come to the fourth method. This is the sort which will apply to the case in which a...haulier hires a 1-ton van to a grocer or other tradesman for delivering his goods. It is assumed that a fairly large area is covered and that the vehicle is normally engaged from 10 a.m. to 7 p.m., with one hour in the middle of the day, allowed for lunch.
Reckoning it as an 8-hour day for five days in the week. and a 4-hour day on the,occasion of the shop closing for the afternoon, there is the standard total of 44 hours per week. It would he fair to allow a customer of this kind 5 m p.h. as an average; that is 200 miles per week. A minimum charge for this, according to the Tables, is £11 18s., or £12 per week. That is the basic charge and on 'top of that there should be an extra of 8d. for each mile or Gs. for each hour.
It may be useful to explain this method. of charging in more detail, as it may not be completely understood. F. may take it, I should think, that the need for an extra charge per mile for .iny distance over that named in the contract would he understood, I must, however, make it clear that this figure of 8d. per mile extra applies only to the extra mileage which is 'run off within the stiptilated periods of eight or four hours per day.
Extra Charge
If the hours be exceeded, then the extra charge in the first place is 7s. per hour or part of an hour for the time taken beyond the authorized period and that extra rate includes additional mileage on the recognized standard, namely 5 m.p.h. If in addition to time above that stipulated, there be mileage beyond 5 m.p.h., then that too should be charged at 8d. per mile over and above the price already calculated.
It is sometimes suggested that a haulier's charge might be assessed in the same way as taxi. hire; so much per hour or so much per mile whichever is the greater. In the case of .a 5-ton lorry (again taking figures from the Tables) that Would mean that the charge per hour should be 10s. if the mileage did not exceed 4.55, and should be at the rate of 2s. lid. per mile if the mileage were in excess of 4.55 in the .hour.
Such a procedure would be practicable only if the vehicle concerned were fitted with a taXimeter operating in accordance with those figures. Otherwise, as 4 think will readily be appreciated, the calculation involiied would be to, conaplicated to be of interest to the average, haulier.—S.T.R.