Assessing a Proper Rate
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"The Commercial Motor" Costs Expert Details the Items of Expense that, Whilst not Directly Related to the Vehicle, have to be included in Rates Calculation
ICONCLUDED my previous article on a note of caution. I had reckoned what the operator would have to spend per mile and per week to operate a 6-ton oiler. The running costs, calculated on the basis of a 400-mile week, I assessed at 9.36d. per mile and the standing charges. £10 3s: 10d. per week, which is equivalent to 4s. 9d. per hour. I pointed out that the figure of 4s. 9d. per hour was expenditure which arose automatically as soon as the vehicle was commissioned: there is nothing in that figure which provides for running costs. It has this particular and important significance: for every hour the vehicle is stationary, the operator is at a loss of 4s. 9d.
It seemed to me that this is more than ordinarily important; it must strike the reader who is ignorant of the elements of costing, and should act as a sm. to him to make sure that the hours the vehicle stands idle should be at a minimum, It should at the least serve as a warning to those who are considering entering the industry.
There is one way of obtaining business which is barred, and that is merely to quote rates on the basis of something per ton less than the price being paid to a competitor. That is what I or any one else will agree to be ratecutting of the most flagrant kind, leading inevitably to bankruptcy for the cutter and troubles of various kinds for the unwilling competitors in their desire to meet this kind of unfair and uneconomic trading.
Total Cost of Job
With the figures I have just named, 4s. 9d, per hour and 9.36d. per mile, it is now practicable to assess the total cost of operation for any kind of job, whether it is one which involves a good deal of waiting about or is a long-distance run with little standing time and a high proportion of running tinae.
To achieve that, only two factors have to be considered: total numbers of hours the vehicle is at work (that, in the case of a job which is complete in itself, should cover the entire period from leaving the garage to returning to it), and the total mileage run, again from garage to garage. For every hour of that total the cost is 4s. 9d.; for every mile it is 9.36d. Those two quantities must both be represented, the all-in cost being the sum of both, not either by itself.
Suppose, to take a simple example, a particular job of haulage involved the vehicle leaving home at 8 a.m. and returning at 5 p.m. If I assume that the driver had an hour for his lunch, the total working time spent on the job -is 8 hours: If in that g hours 100 miles were run, the total cost of operating the vehicle is eight times 4s. 9d., £1 18s., for the time and 100 times 9.36d., £3 18s., for the mileage: total £5 16s., actually Is. 2d. per mile run.
There. are still two other matters to consider before we. can state what the charges should be. Both are important. One involves consideration of the expense to which the haulier is put in carrying on his business; the other is profit. Most beginners, and many. experienced hauliers, run away with the idea that the first of these is insignificant. Nothing could be further from the truth. There are also some novices who care little for the second item, profit, but that is an attitude with which I am sure no reader will
have any sympathy. I will deal with the first at, these factors. I call the items establishment costs; they are really the items in the cost of running the business as distinct from the vehicle operating costs, to which they are additional.
Need for Telephone
First of all, even the veriest beginner must admit that he must have a telephone. That will cost him at least £20 per annum, more if he has a large number of calls. A figure convenient for my calculations is £19 10s. That is, roughly, 7s. 6d. per week.
He .must have notepaper and envelopes, as well as billheads. Some circulars are also necessary for publicity purposes. Suppose he spends £5 per annum on that account, that is equivalent to 2s. per week. Next comes postage, and if much circularizing is done for advertising, that will add up to several shillings per week. Even where circularizing is not, perhaps, quite so necessary, there will be need to provide for the dispatch of invoices and receipts. I allow 7s. 6d. per week.
A certain amount is spent each week on telephone calls outside, and there will occasionally be telegrams. Suppose I put down an average of Ss. per week for that. Allow another Ss. per week for a few gratuities and a like amount for parking fees and tolls.
These quite ordinary expenses add up to £1 12s. per week. Here are some others: Office rent and rates, 7s.; lighting and power, 3s.; travelling expenses—for all but the ownerdriver that will involve the use of a car which cannot cost less than £3 per week. If I add 8s. per week for rniscel. laneous expenses I get a grand total of £5 10s. per week. That is an irreducible minimum; I know for sure that the total is greater than that.
Before leaving this part of my subject, I must refer to the matter of dead mileage, that is to say, mileage covered by the vehicle which is not directly in connection with any contract and for which therefore no payment is received. What it may mean can be realized if it is assumed that the new owner spends half a day touring his district, seeking orders.
Suppose he ,spends four hours that way and covers 50 miles, the bare cost to him, according to the method of calculation I have just described is £2 18s., comprising four hours at 4s, 9d. per hour, which is 19s., plus the cost of running 50 miles at 9.36d, per mile, which is £1 19s. As half a day is not likely, in the beginning, to be sufficient, it is reasonable in this calculation that an average amount is £3 per week. If that amount is included in the establishing costs, the total becomes £8 10s.
That is equivalent to 3s, id. per hour for a 44-hour week. It must be added to the 4s. 9d. per hour of the standing charges to give a figure for cost per hour. which the operator should always have at the back of his mind when calculating what a rate should be. It brings the total per hour up to 7s. 10d., and that must be regarded as the minimum cost per hour; it is also the amount which is being lost every hour during which the vehicle is idle.
I must again emphasize that up to now I have been considering only costs, actual expenditure which is incurred by the operator as soon as he starts his venture into the field of road haulage. Now I turn to consider the question of profit. It is customary in the haulage business to reckon the profit which should be earned in any job as a percentage on cost. What that percentage should be depends to a certain extent on the kind of work which is being done. If the work is a steady contract, in the course of which the vehicle is fully engaged on, the work of one particular customer, the percentage may be as low as 15. That, however, is the absolute. minimum. If the work engages the lorry only a part of the week and if the haulier has to find work for the rest, the percentage should be 20. If the job is an odd one, calling for the use of the vehicle once or twice only in a month, the minimum percentage should he 25.
Adding Profit Percentage It is convenient to add these percentages to the figures we have already used, namely 7s. 10d. per hour for the fixed charges and 9.36d. per mile run. If. for example, we are considering the charge to be made for a contract, in connection with which it has been suggested that the profit percentage should be 15, then as a preliminary to making any calculations of rates that 15 per cent. must be added to the cost figures thus:
For the time add 15 per cent, to the standing charges plus establishment costs, which have been shown to be 7s. 10d. per hour. The actual amount to add is 14.1d. but it is sufficiently accurate to assume it to be is. 2d. The charge per hour is thus 7s. I0d. plus Is. 2d., a total of 9s. The running cost of 9.36d. per mile must also be treated in the same way: 15 per cent: mugt be added t6 that amount to arrive at a figure to charge for Mileage. The amount is 1.41d. and the total is 10.77d., saY
Now to apply these figures to a contract. The work is such that the vehicle is engaged on it for 48 hours per week, during which time it runs 240 miles. The charge can be calculated in this way. Take for 48 hours at 9s. per hour, £21 12s.; add for 240 miles at 10/d. per mile, which makes £10 15s. The charge is the sum of those two amounts, namely, £32 7s.
The customer may desire to be given a quotation in a particular way. If he wants to know the cost per week,the answer is £32 7s. It is possible that he may like to be given a quotation per hour. That can be ascertained by dividing £32 7s. by 48. The answer, to the nearest round figure„ is 13s. 6d. In putting forward either of these quotations the haulier must make it clear that the amount quoted is an • irreducible minimum and that there is a limit •of 240 to the mileage which can be run. Any excess mileage must be paid for over and above the £32 7s, quoted.• The charge for that excess mileage should be not less than Is. 5d. per mile. The customer may wish to have a quotation on a "per mile" basis, in which case the haulier must divide £32 7s. by 240. The charge per mile will then be seen to be 2s. 7id.
What About Overtime?
A query arises here. Someone is sure to ask: "What about the extra charge for the overtime which the driver will legitimately claim for every hour he works beyond 44 per week?"
The reply is that no extra charge, beyond the 9s. per hour can or need be made: there.eertainly should be no provision
Zenith Motor and Engineering Works, Ltd., 591 Commercial Road, London, E.1, adapted a standard Morris-Commercial J-type model into a gown van for the self-drive vehicle fleet of Capon and Sons, Ltd., Yale Royal, York Way, London, N.7. The vehicle has twin rails, sway bars, interior lighting and a folding step. Its height is slightly over 6 ft. and the capacity is approximately 210 cu. ft.
for such a charge: on the other hand, the operator could offer a rebate on the 9s. per hour and still not lose any of the 15 per cent. profit.
That statement will startle some readers and an explana
tion will have to be made. The total of fixed charges on which this and any other quotation are based amount to 120 12s. per week. 'The 9s. which I have been using as a charge per hour is derived directly from that total. It covers the establishment costs of £8 10s. per week, and the standing charges of £10 3s. 10d. per week. There is also provision for profit on the fixed costs amounting to £2 16s.
As far as the item wages is concerned, the allowance included in the above schedule is that which is legally pay able for the 44-hour guaranteed week. None of the items recur or are in any way increased because the vehicle runs more than 44 hours. The overtime which the driver works costs a fraction of a penny more than 3s. 6d. per hour, whereas there is provision for the operator to be paid no less than 9s. per hour. So far as he is concerned, therefore, the operator makes an extra profit of 5s. 6d. per hour for each of those four hours excess above the standard of 44 hours.
These facts are of special interest. They show that, in the road haulage industry, both driver and employer stand to gain by overtime: the earnings of both are enhanced. That is, of course, if the rates are calculated in the manner described in this article. S.T.R.