Practical Example Df Milk Haulage Rates
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Some Practical Exam" pies Showing Difficulties which Arise When, as is so often the case, a Buyer Arranges a Flat Rate Per Gallon to Cover a Large Area of Collection
• • and Delivery
LAST week's article on this subject dealt with a practical and logical method of arriving at fair rates for the haulage of milk. Figures were given, calculated on the basis of 'The Commercial Motor" Tables of Operating Costs, with reasonable allowances for establishment costs and provision for what must be admitted is a minimum
• profit of 15 per cent, on total costs.
I contend that the basis for the assessment of milk haulage rates must be gallonage per mile. It is reasonably easy to arrive at an operator's total costs per mile, to agree upon a'fair profit and thus assess what his revenue should be per mile. That revenue, divided by the gallonage per mile, calculated as an avePage figuae throughout the year, shows what the price per gallon should be.
The object of the article, however, was not so much a dogmatic stipulation of what rates should be, but to indicate the method, so that in any particular case an operator, by substituting his own figures for costs and for profit which he hoped to earn, could arrive at the rate per gallon he should be paid.
• It is A interest now to deal with some practical examples and, in the first place, to apply the method of the previous article to the conditions which prevail in these cases.
When the Distance Covered Is 300 to 350 Mlles per Week In the first instance, a group of operators was collecting milk within a radius which involved mileages of from 300 to 350 per week. The average gallonage was 3,010. The vehicles were all in a Grade I area.
At the lower scale of mileages, 300 nr.p.w., the gallonage per mile is, as near as makes no matter, 10. According to the figures in Table III of the previous article the revenue per mile should be 16.32d., so that a fair rate per gallon would be 1.63d.. or, to conform more closely with usual practice, ltd. per mile.
Those operating at the maximum mileage-350-were collecting an average of only 8.6 gallons per mile. The revenue for 400 m.p.w., according to Table III, should be I.4.04d. and for 300 m.p.w. 18.32d., and it is reasonable to take the mean of those two „for the earnings which should agree for 350 m.p.w., that is 15.18d. On that basis, the rate per gallon should be 1.76d., or led. • The next set of operators collected in an area which involved an average weekly mileage of 400 to 450. The total average gallonage per week was 3,605.
Taking first the minimum weekly mileage of 400, the gallonage per mile is 9. The revenue„ according to . Table III, should be 14.04d., so that the rate per gallon should be 1.56d., say lid. per mile.
For the maximum, mileage, 450 per week, the gallonage per mile is 8, the revenue-the average of 14.04th per mile 4..ta for 400 m.p.w. and 12.56d. for 500 m.p.w.-is 13.35d. per mile. To earn that revenue, on the basis of 8 gallons per mile, the rate should be 1.67d., or Id. per mile.
The last group of operators, on the outer perimeter of the zone from which this milk was being collected, had to cover 700 m.p.w. for an average -total gallonage per week of 3,990, which is equivalent to 5.7 gallons per mile. The revenue per mile, calculated on' the basis of the figures in Tables I and H of the previous article for 700 m.p.w., should be 10.32d.aso that in this case the rate per gallon should be at least 1.8d., which is 11-ed. per mile.
Now, in actual fact, the rate paid was lid. per gallon, so that in all cases but one-that of the fortunate operator collecting Within a radius which involved him in 400 m.p.w. during which time he collected 3,605 gallons-the revenue was insufficient to afford the minimum 15 per cent, profit, that is if the figures given in the previous article can be taken to apply.
Actually, I have the true operating costs of these vehicles. They are shown in TableVI. In Table VII are given the figures for minimum weekly revenue calculated according to the method of the previous article, except that the profit to be earned is stipulated at a flat rate of £4 per week per vehicle. As this amount is greater than would be shown by 15 per cent, on costs it follows, as is demonstrated by the figures in Table VII, that the rate per gallon is samewhat higher than that set out above.
What Rates Should Be to Earn the Right Profit If the reader will 'refer to Table IV of the previous article he 'will note that the maximum weekly profit, in a Grade I
area, was shown as £3.15s. 2d. per week ,and that for a 300-mile week, the amount stipulated for profit was only £2 12s. 2d.
However, that £4 per week profit was agreed and the figures given in the bottom line of Table VII show what the rates should -have been to earn that amount of profit. As the rate paid was only lid. per gallon it is clear that in no case is an operator 'able to earn £4 per week as the result of his work.
A more accurate comparison of earnings in relation to expenditure. showing how far short these earnings are of providing for a minimum profit of £4 per week, is set out 'below. First, with regard to the inner zone. Operators collecting therein may run from 300 to 350 m.p.w. and collect an average of 3,010 gallons in that period. At lid. per gallon the gross revenue is £18 16s. Sd. According to Table VII the minimum revenue should be £22 4s, 6d. per week, that appaying to the case of a vehicle covering 300 m.p.w. in that zone. Earnings are thus £3 Ss. 3d. short of • what they should be and the snet profit is only 11s. 9d. per week,
In the case of an operator on the outer ring of the zone, his earings per vehicle, according to Table VII, should be £23 9s. 9d., so. that the earnings fall short by £4 13s. 6d. of what they should be and he is running at a loss of 133. 6d. per week. Operators in the middle zone, covering from 400 to 450 m.p.w. with a gallonage of 3,605 for the same period are, as has already been indicated, in a better position. At lid, per mile the revenue is £22 10s. 8d. ,per week. A vehicle running 400 m.p.w. shoulal earn, according to Table VII, £24 Ss. 10d. in that period, which is £1 15s, 2d. per week short, so that there is actually, in that case, a net profit of 22 4s. 10d. per week.
A vehicle covering 450 m.p.w. should earn £25 9s. 3d., so that the shortage in that case is. £2 18s. 7d. per week, although there is still a net profit of £1 Is. 5d.
Those ifs the outer zone covering 700 m.p.w. for a gallonage of 3,990 are worse off. The revenue for that gallonage, at lid. per gallon, is 224 18s. 9d., which is 25 6s. 7d. short of the £30 5s, 4d. which should be earned. These operators must lose 21 6s. 7d. per week.
There is another way of checking the figures, which is of interest. Referring to Table VI; it will be noted that the allowance for establishment costs is 23 per week, and that there is an item of £1 10s, per week for contingencies. This was an amount agreed at the time as being necessary to cover expeacliture likeik to be incurred during a year owing to the need for hiring vehicles, because of breakdowns of those normally em,ployed, or because of the necessity of putting the vehicle normally used into the repair shop for major overhauls. Having in mind present-day difficulties in obtaining spares and getting repairs completed, it will be appreciated that this allowance is not extravagant.
Comparing the Earnings Per Gallon with the Net Figures With this provision of 23 per week for establishment costs, 21 10s. per week for contingencies, and 24 per week for profit, we have a total provision for what might be called gross profit of £8 10s. per week. What I propose to do now is to deduct ,that amount from the figures for total revenue and compare the earnings at lid. per gallon with the net figure which accrues.
In the case of a vehicle covering SOO .m.p.w., which should earn, according to Table VII, 222 is. 6d., the net operating cost is £13 14s. 6d., so that, with a revenue of 218 6s. Sd, (see above) there is left £4 1 ls. 9d. to cover establishment costs, contingencies and net profit. With a mileage of 350 per week the gross revenue should be £23 9s. 9c1., so that after deducting £8 10s., the net operating cost is shown to be 214 98. 9d. If 218 6s. 3d. be earned there is a Sum of no more than 23 6s. 6d. to cover
0 establishment costs, contingencies and net profit.
Neither of the above affords sufficient margin. Now tutn to the middle zone. A vehicle covering 400 m.p.w. should, according to Table VII, earn £24 Ss. 10d. By deducting 28 10s, we arrive at the vehicle operating costs which are 215 15s. 10d. per week. This vehicle, carrying 3,605 gallons per week earns, at lid. per gallon, 222 10s. 8d. There is, therefore, a margin between the vehicle coats and actual revenue of 46 14s. 10d, as gross profit, out of which'must come establishment costs, contingenices and profit.
On the other hand, a -v4hicIe in this zone covering the maximum mileage of 450 per week ought to earn a gross revenue of 225 9s. 3d., which means that the vehicle
operating costs total £16 19s. 3d., and out of the revenue of £22 10s. 8d. there is left a margin of only 25 1 ls. 5c1. for establishment costs, contingencies and profit.
Viinally, the case of the operators on the 700 m.p.w. circuit with a gallonage of 3,990 per week. They should earl], te30 Ss. 4d, per week per vehicle and deducting 48 10s. from that,we get £21 15s. 4d. as the net cost of operating each vehicle. For 3,990 gallons 'at lid. per gallon the revenue is 224 18s. 9d., so that the altogether insufficient amount of £3 3s. 5d, is left to cover establishment costs, contingencies and profit.
According to the above figures it would seem that it should be easy to put up a case for an increase in rates. Unfortunately, as is so often the case, a single example was brought forward by the buyer to refute and condemn the average figures which were produced in support of an appeal for an increase rate.
• One of the operators in the inner zone was fortunate in that his average gallonage per annum was high; he collected 5,642 gallons per week, taking the figures over a year. At lid. per gallon his revenue was thus 235 5s. 3d. per Week. Assuming that all his costs were as set out in Table VI the total, for vehicle-operating costs, establishment charges and contingencies was no more than £18 4s. 6d., so that he was showing a net profit of £17 Os. 9th per week, nearly 100 per cent, on his costs.
In the face of those figures the buyer refused to consider any increase in the rate unless all the operators concerned combined to rationalize their collections, in which case, according to the opinion of this buyer-and he was probably correct-it would be found possible to operate at a fiat rate of lid. per gallon. S.T.R.