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uoting a Profitable Charge
Page 108
Page 111
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THIS is the fourth article in a series designed to indicate to hauliers how they should arrive at reasonable rates and charges to put before the Licensing Authority. In the first article I referred to proposed new conditions which, if the Transport Bill goes through, will govern the issue and renewal of A and B licences. Two of these conditions were quoted. One was the reversal of procedure whereby the onus of proof that the licence is not necessary will be placed upon the objectors, and the other the provision whereby the Authority may call for information about rates and charges which the applicant proposes to apply in respect of the traffic which he is to handle under the licence,
I mentioned another provision: any licence may be revoked or suspended if any statement of fact put forward during the hearing of the application be subsequently proved to be false. This might be used against a haulier who after receipt of the licence was found to be putting into effect rates and charges that were different from those quoted to the Authority during the hearing.
This makes it most necessary for the haulier to be extremely careful in arriving at figures for rates and charges. Above all, he must have operating-cost data sufficient to enable him to justify the schedules which he puts forward, and to ensure profitable operation.
Basic Principle I next dealt with the problem of assessing costs, showing how this could be done in the absence of reliable information. In the third article I dealt with establishment costs, demonstrating how they should be recorded and allotted among the different vehicles of a mixed fleet. Coming now to the way to calculate rates, I assume that the Authority will expect them to conform to the basic principle of cost plus profit.
As a preliminary I propose to make use of the figures given in the three previous articles. They relate to a 6-ton petrol-engined vehicle. I showed the running cost to be Ild, per mile and the standing charges to be £535 per B26 annum, or approximately 4s. 100. per hour, assuming that there are 2,200 working hours to the year.
As regards establishment costs, a typical amount is 8s. per week per ton of pay-load. In the case of a 6-tonner the standing charges would therefore be £2 8s. per week or Is. Id. per hour. That amount added to 4s. 100. per hour for standing charges makes the total of fixed costs 5s. 1 lid. (say 6s.) per hour.
These amounts, lid, per mile and 6s. per hour, arc all the operator needs to assess rates for any job, whether the distances or the waiting time be long or short. (I will give some typical figures for other sizes of vehicle later.) If the operator be concerned with a job which will keep his vehicle engaged for 6 hours and involves a total mileage of 96, he can calculate the net cost by allowing for 6 hours at 6s. per hour, which is £1 16s., plus the cost of 96 miles at lid, per mile, which is £4 8s. The total cost is the sum of these two, the time cost and the mileage cost and amounts to £6 4s.
Customary Method There is no provision for profit in this, and that should now be discussed. The customary method of assessing profit is to make it a percentage of the total cost, but there is no general agreement as to what that percentage should be. I have always taken 15 per cent, as applying to a contract covering a minimum period of one year. If the work be reasonably regular, then 20 per cent should be added. Occasional work should carry 25 per cent. Assuming that the profit for the job I have just mentioned is 25 per cent., the rate must be £6 4s. plus £1 1 Is., making the charge £7 15s.
The method I have used in this case, to find the total cost and add the percentage, may be the most convenient for some operators. It certainly has this advantage: so far as a 6-tonner is concerned, the total cost of any job can be ascertained and the profit added according to the type of work. A calculation such as that gives the rate to be charged unless there are additional expenses. There may, for example, be a subsistence allowance, or expenses, incurred by the driver such as making telephone calls. There may even be the wages of a mate, that not having been provided for in the discussion so far.
However, when the type of work and, therefore, the rate of profit, is the same throughout the fleet, the profit percentage can be added to the hourly and mileage costs to give hourly and mileage charges. Assuming that the agreed ratio is 20 per cent., the hourly cost of 6s. is increased by 20 per cent., Is. 2d. The running cost of 11d, per mile must also be increased by 20 per cent., when it becomes Is. lid. The charge is thus made up of six times 7s. 2d., which is £2 3s., and 96 times is. lid., which is £5 6s, The total is £79s.
The advantage of this method is that it can be used for any job. Its disadvantage is that it calls for a double calculation. Most operators prefer to tender on mileage or on hours. if, for example, the vehicle be continuously engaged on mediumto long-distance work, involving an average of several hundred miles per week, the operator would prefer to deal with an inquiry on a basis of a rate per mile run. In such circumstances, he should rearrange the figure accordingly. To show how that is done, I shall take another size of vehicle, namely a 14-ton eight-wheeled eiler.
First, as to the cost of operation. The initial cost of the vehicle will be about £4,000. Its tyres will be 9.00 by 20 types, costing altogether £397. Depreciation is the first Item a haulier should calculate. From the original £4,000 take £397, the cost of the tyres; that leaves £3,603. Then take away what is called the residual value, which is what the haulier hopes to get for the vehicle when he eventually sells it. It is usual to reckon that as being approximately 10 per cent, of the cost less tyres, namely, £3,603. Taking away £363, the residual value, the remainder, £3,240, is the net value of t,he vehicle which must be used when calculating .depreciation.
Assessing Depreciation The next thing we want to know is whether depreciation shall be assessed on a mileage basis, on a time basis or on both. For a vehicle covering hundreds of miles per week, the most satisfactory way is to take depreciation as a running.,eost. The haulier must first decide what mileage. he will get out of the .machine before he -finds that its maintenance and repair periods are Mounting up and that the vehicle is to all intents and purposes useless. Suppose for that he takes a figure of 300,000 Miles. He must divide £3,240 by 300,000 in order to get the amount to be entered under depreciation. It is 2.592d., say 2.60d., per mile.
While we have the figure before us, it may be well to extract information as to another item of operating cost, namely, "interest." The rate nowadays may be taken as 4 per cent, and it is calculated on the initial outlay, namely £4,000. That makes it £160 per annum, or £3 4s .per week.
The haulier will be acquainted with some of his costs. He will know, for example, that his Road Fund Tax is £120 per annum or £2 8s. per week. If this vehicle has a heavy body the tax will be more and it is up to the reader to make his own modifications accordingly. His insurance premium will probably be £100 per annum, or £2 per week, and his garage rent 15s. per week.
The amount paid in wages comes next. The net figure for the driver's wages, assuming that he is operating from a Grade I area, is £6 13s. That is for 44 hours. It is cer-tam, however, that overtime will be worked up to an _average of 16 hours per week. For that, a driver must be paid for the first 6 hours at 3s. 9 5/16d. per hour, or £1 2s. 'Md. for the 6 hours, and for the remaining 10 hours at 4s. 64d. per hour. making £2 5s. 3. The total wage to be paid to the driver is thus £10 Is. per week.
That completes the standing charges which total £18 8s. per week. I propose to take for establishment expenses a figure already used in dealing with the 6-tonner, 8s. per payload-ton per week, which in the case of a 14-tonner, gives .£5 12s. per week. The total of fixed expenses is, therefore, £24 per week. To this I add 20 per cent., or £4 16s. per week, making the time charge £28 16s. per week, approximately 9s. 6d. per hour on the basis of a 60-hour week.
Second Man
If a second man be employed, his total wage, allowing for overtime in the same way as in the case of the driver, will total £8 17s. per week, equivalent to nearly 3s. per hour. Add 20 per cent. to that, 7d., and the additional charge is 3s. 7d. per hour.
Now I must suggest a method of estimating the running costs of this vehicle. First, the cost of fuel. I will assume that the vehicle does 10 m.p.g. If the haulier pays 3s. 9c1. per gallon, the cost per mile is 3s. 9d. divided by 10, which is 4.50d. For lubricating oil he can take Id. per mile.
The cost of a set of tyres has already been stated to be £397. The operator may have an approximate idea as to the mileage he is likely to get from a set: I am going to suggest 30,000 miles. In that ease, he will have to divide £397 by 30,000. The result is 3.18d. The provision for depreciation has already been assessed at 2.60d. per mile, and there is only one item outstanding--maintenance.
recommend the figures given in "The Commercial Motor" Tables of Operating Costs, which amount to 2d. per mile.
The sum of the foregoing five amounts is 12.53d.; that is the running cost per mile. The profit margin of 20 per cent. must be added to this, as well as to the standing charge. It is 2id., and makes the charge for mileage Is. 3d.
A vehicle of this type will most likely be engaged fairly regularly on trunk services, covering, say, 840 miles per week. The fixed charges amount to £28 16s., and the rate for mileage, is. 3d. per mile for 840 miles per week, comes to £52 10s. The rate is, therefore, approximately £81.
The same method may be applied in respect of any weekly mileage. An the operator has to appreciate is that the revenue he should get is the sum of the time charge
and the mileage charge. S. T. R.