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Effect of usage on cost
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UFFICIENCY and productivity have been repeatedly stressed Li as necessary objectives in transport as in other industries if n improvement is to be achieved in the national economy. But le persistent use of these two terms can lead to a mistaken belief int there exists a standard by which to measure them, recognizable nd accepted as such by the majority if not all of the parties oncerned.
Transport operation in particular, however, is a sphere of idustrial activity in which this is not so and where there is pportunity for reasoned difference as to what constitutes efficincy or productivity. Efficiency as applied to road transport peration is commonly associated with the technical or engineering spect of transport with the ultimate aim being a reduction in the perating cost per mile.
But a difference of opinion as to what is true, efficiency in .ansport could well arise within a transport organization itself yen on this apparently simple score of operating cost per mile. : could well be that a traffic department, anxious to ensure safe elivery of customers' consignments, might be insistent on a special rpe of body to do just this. But such a body would probably do °thing to increase the amount of traffic moved which, to the Lyman at least, might seem the simple and direct method of teasuring efficiency and ultimate productivity. Indeed, if the
specialized body increased the unladen weight appreciably then the tonnage moved per trip might even be less. As a result the cost per ton-mile would be increased.
The justification for this state of affairs, however, would be that in the customer's estimation goods delivered in damaged condition to the extent that they were not acceptable just might as well not have been delivered at all. Likewise the relative figures in the transport operator's records as to tonnage moved and miles run n-ight just as well be notional figures when the measure of efficiency is the customer's satisfaction with the service performed.
Reliability and punctuality
A similar state of affairs arises in connection with reliability and punctuality. As the tempo of trade and industry increases the demand by customers for higher standards of reliability and punctuality in delivery services will correspondingly increase. Here again, from the customer's point of view, goods delivered in safe condition but too late for the purpose for which they were required are anything but indicative of transport efficiency.
There is also another aspect of efficiency which arises from the distinction between a new entrant into road transport and an experienced operator. By the nature ef things the latter would have more contacts in the trade, with the resulting likelihood that his vehicles will be more fully operative and moreover, more fully loaded both outward and return. Additionally, because of his greater experience the established operator would know more about the snags of particular flows of traffic and terminal facilities. Accordingly, he would ensure that the rates were commensurate with such difficulties.
In contrast, the new entrant would have to contend with the limitations imposed on the scope of his activities by having few sources of traffic. Additionally, the effect of the relationship between standing costs and running costs would work to his disadvantage until such time as he was able to increase the volume of his business.
As explained in this series recently the total cost of operating a commercial vehicle can be conveniently segregated into ten items of expenditure. These in turn can be grouped into five items of standing costs and five items of running costs. The standing costs arise as soon as the vehicle is put on the road and continue throughout the period the vehicle is in the operator's possession. Standing costs, therefore, do not vary according to vehicle usage in the total amount payable. But by the same token the more a vehicle is used the lower the standing costs per mile.
In contrast running costs arise directly, or almost so, in relation to the mileage run and, therefore, as the mileage increases so does the total amount of running costs incurred, but, nevertheless, the running costs per mile remain virtually constant with minor exceptions.
By the addition of standing costs and running costs it follows , that the total operating costs per mile will decrease although not at the same rate as standing costs per mile due to the stabilizing influence of the running costs per mile remaining virtually constant.
Applying this costing theory to actual operation it will be seen that a new entrant into road transport might be able to operate his vehicle to good purpose for only a part of the working week even though while so doing he could reasonably claim to be operating efficiently. As a result the cost of operating his vehicle, when all items are fully taken into account, must be higher than the corresponding operating cost per mile of an established operator who is able to employ his vehicle more intensively.
The qualification, and an important one, must be made that this disparity in operating costs depends on other factors being equal. And it is upon this qualification that any ultimate success of a new entrant in the transport industry depends. Otherwise the advantages of large scale operation in road transport, as indeed in other industries, would be so overwhelming that, on paper at least, the new entrant would never get off the ground.
Flexibility has been a major factor in the success of the road transport industry in this century. Here lies one reason why the owner-driver is ever able to set up in competition with larger and seemingly more efficient operators, efficient that is, on the score of more intensive use of vehicles. Assuming that the owner-driver concerned has the necessary organizing ability, it follows that maximum flexibility can be achieved where the unit of organization is reduced to one. Likewise the chain of communication from the customer's initial request to effective delivery of the goods is reduced to a minimum, namely the owner-driver himself.
But to see just what is the effect of vehicle usage on operating costs, up-to-date details will now be given as to the cost of operating a vehicle such as a new owner-driver might choose to start up in business, namely a five-tonner fitted with diesel engine and the ever-versatile platform body.
Assuming that the unladen weight of this vehicle is around 2 tons 17 cwt. the annual licence duty would amount to £63. The standing cost per week in respect of licences for this five-tonner, inclusive of the appropriate proportion of the carrier's licence fee, would be £1 bs. Od. This latter calculation is made on the basis of a 50-week year to allow for two weeks when the vehicle may be off the road for major overhaul or driver's annual holiday, and this procedure applies to the remaining four items of standing cost
The cost of wages to the employer is reckoned at £12 4s. 31 This amount is derived from the appropriate basic minimur remuneration payable to a driver of a five-tonner as set out i R1-1(84) with additions to allow for insurance contributions an holidays with pay. It is recognized, however, that overtime may we be payable. But as there is no means of arriving at a "standard" "average" amount of overtime in relation to mileage run becaus of the substantial difference in terminal times according to th type of traffic handled, it is omitted here. However, when such a exercise is applied to a particular set of circumstances with known amount of overtime, the extra payment would be include(
Rent and rates in respect of garaging the vehicle are reckoned t be £1 5s. Od. a week while vehicle insurance adds £2 2s. 9d. a weel This latter amount is derived from an annual premium £106 17s. Od. to provide comprehensive cover in a medium-riE area.
The capital outlay on this five-tonner is reckoned at £1,3( and allowing for a rate of 7.5 per cent, the annual interest ehargi would then amount to £97 10s. Od. or the equivalent of £1 19s. 0 a week.
The .addition of these five items gives a total standing cost I £18 17s. Od. a week or 7.54d. a mile when averaging 600 mill a week, which might he considered a useful weekly mileage f( this size of vehicle.
Running costs
Dealing now with running costs the major single item is, course, fuel. It will be assumed that this vehicle averages 18 m.p.: and if fuel is purchased in bulk 4 /7-0. per gallon the fuel co per mile will be 3.10d. There are, of course, several reasons wli the actual price per gallon paid for fuel by individual operate)] should vary. In addition to zoning being a feature of fuel pricir throughout the UK, there can also be the individual effect of but fleet or agency discounts. More recently on July 20 a surchari was• imposed on the already high rate of duty on fuel, name: 38. 3d. a gallon so increasing the total duty payable to 3s. 7d. gallon. In terms of fuel cost per mile, the addition is equivalei to 0.22d. where, as here, the rate of consumption is 18 m.p.
Lubricants are reckoned to add 0.27d, per mile and tyri 1.31d., assuming a mileage life of 30,000. Maintenance, inclusb of washing, servicing and major repairs is assessed at 2.73d. mile.
In calculating depreciation it is first necessary to arrive at ti amount to be written off. This is obtained by deducting d equivalent cost of the original set of tyres from the initial pri4 f the vehicle because tyres are already dealt with as a separate ern. A further deduction is then made relative to the ultimate :sidual value of the vehicle on the basis that it would not be )gical to employ a new vehicle at the commencement and literally in it in to the ground, with no residual value at the end, yet still xpect to maintain an even standard of service to customers iroughout.
In this particular instance a vehicle mileage life of 150,000 is ssumed so giving a depreciation cost per mile of 1.61d. AccordLgly, the total for the five items of running costs is 9.02d. a mile of 22 I Is. Od. a week, still assuming an average of 600 miles a ,eek. The addition of standing costs to running costs gives a total perating cost of 16.56d. a mile or £41 8s. Od. a week.
Earlier it has been stated that running costs per mile remain 3nstant irrespective of the total mileage done, with minor Kceptions. One of these exceptions is in relation to washing and ossibly minor servicing which many operators do on a weekly asis regardless of the actual mileage for that week. It follows lerefore that as the mileage decreases the cost per mile relative this proportion of overall maintenance will increase and kewise the total running costs per mile.
Another exception is in relation to depreciation. It has just eon stated that the expected mileage life of this five-tonner is 50,000. But where the average weekly is unduly low the time tken to clock up the 150,000 miles might be so extended that the ehicle could become obsolescent before it was actually worn ut. Accordingly, an addition of 25 per cent to the basic cost of epreciation is added in this instance when the average weekly lileage drops to 200.
With these qualifications the total operating cost per mile for us five-tormer becomes 20.51d. at 400 miles a week and 32.'79d. t 200 miles per week.
It will be observed that this latter figure is almost double that rhich applies at 600 miles a week, namely 16.56d. a mile. The lain reason for this considerable variation lies in the proportion f standing costs contained in the three respective items of perating costs. As already stated the standing cost per mile at 00 miles per week is 7.54d. But at 400 miles per week this has sen to 11.3 Id. and to 22.62d. at 200 miles per week.