Why Rates Must be Flexible
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‘4. AGREE with the previous speaker," chimed in
another of the informal audience which gathered after my lecture meeting at Warrington. "I think that the one word in the whole of the T.A.C. Report which is most to be feared is ' elasticity,' as applied to haulage rates. In my view, any attempt to provide for elasticity will wreck this rates structure about which we are talking so much."
4. • • • And doing so little," came, sotto voce, from someone else.
"Theoretically," I rejoined, " you may be right. It does seem, on the face of it, that to allow elasticity in any rates structure is, in the vernacular, asking for those rrates to be cut . . ."
"Give a man an inch and he'll take a yard," broke in another interrupter.
"I know," I said, "but you must have some give and take in your structure. If it gives a little under stress, it can spring back again to its original form. If it be rigid, it will most likely crack and may even collapse altogether.
. Rigidity a Fallacy.
"Listen. There is an analogy in to-night's paper. Did you see that the chief engineer to one of the railway companies has replied to the suggestion that all railway coaches should be made of steel, and strong and rigid enough to withstand, without collapsing, the impact of a collision, such as that terrible affair in Scotland?"
"Yes," said one listener. "He says that it is quite possible to make coaches rigid enough to withstand that stress, but the effect would be, in the event of such a collision, that every person in the train would be killed outright instead of, as is usually the case, a minimum of actual fatalities and some injured."
"How can that be?" came a question from several.
"The passengers would be thrown with terrific force from one side of the compartment to the other, it is stated, and no living person could withstand the impact." .
"There you are." I said. "I'll admit that a rates structure is not quite the same thing as a railway carriage . . ."
"Not so as you could notice it," called out a wag.
". . . but it is a fact that rigidity in almost anything is often less satisfactory than flexibility. That, in my B2 opinion, applies to rates structures as much as to any other."
"The passenger fares schedule was made rigid for us," said someone.
"I have been hoping that someone would bring up that matter," I Said. "The railways stepped in and cut their own fares to a level well below yours and you could do nothing about it. We don't want a repetition of that on the goods side."
"That we don't," came agreement, "but how are we going to avoid it?"
" Let us deal with one thing at a time,' I begged. "I think I can answer your question, and will do so soon. The problem now before us is to decide whether our goods-rate structure should be rigid or flexible. I am for flexibility ; some of you are for rigidity. You fear that flexibility will encourage rate-cutting. I think that rigidity will eventually destroy the whole scheme., because it will prove to be impracticable."
"But you are going right against your own recommendations." came a protest. "You say that a minimum rate must be based on three things—operating cost, establishment charges an.d profit—and that that minimum rate must not be cut, yet now you are suggesting departures from it."
The Ideal Rates Structure.
"Minimum,' my dear chap—' minimum' is the important word in what you have just said. Fix a minimum rate according to my recommendations and add to it sufficient to allow for contingencies normally to be expected. Let the sum of those figures be your standard rate, which you will then know allows a small margin for bargaining, and you have the ideal structure.
"You must not forget," I continued, "the factor of competition. Fair, economic competition is the lifeblood of any industry. Without it, stagnation comes— the kind of things to which we had become accustomed from the railways, just before road transport began to make its presence felt. It is important that there must be means for meeting competition, and one of the means, I believe, will have to be a certain degree of flexibility in the stabilized rates."
"I don't agree with you at all," said one of those present. "The proper method is to have rigidity in the rates structure and provide for competition by the service rendered by the haulier. Under those conditions, the haulier who gives the best service will get the business, and quite reasonably so."
"You'll have to be extremely careful to define service," I said, "otherwise there will arise, not one, but several kinds of service, which, in their application, will be more uneconomic than some of the cut rates now prevailing."
"What like might that kind of service be?" asked someone, apparently hailing from north of the Tweed.
"Well," I said, "take, for instance, delivery of coal to houses, or feeding stuffs to farms. Both commodities are usually delivered in sacks and on to ground level. It is quite likely that some hauliers, in their zeal to provide service, will deliver a load.up a flight of stairs, in the case of coal to a house, or up a ladder to a loft in the case of feeding stuffs to a farm—and charge nothing extra. That is the kind of uneconomic service I have in mind." "That wouldn't cost much."
"Wouldn't it? Let me show you. Take the case of a man delivering 5 tons of feeding stuffs into a farm and having to hump every sack up a steep ladder into a loft. He will take at least half an hour longer to unload than if he were dumping the sacks on to the ground. The average 5-ton lorry is worth a rate of at least 5s. per hour to its operator. Consequently, that job justifies an addition of half-a-crown to the price, or Gcl. per ton extra."
"But, surely, provision for extra charges for unusual difficulties in loading and unloading will have to be made in the rates schedule?"
Complication Would Cause Collapse.
"It will be, but only up to a point. You cannot provide for every small variation in conditions, for, if you were to do so, you would need a whole library of books to contain your schedules. No one would ever read them, or understand them, and no haulier would ever work to them. He would' have every excuse for not workiig to them, and that is what I mean when I say that if you try to make your itructure too rigid it will crack and collapse."
"What do you suggest, then?" came an exasperated chorus.
"What I have always suggested: a standard rate, taking into consideration the three essentials, vehicle operating cost, establishment cost and profit, plus a margin to allow for small defections from tho standard rate in order to meet special conditions." "Then we shall be just as badly off as we are now, for, give a man the excuse to depart from the standard, and he will be doing it all the time."
A Standard for Customers.
"No, you will not, because you will have, as I said before, what you have never had in the haulage industry—a standard rate to be presented to every potential customer when he inquires concerning charges. You will have a state of affairs closely resembling that which exists in a large number of other trades.
"Take the car trade. The fixed price of a car may be, say, £300. A customer, determined to buy one, is, perhaps, able to produce arguments whereby he can get that price reduced to £290. The next customer is still told that the price is £300 and he may or may not be successful in getting a little something off. The
point is that £300 is the standard price and if there is any bargaining to be done it invariably starts from that mark.
"In the haulage industry, up to•now, that condition has never been present. There has never been a standard. Each cut produced a new price, a new starting point for the next customer.
"Take, for example, that rate for brick haulage which was quoted to me, last night, in St. Helens. I was told that, some years ago, the rate for haulage over a lead of six to seven miles was 24s. per 1,000. Now it is 8s. How did that low level come to be reached?
"In this way : in the beginning 24s. was, shall we say, the standard rate. An astute buyer had it reduced to 22s. When the next buyer came along, the haulier overlooked the fact that 24s. was the rate, and quoted 22s. The second buyer, being even more astute than the first, was able to bring the price down a further 4s. to 18s., That, again, became the standard rate, and so, by a sequence of cumulative Cuts, the price eventu
ally arrived at its present level of Ss." S.T. R.