Problems of the
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HAULIER and CARRIER
The Much-discussed Item of Overhead Charges and Its Particular Application to the Difficulties of the Contractor
IN the previous article I showed how, whilst it might be folly for the owner of a 5-ton lorry to attempt to carry goods between London and Birmingham at 18s. per ton, a haulier who was operating a 10-tonner or 12-tonner might do so and make a reason, able profit. Incidentally, I showed that in that way it was possible to cut rates and yet be free from blame.
I also pointed out that the foregoing fact was not to be interpreted as meaning that the future of the long-distance haulage industry lay entirely in the hands of the owners of the largest lorries, and I gave some reasons for my statement. I had intended to follow up that argument by quoting an example of the profitable use of quite small vehicles, but lack of space cut short that portion of my argument. The example is, however, germane to the next subject I am going to consider and, for that reason, may well be given here.
Take the case of the owner of a 30-cwt. van. A vehicle of that type can easily complete in a day the double journey between London and Birmingham. allowing a reasonable amount of time for loading and unloading. In the course of the week, therefore, it will cover about 1,200 miles. The running costs of that size of vehicle amount to 2.76ti. per mile, and that, for 1,200 miles, totals £13 18s. The standing charges per week are £4 14s. 6d. so that the operating cost for that period is £18 12s. 6d.
As five round journeys are made per week, assuming, of course, that the vehicle is engaged regularly on that work, it follows that the cost of each is £3 1.45. 6d., that of a single journey being £1 17s. 3d. A rate of 30s. per ton will show a profit of 7s. 9d. per trip, or approximately £3 10s. per week. Manufacturers of fragile articles, such as light furniture, which, as a rule, is available in loads of about 30-cwt. at a time, pay that rate.
There are many hauliers to whom this problem of different rates for different sizes of vehicle is most difficult. It may help them if I put the matter before them in a new way. The difficulty is largely one of overhead charges.
Now one of the most troublesome factors in any business, great or small, is overheads. Everyone who reads the daily papers knows something about the ' subject, for, according to some of our great dailies, it is the one on which the success of all businesses entirely depends. Whenever it is thought necessary to frighten lay readers and to obsess them with the parlous state of the country at large, ominous and not too lucid references are made to the high overhead costs to which modern businesses are subject. These overheads, according to the scribes who are responsible for sounding these alarm signals, are • the principal reasons for the decline of our overseas markets. Most of the readers of these pages will recognize the Symptoms.
Every haulier has overhead costs to meet. They are unavoidable and are not generally in any way to be blamed for any lack of success from which he may be suffering. If There appears to be any difficulty arising therefrom, it is more likely to be due to his own lack of understanding of the matter than to the matter itself. There •is, therefbre, ample justification for my devoting a little extra time and space to the discussion of the subject of overheads in its special application te the business of haulage contracting.
So far as the average haulier is concerned, he has two kinds of overhead charges to consider. There are the standing charges which, as I have 'so often explained, are the expenses involved in running his business as a latiliere as distinct from the operating costs of the 'vehicles, which are the implements by
which that business is carried on. That class: of overheads is the same in every way as those which are part and parcel of every business. The other item of overheads is compriSed in the standing charges involved in vehicle operation.
Four, Main Items.
Now, in every business there are four principal items of accounts to be considered in arriving at the selling price of an article or the charge which must be made for a service. The four items are materials, labour, overheads and profit. If a man be making tin whistles he must first obtain The metal.. Then he must employ men to make the whistles. If he would be op-t0-date and manufacture them as cheaply as possible, he must have machinery. He must have also an office, a sales department, advertisement tlepartinent and several others which I need not enumerate.
The fat that, in a small business, several departments . are com
prised in. one, that the maliager or °week, as the case may be, looks after
the sales and advertisements, whilst a clerk may be in charge of. the cost ing, correspondence, complaints and many other departments, does not alter the principle which I have laid down. Those departments all exist,
. even if only in embryo. This must be made clear.
The cost of that machinery, its repair, .allowance for depreciation and first coet, the expense departments are comprised overheads.
It is often found that, in order to make it practicable to calculate the cost of a tin whistle, it is necessary, to total the overheads and then divide that amount over the whole of the output of. tin whistles during the period for which the total of overheads has' been calculated.
If, for example, the total of overheads for a year is .found to be £1,000 and the output of tin whistles has been 100,000, then the incidence of overheads is equivalent to £1-100 per whistle, say, 21-d. On the other hand, if 200,000 whistles be made in a year, the amount to he debited against each is reduced by half, • being only 11d. per instrument instead of 21d.
Where the cothruodity with which the, factory is concerned is one the cost of which is better reckoned by the 'hour, the overheads are calculated on that basis. In an engineering shop, fer example, or, to bring it a little nearer home, in a repair, shop for motor vehicles, the overheads are calculated on the basis of. the hours of labour. In assessing the price to be charged for a particular job, it is first of all necessary to take into account the cost of the materials . used. Then the hours of labour are, ascertained and the cost is assessed. Next the overheads are added. They may be charged, like the labour, at a fixed sum e40 of the 'Office and all the in the one big item of
per hour, or, as is more common, at a percentage on the labour cost.
Quite a common figure is 100 per cent. on the labour. charge, so that, if the cost of the labour kappened to be, say, 15, a further 15 would be added for the overheads. If the materials cost £2 10s., and it was desired that the job should show a net profit of £2 10s., th,e charge would have to be £15.
Now compare the case of the haulage contractor and let us see how his charges should be worked out, if the same basis be assumed to apply.
First, as to materials, in the haulier's case the materials are, broadly speaking, five in number. They, are enumerated in the running costs as set out in The Commercial Motor Tables of Operating Costs, and this comprise' fuels, lubricants, tyres, maintenance and depredation. Maintenance, as has so often been stated in these columns, is the consumption• of materials not included in the other four items, whilst depreciation is the " consumption " of the vehicle itself. ..
That maintenance may, of itself, include some charges for labour involved in the replacement of parts, in the execution of repairs, or in the washing and cleaning of the vehicle, does not affect the argument. The point is. that they are similar to the materials consumed by the manufacturer of tin" whistles (or brass ones) inasmuch as they relate to expenditure which is only involved by, and in the course of, the execution of work. In the case of the whistle manufacturer the materials of -constructiona re con sumed only while whistles are being made, so, in the case of the fl haulier, the five items. indicated are involved only, when his vehicle is actually run
ning. .
Next we come to the question of labour-and, in doing so, at once encounter a snag. So far as the ordinary haulier—the• man who effigages. a •driver and pays him .a weekly wage—is coricernetl, there is no item labour as is understood in the fora.'
going schedule. It is merged in the' ov'erliads in connection with the operation of his vehicle. Those overheads are tile five standing charges, namely, licences, wages, garage rent, insurance and interest.
In cases where drivers are engaged daily, slight alteration may be necessary to bring the facts into line with the 'general argument, but in most cases drivers are paid a weekly wage.
Totalling the Overhead Expenses.
The haulier's establishment charges come next, these also being overheads. To obtain a grand total of overhead Costs the standing and establishment charges must be added together.
It should now be understood that the haulier's procedure, in calculating the charge that he should make for any particular job, either one in prospect or one which he hag already completed, is as follows :—Take first the cost of materials expended, i.e., the running costs of the vehicle or vehicles employed. Add the overheads, comprising both standing charges and establishment expenses, then the profit. The sum total of those three items will be the charge to make. It may have to be sub-divided in order to resolve it into a charge per mile, per ton-mile, per hour or per day, but that does not 'affect the principle involved.
In a subsequent article I shall show how the -titlesi ion of overheads affects the possibility Of rate-cutting, legitimate and otherwise.