RATES—the Devil and the Deep Blue Sea
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Charges Scheduled Too High Encourage Cutting by Operators Whose Overheads are Modest, Particularly Owner-drivers, Whilst, if They are Too Low, They will Yield the Majority of Hauliers Little or No Profit : "The Commercial Motor„ costs Expert Finds
a Parallel to this Situation
ASITUATION arose the other day which seemed so much in parallel with dealing with haulage rates that I feel I must put it down here so that readers may sec the moral and take advantage accordingly.
A young friend of mine has recently set up in business for himself. Part of his business is the sale of domestic appliances. At my house the other day the talk turned on the sale of one of these appliances, in the purchase of which I showed a passing interest. ” Let me sell you one," my young friend urged, " I will let you have 10 per cent. off." "Certainly not," I replied. "The last thing I would do would be to rob you of one penny of your legitimate profit."
"Don't be absurd," he said. "I have sold four of these things already and all of them at 10 per cent. off the list price."
"More fool you," I replied. "What on earth makes you give money away like that? '.
"I'm not giving money away at all," he said. "On the contrary, I have made £6 profit from the sale of those four, £6 that I should not have made otherwise, for not one of them would have been sold at the full price."
I didn't buy, but my reason had nothing to do with price. I did, however, start to think about the problem involved, for it seemed to me that there was something there closely related to the way in which haulage rates are treated.
First of all, there is, of course, a fallacy in my young friend's belief that he would not have sold one of these utensils if he had not, cut the price. With a little better salesmanship he might very well have sold those four at the full list price and made his full £2 10s. profit on each, £10 in all, instead of the £6 which was all he got. He didn't accept that when I put it up to him, and I did not press the point. After all, in stressing it I was practically telling him he was a rotten salesman. which he was not.
Excessive Commission?
The alternative -conclusion is that the item itself is too dear and part of that dearness is due to the excessive commission allowed 25 per cent. on the list price. If that commission were cut to 15 per cent, my friend would be much less eager to give away that 10 per. cent., as it would leave him with a profit of only 10s.
In passing, it is worth while to note that, in his circumstances, his overheads are considerably less than those of a man in a bigger way of business so that the latter would not be anything like so prone to cut list prices. My young friend, too, in his inexperience, has probably not yet sized up his costs: he is not making such provision as he should for his expenditure in and about his store.
Moreover, he is most likely to have lost sight of the fact that he must pay himself a wage before he can claim to be making a profit. With all those things taken into aecount,, the folly of chucking away a pound or so in every 10 might not be so difficult to see.
My young friend was the equivalent to the owner-driver, who will not believe that he is subject to any sort of establishment costs and pays no driver's wages. Alterna D24 lively he pays himself a driver's wages, probably below the statutory amount, and makes no provision beyond that, being of opinion that the wage he pays himself is all that he needs, Beyond that is the point that the rates recommended by an assessment party arc too high and leave too large a margin for cutting, at least to the extent of making the small man feel that he is far better running 400 miles per. week at 10 per cent. off, than 150 miles at the recommended rate.
That sort of thing puts the Road Haulage Association and the clearing house conference between the devil and the deep blue sea. Either they suggest rates schedules which arc too high, and thus make rate-cutting easy, or they put them too low and incur the odium of their members. It is not, perhaps, so strange after all, that the owner-driver is so unpopular among his fellow hauliers.
The Right Vehicle
The problem of selecting the right vehicle for the job is always with us. It cropped up again this week in a manner which lent itself to an easy and yet general answer, and nicely demonstrated the axiom that the larger the vehicle the greater the economy.
The inquirer was operating as a C-licensee. He was carrying machinery over a 110-mile lead, two, sometimes three, lots of 14 tons each per week each way. At the time of writing to me he was using 5and 7-tonners. He had been wondering if he would be better advised to use a larger vehicle and do the journey and carry the 14 tons in one. He wanted to know what size, type and make of vehicle I would recommend. I gathered that he was using petrolengine( vehicles.
In my reply I first stated two underlying principles: that the larger the e h ide the more economical the operation, and that any type of vehicle these days should preferably be oil and not petrol driven. I then proceded to demonstrate the truth of those two fundamentals.
For the sake of simplicity I decided to ignore the fact that there were sometimes three journeys per week. If the vehicle I selected was more economical when doing only two journeys per week it would certainly be so if three journeys were run.
First our basic data. The weekly mileage for each vehicle was 440—two journeys of 110 miles each way. To carry 14 tons twice per week, 28 tons per week in all, three 5-tormers would be required, two 7-tonners but only one 14-tonner.
Let me deal first with the question of petrol or oil. It will be necessary to consider only the 5-loaner, as if the proof is established in the case of the smallest vehicle it can certainly be taken for granted in respect of the larger ones.
Here are the figures for the cost of operation of the 5-ton petrol-engined machine. They are taken from "The Commercial Motor Tables of Operating Costs,' brought up to date where any alteration has taken place since the current issue was printed.
Standing charges (per week): tax, I2s.; wages, £7; rent and rates, 9s. 6d.; insurance, Ss.; interest, I Is. 6d.; total, £9 Is. Add £2 per week for administrative expenses; total of fixed charges, Lit Is. per week.
Running costs in pence per mile: fuel, 4.50; lubricants, 0l8; tyres, 1.20; maintenance, 2.06; depreciation, 2.00; total, 9.94d., say 10d. per mile. The cost per week, assuming two journeys of 220 miles, 440 in all, is thus £11 is. for fixed costs plus 440 times 10d. which is £18 6s. 8d. The total is thus £29 7s. 8d. To carry the week's traffic of 28 tons each way three such vehicles will be required and the total cost may be stated to be £90.
Now for the oil-engined machine. Again I use the Tables. Standing charges: the same as above except for the item interest, which is now 17s. instead of I Is. 6d. That adds 5s. 6d. to the total of the fixed charges which, for the oiler, are £11 6s. 6d.
Running Costs
Running costs in pence per mile: fuel, 2.25; lubricants, 0.18; tyres, 1.20; maintenance, 1.72; depreciation, 2.40; total, 7.75-71d. per mile. The cost per week for the oiler is thus Ell 6s, 6d. for fixed costs plus 440 times 71d. which is £14 4s. 2d. The grand total is £25 10s. 8d., and for three vehicles £76 12s., as against the £90 for the petrol-engined vehicles.
I think that settles the question: petrol or oil? A direct saving of £13 8s, per week cannot be passed by. Now to consider the costs of the other two sizes of vehicle, oil-engined in both cases. First, the 7-tonner.
Standing charges (per week): tax, £1 8s.; wages, £7 4s. 6d.; rent and rates, 10s. 6d.; insurance, 8s. 6d.; interest, £1 15s.; total, £11 6s. 6d. Add £2 10s. per week for overheads, and the total of fixed charges per week is seen to be £13 16s, 6d.
Running costs in pence per mile: fuel, 3.30; lubricants, 0.18; tyres, 1.90; maintenance, 2.0; depreciation, 3.0. Total, 10.38d. per mile. For 440 miles that is equivalent to £19 Os, 7d.; and the total cost per week is £32 17s. Id. Two such vehicles are required to carry the tonnage, which means that the total cost is £65 14s. 2d., compared with the £76 12s. of the 5-tonners.
14-tonner's Figures
Finally, the 14-tonner. The operating costs of this size vehicle are likely to be about these figures. Standing charges (per week): tax, £2 4s.; wages, £8 2s.; rent and rates, 13s.; insurance, £1 2s. 6d.; interest, £2 10s.; total, £14 I Is. 6d. Add £3 10s. for administrative expenditure; total of fixed costs, £18 Is. 6d. Running costs in pence per mile: fuel, 4.74; lubricants, 0.25; tyres, 2.90; maintenance, 2.66; depreciation, 4.20; total, 141d. per mile. The total per week, for 440 miles, is £27 Os. 10d. The total operating cost per week is £45 2s. 4d.
The haulier reader should bear in mind that these figures were got out at the request of a C-licensee, which accounts for the small allowance for establishment costs, which, indeed, are intended to cover subsistence allowances in addition to the expense involved in clerical work which should call for no more than a few hours per week of one of the clerks already employed.
The inquirer asked me to advise in the selection of the vehicle. I have indicated the size, a 14-tonner, oil-engined. There is little more that I can do, for, as many correspondents know, I do not, either in these articles or in answers to correspondents, differentiate between one make and another.
As a matter of interest, this case_ of haulage is one of the few in connection with which it is practicable and useful to make use of the term "ton-mile." It is so because the vehicles to which reference is made are all fully loaded all the time they are running.
The petrol-engined 5-tonner runs 220 miles per journey carrying a full load of 5 tons, so that the ton-mileage is five times 220, which is 1,100. The cost per round journey is £30, so that the cost per ton-mile is 6.54d.
The oil-engined 5-tonner completes the same ton-mileage per journey, i.e. 1,100, but the total cost per journey is only £25 10s. On that basis the cost per ton-mile is 5.56d.
In the case of the 7-tonner, the figures are: ton-miles per trip, 1,540; cost, £32 17s. Cost per ton-mile, 5.12d. The 14-tonner does 3,080 ton-miles for a cost of just over £45 and the cost per ton-mile is 3,05d.
In a case such as this the ton-mileage figures show the comparative merits of the various vehicles better than any other way.
10s. Per Ton
Another inquiry of interest this week relates to a commodity which might be coal, fertilizers, grain, seeds or anything of that kind. The inquirer, a north-country merchant, distributes about 70 tons per week of this particular commodity, which I must not name lest I cause trouble in his area. At present the railways are distributing the stuff at a charge of 10s. per ton, so that his transport bill amounts to £35 per week.
He writes to ask if the haulage could be carried out more economically and expeditiously by road. The answer, which is conveyed in the figures which follow, is distinctly in the affirmative. He has in mind, for reasons not stated, a 5-ton petrol lorry, and although this is not, perhaps, the most suitable machine for the task, I must commence by taking out the figures for cost, assuming that that is the vehicle used. I can take the figures for the operating cost of the 5-tonner quoted above as being applicable to this case also. They work out as being £11 Is. per week for fixed costs and 10d. per mile running costs To carry 70 tons per week will involve the 5-tonner in 14 journeys during the same period. The distance being 12 miles each way, 24 miles per round trip amounts to 336 miles per week. At 10d. per mile that is equivalent to £14 per week for running costs. The total operating cost is the sum of the running costs and the standing charges, £14 and £11 Is., total £25 Is., so that by using his own vehicle in this way the merchant can save very nearly £10 per week or about 3s. per ton.
Direct Deliveries
In addition to the economy thus shown, there will be considerable saving, no doubt as the result of the deliveries being made direct by the lorry either to the customer or into my correspondent's depot instead of, as is likely to he the case with rail transport, his having to collect from the siding or pay the cost of carriage from the siding to his depot These are savings in actual expenditure. There are, of course, other advantages deriving from the use of road transport, such as prompt delivery, exact knowledge of the whereabouts of. each consignment, and control of the selection of the material.
To complete the investigation of this particular problem. I should calculate the further saving if this operator were to use an off-engined vehicle instead of the 5-ton petrolengined machine. Taking the figures from above, the fixed costs per week were shown to be £11 6s. 6d. per week and the running costs 71d. per mile or £10 17s. for 336 miles. The total cost is thus £22 Ss. 6d., compared with the £25 Is. of the petrol vehicle.
Actually, I put this point before him at the time I dealt with his inquiry, suggesting that he had his petrol-engined lorry converted. His reply was to the effect that there was plenty of life left in the old bus and that he would consider the conversion when the present engine needed replacing.
Now that is an example of economics gone mad. There are very good and substantial reasons why, if he is going to have the conversion carried out, he should have it done as soon as possible. I shall deal with this matter next week and show him, and others who have the same idea, the extent of their folly. S.T.R.