Factors Which Determine Rates
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In Building up a Charges Schedule from Costing Data Supplied by a Number of Operators, neither Extreme nor Average Figures should be taken for General Application
IHAVE received two letters recently from the same inquirer, both asking for assistance in assessing rates. In reply to one, I recommended him to use time and mileage figures and to treat each quotation separately. When dealing with the other, I was able to give him a rate for a specific lead without him having to make calculations. Thanking me for the information, he asked why I had used two methods so entirely different in dealing with his two inquiries. Of the two, the first dealt with the conveyance of machinery. The 'calculation of a schedule of :rates for this class of traffic is extremely difficult. . The principal reason is that there is such a great difference between one job and another as far as-loading and unloading times are concerned.
It may be worthwhile to go into the question of rates assessment in some detail, with the idea of suggesting the
lines which any such investigation should follow. To simplify the matter, let me take the case of traffic dealing with any quantities of from 5 tons to 14 tons, usually with one drop. The traffic is not necessarily all of one kind, and it is therefore necessary to include with the schedule a rough classification,
First Principle The first thing to do is to agree on the principle that rates • must be assessed on the basis of cost ,of service plus a reasonable profit. That should, in my view, be the fundamental. basis for the assessment of rates for the conveyance of gOOds by road, although I would agree that having arrivettat minirimm rates according to that method, there is justification for varying the standard in an upwards or downwards direction according to the value of the traffic and the degree of convenience experienced in (leafing with it.
Satisfactory figures upon which a schedule can be compiled can be Obtained only as the result of consultation with operators and with their full co-operation. Operators concerned must freely' disclose all their figures of costs, full information as to the methods of loading, unloading and handling and, in particular, the times needed for terminal operations, with some indication Of special difficulties which arise and the frequency of their occurrence.
In addition to making personal investigation of costs and time records, drivers' log sheets and so on, it is also necessary to make a personal check on times taken to load and unload, to visit the premises of many factories and warehouses—where loads are picked tip and discharged—to watch work being done and to note the times taken. The object, of course, is to determine whether the times quoted for loading or unloading are fair, or whether some of them are to be corrected because of abnormal conditions.
Data must be collected under the following headings:—
(a) Cost of operating vehicles of all types used for the traffic for the conveyance of which the schedules are being prepared.
(b) Administrative expenses, that is to say, overheads or establishment costs, involved in the operations of hauliers concerned with this specific traffic. (This is important, as demonstrated in last week's article, because the incidence of overheads differs widely according to the kind of traffic with which a haulier cuStornartly deals.) (c) Journey times of vehicles engaged on this class of work. (This really reveals itself in the assessment of average road speeds over specific routes.) (d) Times and conditions of loading and unloading; comparing favourable and unfavourable circumstances, thus arriving at a practical average.
(e) Specific conditions affecting the way in which certain of the traffics involved have to be unloaded and loaded With particular care to guard against damage in transit. (Such as in the conveyance of machinery or livestock.) (0 Use of heavy vehicles for light and bulky loads, for the purpose of taking into consideration those cases where it is impossible, because of the nature of the traffic, for i vehicle to carry its rated payload. Here again, I have michinery in mind. Another which can be cited is hay, straw and similar crops.
As regards the expense of operating,vehieles engaged in any particular class of work, it is 4.1ways difficult to obtain detailed figures for actual costS,:and'it is only by collecting and collating figures froin.a large number of operators that any success can be ensured. By setting data obtained from one user against that from another, and filling in the blanks in the schedule of costs for one operator by taking information from costs submitted by another, useful data can be obtained. •
As regards (b), a similar procedure has to be followed as in (a), establishment expenses of one or two principal Operators being taken and wherever figures are available, checked by comparison with the incomplete data obtainable from the others. Items (c) to (f) inclusive involve a careful investigation of numbers of drivers' log sheets and recorder discs borrowed from the various operators who are co-operating, and from personal observation of the work being done under the conditions prevailing in connection with the traffic.
Following the collection of this information, it must be sifted, collated and put down in tabular form, and the first step to be taken is to prepare a schedule similar to that which accompanies this article in Table 1. In compiling this table, a certain amount of discretion is advisable. It would be a mistake, for example, to take as a foundation of these figures the lowest cost among those which have been collected. To do so would be unduly to depress the rates, and would produce the result that only companies operating under the most favourable conditions would he able to work at a profit, leaving the others to operate at a margin too low to be commercially practicable.
It would obviously be equally wrong to take the highest costs as the basis for the schedule, for although this would be advantageous inasmuch as it would result in the provision of a schedule of rates which would most certainly be remunerative to everyone concerned, there is the risk that rates so assessed would be too high for use in a competitive field.
Again, I have found that it is not advisable to take the statistical average. What must be done is to take each item of cost, assembling all the data relating to that particular item, and decide upon the amount to be entered by considering all the relevant conditions. In this way, it is possible to arrive at a figure for each item which is a working figure that is generally applicable.
As an example, consider the item "maintenance." It is usual that those operators whose records are complete and accurate are equally efficient in all the departments of their business. The consequence is that their maintenance costs are less than' average. In one set of notes which I have referring to such an investigation, I make the remark: "Maintenance costs astonishingly low." Costs for all the other operators are much higher, and in deciding upon a figure, 1 incline towards the high figure rather than to the low.
This might seem to contradict the condition I have already laid down as applying generally to figures of costs, namely, that it would be a mistake to take either a low figure or a high one. It might be suggested that as these low figures for maintenance costs are the result of efficiency in the maintenance department of the ,company concerned, there should be no reason why other operators, if they set about improving the efficiency of their workshops, should not be able to effect very material savings in their vehicle maintenance costs.
Load capacity Fixed costs:
Wages ..
Garage rent Insurance .. .
Interest .. ..
Depreciation (half) Maintenance (d) ..
Overheads ..
Totals Add 1(12th Totals Per hour ..
Running coati:
Fuel Lubricants.. ..
Tyres .. ..
Maintenance (0) ..
Depreciation (half)
Reasonable Criticism
The criticism is reasonable, but it is a moot question as to whether it is the business of the compiler of fair rates to try to dictate a standard of workshop efficiency. His purpose is to produce a set of figures which will reflect as nearly as possible the prevailing conditions throughout that part of the industry concerned with the handling of the particular traffic. In any case, the incentive to improve efficiency would be provided &nos the standard of rates is laid down by the desire to make more profit .by keeping down costs of operation.
Another factor which has to he kept in mind in dealing with schedules of rates is to makesuch provision as is possible for correcting the schedule in accordance with fluctuations in the cost of fuel, oil, tyres, material, wages and so on. It should be noted that the costs in Table I are on the basis of a 44-hour week. It will be appreciated that in many of the traffics for which schedules are required, the vehicles are seldom engaged for as little as 44 hours per week. Again I mention the handling of outsize loads of machinery, the conveyance of livestock, and so on, as being cases in which the vehicles are more likely to be in use for as much as 50 or 70 hours a week. The proper procedure is to reduce all the figures to the basis of a 44-hour week.
This condition as regards hours per week• applies, of course, particularly to the heading "wages." In that case, the actual amounts paid in wages are taken from the books of the various operators and reduced to the basis of a 44-hour week. The amounts which finally appear in the tables are such that insurances of employees both under the National scheme and under the Workmen's Compensation Act, together with sundry drivers' expenses are also included. It is usually almost impossible to 'segregate these expenses.
Mate's Wages
In all vehicles with a carrying capacity over 10 tons there is provision for the wages of two men. There is also provision for part-time employment of a second man on a 10tonner. Not all operators follow the practice of employing two men on 12-tonners and 14-tonners, but the majority does so. In assessing the wages on this two-man basis, or on the
one-man and one-part-time-man basis„ I have followed the procedure described in that I do not take the statistical average but consider these items of costs and set down a figure which appears accurately to reflect the general practice.
The item "overheads" covers all expenditure other than vehicle-operating costs and the overheads are allocated per vehicle on the basis of payload capacity. For example, take the case of a company operating a fleet of seven vehicles with total capacity of 50 tons. Assume that 1 find the overheads total £31 per week, that will be 12s, 6d. per ton of payload, approximately. The overheads for a 10-ton lorry would thus be £.6 5s.
The addition of one twelfth of the total of the weekly fixed charges is necessary for the following reason. All the weekly items of expenses are incurred for 52 weeks in a year. On the other hand, the total working days per annum per vehicle have produced only 48 weeks. By adding a twelfth to the basic cost, allowance is made for that deficiency.
Dividing the total of these weekly costs by 44 gives the cost per hour. It is important to note that in that figure there is no provision made either for running costs or for profit. The total of the running costs per mile also does not, include any provision for profit.-S.T.R.
• rOMPREHENSIVE figures for all types of commercial %-• vehicle are contained in "The Commercial Motor" Tables of Operating Costs. This publication, which is used by hauliers, ancillary users, passenger transport operators, Government Departments and others, may be obtained from Temple Press Ltd., Bowling Green Lane. London, E.C.1, price 2s. &I, postage included, or from any bookseller, price 2s. 6d. The figures are corrected to date of impression.