What the M.M.B.
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Should Pay
Invaluable Information for Milk Hauliers is Given in This Article, Which Sets Out Reasonable Charges for Their Class of Work
, F .eeins, from letters 1 receive, that this is the time of
year when the Milk Marketing Board sets Out on its annual crusade against small milk hauliers to cut rates. One such letter is _ot 'general interest inasmuch as the Operator providesme with specific figures for costs of Operation which serve as" a basis for my own calculations an which he can'"base -the rate he ought to claim from the Board. I will give the figures and details of the calculations
I have made on his figures scithat other-Operators, by following my method, may. arrive at conclusions applicable
tii their own particular conditiOns. •
" My Correspondent has seven vehicles in all, of which six 4,re. regularly and solely engaged in milk haulage seven days per. week. The seventh vehicle is available as a stand-by. There are seven drivers employed in thiswork, taking their days of rest consecutively, so' that each driver works six days per week. •That is important from the point of view of the assessment of this .Operator's expenditure on wages.
One vehicle Is "a .7-ton oiler bought for £1,500. The second is a .6-ton oiler which cost £1,100,the third a 6-ton
petrol machine which also cost £1,100. The others arc all 5-tonners and cost £600 each. .
The 7-tonner is equipped with 900 by 20 tyres front and rear, the latter being twins. The 6-tonners have 34 by 7 tyres on the front wheels and 36 by 8 twins on the rear. The 5-tonners are all alike in their tyre equipment, having 34 by 7 tyres all round.
• Next the operator gives me details of the daily mileage, fuel consumption and the amount of the insurance premiums paid. Theseare as follows: • He tells me that he pays Is. 9d. per gallon for his petrol and is. 7,1-d. per gallon for his oil fuel, both being purchased in bulk. He has a stone-built garage, large enough to house four of the vehicles; the other three have to stand in the 'o p e n . There is an insurance policy covering the garage against fire risk up to £1,000 of damage, and each vehicle carries a goods-in-transit insurance .policy covering the risk of loss or damage up to £100. on each vehicle. .He pays his drivers £5 10s. per week net wage each, which is a few shillings over the legal. figure.
This operator is almost unique amongst my inquirers inasmuch as he actually gives me some information as to his establishment costs. First of all, he says that a 10 h.p. car is in constant-use-in connection with the business, which I can well believe. He states that telephone charges average approximately no per annum. He mentions expenditure on heating and lighting, and states that his accountancy charges total £17 17s. per annum.
He admits he has no records of what he spends on postage, stationery or travellingexpenses, but does tell me that his brother and himself, who are partners in this business, carry out general repairs to the vehicles, with the exception of major overhauls and repairs to electrical equipment; they -also, of course, manage the business.
For the year ending July, 1949, the gallonage of milk carried totalled 1,376,506. The rate paid was 1.275d. per gallon, giving a revenue of £7,313 8s. 2d. He is now being offered a rate of 1.15d. which, on the same gallonage, will bring in a revenue of only £6,645 15s. 1d. I have gone carefully into the cost of operation of these vehicles and, assuming a clear profit of 15 per cent, on cost, a fair rate per gallon should be 1.426d., the actual cost being 1.24d.
Now I will set out the figures to justify my claim that a rate of 1.426d. per gallon is fair. Table gives details of the cost of operation of each of the four types of vehicle concerned, the 5-tonner, the' 64onner petrol, the 6•-ton oiler, and the 7-ton• oiler. • • I have calculated first a basic figure for the assessment of depreciation, taking the usual procediire of first debiting the cost of the set of tyres and then the assumed residual value of the vehicle on its disposal.
Turning now to the -standing charges per annum. I need not enter into any explanation of the amounts quoted under the item "Licences," but the wages per vehicle are calculated as follows: First, the net amount of £5 10s, per week plus 4s. 2d. for National Insurance, giving me £5 I4s. 2d. To that I add one-sixth of that sum to allow for the fact that there are seven drivers amongstsix vehicles in operation, that is 19s., so, that 1 now have £6 13s. There is a total allowance of holiday pay equivalent to three weeks of wages per man per annum, and that is equivalent to 7s. per week. The total amount of wages to be debited to each vehicle is thus £7 per week, which is £364 per annum..
For garage rent I have taken a nominal amount of £12 per annum.
Looking at the insurance figure's quoted by this inquirer, there is a curious discrepancy as between the fourth vehicle,
5-tonner, for the premium charged is £55, and the others, numbers five, six and •seven, also 5-tonners, which are debited withaanly £.37 each. There is, hOwever, no indication in the letter as to the reason why vehicle number four has to bear the increased premium, and I have, `therefore, in arriving at the £43 which I have set down for "insurance under • the heading of the 5-tonner, averaged the four sums of £55, £37, £37 and £37..I have deliberately omitted the item "Interest". from the standing charges, although I do not -in any way depart from my view that this is an essential item to be included in the operating costs of any commercial vehicle. I do know, however, that the Milk Marketing Board and its accountants are so opposed to that point of view that they will not even entertain the idea of including it.
Now I come to another item which is likely to be subject lo controversy, so far as the Milk Marketing Board is concerned, and that is the establishment costs or overheads.
This is how I have arrived at the figures quoted: First of all, I take into account the fact that this operator is bound by the conditions of operation to keep a spare vehicle always ready for use. The operator is justified in debiting a certain amount for obsolescence as applying to that vehicle, and I take £80 per annum for that. He has to pay tax on it, which is £35, and he has to pay insurance, £37. I make no provision for rent because I am taking it for granted that the amounts I have already set down will cover that item. The total of establishment costs involved in keeping this spare vehicle is thus £152 per annum.
Running a Car
For travelling expenses I .take £150. It is practically
impossible to run a car for less than that amount, quite apart from othet travelling expenses which may be involved. For lighting and heating I take £18, telephone charges £20, goods-in-transit • insurances" £10, general insurances £40, postages and stationery £5, audit £18, management (allowing £350 each for the two operators) £700, and sundries £37. The total is £1,150 per annum.
The total payload tonnage of the six vehicles is 34, which means that the amount of establishment charges to be debited per ton of payload is £34 per annum. Multiplying £34 by five for the 5-tanner, I obtain £170. For the 6-tonners I have £204 each and for the 7-tonner £238. Those are the amounts set down in Table I.
That accounts for all the fixed charges involved in the operation of these six vehicles; plus one spare vehicle. Now for the running costs: The essential information for the estimation of the fuel costs per mile has already been given. For example, the petrol-engined 5-tonners consume 9 m.p.g. at Is. 9d. per gallon, which gives 2,34d. per mile. The (-ton oiler does 14 m.p.g. on fuel oil at Is. 7id., which is 1.4d.,and the 7-tonner does 15 m.p.g. on fuel oil, which
13d. I have given these calculations for fuel teat any reader should query the 'apparent anomaly Maui-inch as the cost per Mile for fuel on the 7-tonrier is only 1.3d. as against
1.4d. on the 6-tonner.
I should like to emphasize this point, too, as confirming what I have so often mentioned, that average figures such as those given in "The Commetcial Motor" Tables of Operating Costs are always subject to correction according to the actual experience of users. In the tables, the average figure for fuel cOst of a "7-8-ton oiler. is quoted as I.55d. and that for a 6-tonner at 1.12d, In this case the ratio between the two is reversed.
For oil consamption the operator gives me no figures; in fact, he says "please tiSe your discretion as, we have no records." I have therefore quoted figures from the "Tables."
The next curious feature about these figures for running costs is that the tyre cost per mile is given as the same for all four vehicles, and it seems to me that it might be as well for me to justify that conclusion.
First as to the 7-Loaner. I have assumed 30.000 miles per set, which Cost £110, as has already been stated That, as the reader can easily verify, is equivalent to 0.88d. per mile. The tyres on the 6-tonners also cost £110, and I have assumed the same life, which gives. me the same cost per mile. For the 5,tonner with a tyre cost of £90 and an anticipated , mileage of 25,000, the figure per mile still comes out at 0.88d. For maintenance I have taken the figures from the Tables. .Depreciation has been calculated on the assumption that the 5-tonners.are good for 100,000 miles, the 6-tanners 180,000 miles, and the 7-tonners 240,000.
I assume that I need not go into detail in explanation of the figures in Table IT. They are calculated from the data given in Table I and should,
think, be self-explanatory: . "V " The' outstanding .difference between
• the ':"method of assessing rates, as practised by the Milk Marketing Board and the logical, and reasonable method described above, is in respect of establishment costs and profit. It is the habit of the Board to take lid. per, mile run as -being sufficient to cover both of these items. How absurd that is can easily be appreciated by a brief study of the figures in Table II.
Profit Reasonable
• The net profit is calcalated as being 15 pet: cent, of the operator's expenditure. The total is no' more than £1,066. Surely no one will suggest that that is excessive in relation to the operation of seven vehicles on the 'arduous duty of collecting and delivering milk. That' view' is emphasized when it is realized that £450 of that will have to be paid as Income Tax. Yet that amount is equivalent, as is stated at the bottom of the table, to I.95d. per mile profit only. The Milk Marketing Board offer lid. per mile to cover both establishment costs and profit l A difference of nearly • id. a mile.
In order .to demonstrate more precisely what this means, I have drawn up Table III, in which I have set down what the Milk Marketing Board allowance would be for standing charges and profit per 'anninn,-adding that to the running costs per annum and so obtaining the figures for the final column, which gives the revenue per annum: The total is only £6,779 9s. 9d., which compares with actual cost shown in Table II of £7,108 9s. 9d.
If, therefore. the haulier be expected to be content with what is offered by the Milk Marketing Board he would lose £329; per annum. These figures are sign:ficant inasmuch as they show what the small haulier is up against when he endeavours to get a square deal from the Milk Marketing Board.