Rising Costs Continue
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1961 Brought Many Additions to Hauliers Expenses which Became Harder to Recoup Because of More Competitive Trading
IN the first article of this series for 1962 it is appropriate to review increases in the cost of operating commercial vehicles during the past year. As the official dates of implementation of the previous and current Road Haulage Wages Orders are December 19, 1960, and January I, 1962, it is convenient to make the actual comparison as between these two dates, namely a period of approximately 54 weeks.
In accordance with the practice adopted in The Commercial Motor Tables of Operating Costs and in this series of articles, operating costs can be divided into the two groups of standing costs and running costs. Both of these groups contain five items of expenditure. Standing costs consist of expenditure incurred in licences, wages, rent and rates, insurance and interest. Similarly, the five items which go to make up running costs are fuel, lubricants, tyres, maintenance and depreciation.
The reason for the division as between standing and running costs is that the former are expenses which have to be met throughout the period the vehicle is in the operator's possession, regardless of whether it is in use or not. Running costs, however, are incurred only when the vehicle is operating and, in consequence, with limited exception, vary directly in relation to mileage, assuming similar operational conditions.
As their name implies, all these 10 items of operating costs can be directly identified as expenditure incurred in the operation of individual vehicles. There are also expenses which cannot be. so identified, but which nevertheless add up to a substantial total overall and which the haulier has to meet. These are commonly referred to as overhead or establishment costs and, according to the size of the undertaking, can idclude a wide range of expenditure. This can be grouped under the headings of management, office, garage and stores, warehouse, branch depots, sales and publicity, professional services and auxiliary fleet where operated.
TO the total of operating and establishment costs, there has to be added the haulier's profit margin before a charge can be submitted to his customer. In this context it should be borne in mind that the emphasis here is on the word " margin " which is an essential element of cost to cover the risk inevitable in running a private enterprise, in contrast to the comparative security of paid employment in which the haulier might otherwise be engaged.
Having briefly described the basis on which' operating costs and charges can be compiled, a review can now be made of the changes which have taken place since December 19, 1960, and which affect many of the items of a haulier's expenditure.
The first item of standing costs—licensing—was increased by 20 per cent. as a result of the Budget on April 17, 1961, when many excise licence duties were increased.
As stated earlier, there have also been changes in the wages paid to road haulage workers. As compared with the rates of pay laid down by the Road Haulage Wages Regulations R.H. (70), which were effective as from December 19, 1960, the new Regulations R.H. (72), which officially came into force on Monday this week, represent a basic increase of three per cent. Additionally there are further increases deriving from a reduction in the basic working week from 44 to 42 hours, which the haulier has to meet. Because overtime is generally worked throughout the haulage industry this decrease in the basic working week has a cash value to drivers of double the basic increase and, on average, the gross weekly wage could be expected to rise by approximately LI 5s. dependent upon the area grade and tonnage group.
Previously it has been standard practice in this series of articles, and when compiling The Commercial Moto). Tables nf (-4/ Operating Costs, to make use of the amount paid for a weekly rate when calculating the cost of wages to the But for the purpose of this particular comparison this would no longer be valid in the great majority of ea: is because, in practice, the actual working week is u. be reduced to 42 hours. Alternatively, if, in theory, ; ing week were reduced from 44 to 42 hours then done by the vehicle in a comparable period must be correspondingly, the real cost per unit collected and increased. Moreover, because terminal times wonl. case largely remain static, this two-hour reduction fact, have to.bemade on the actual running time. I be evaluated.at 50 miles per week. Consequently, if ti averaged 400 miles a week in December, 1960, then th now would be 350, with a corresponding reductio amount of useful work done and revenue thereby obi It is common knowledge, however, that even in E 1960, when the basic hours were 44, the working we( practice seldom limited to this total, so that it is s unlikely that it will now be limited to 42 hours. Ude for the purpose of this comparison, any attempt to an average overtime working must be largely suppos it is with this reservation that, in addition to a strai parison based on the minimum working week, t comparison based on a 55-hour week is cons realistic compromise.
The selection of a 55-hour week can be considered two purposes in this context. In connection with the in the speed limit from 20 m.p.h. to 30 m.p.h. fa commercial vehicles, British Road Services made an a to reduce the 11-hour day as permitted by law to : As a result, a 55-hour week could be considered t( such working days with the addition of a Saturday Alternatively, the private enterprise haulier may arri. same figure when his drivers work five 11-hour days.
THE actual amount of wages paid to drivers is not, the only expenditure incurred by the employer under : ing of "wages." He has also to meet National 1 contributions and since December, 1960, these hi increased with the introduction of the Graduated Scheme in April, 1961. Although contributions u former Workmen's Compensation Act are no longer r prudent operators continue to pay contributions to employers' voluntary liability insurance, Additionally, has also to be made for the expense of holidays witt
Rent and rates incurred in respect of garaging co vehicles is an item of operating costs which can v stantially, dependent upon whether individual operati their vehicles in the open overnight even when at th base or alternatively consider the expense of a garage But when a garage is provided, the successive si insidious increases in the amount of rates levied corn could be pertinently added, although no account will of this factor in this particular comparison, that this cost in many estimates has been allowed to becom unrealistic in relation to current land and pronerts Thus in a recent estimate for a garage and ware] London the suggested rental would have been at th( 12s. 6d. per square foot, exclusive of rates—the e. of around £10 per square yard per annum, inclusive Regarding vehicle insurance much greater attentior being paid to the accident record of individual opera in consequence the amount of premium paid will van irigly. An overall increase of around 20 per cent. was, towards the end of 1960 and regard has been paid ills comparison of operating costs.
In capital outlay is another item of standing costs ; reassessing, with subsequent appropriate additions, )f the Chancellor's policy of a credit squeeze. Prehis series and in "The Tables," a rate of interest nt. was allowed with the reservation that this was tominal and somewhat arbitrary.
. it is the Chancellor's avowed policy to make the of finance more restrictive, if not more difficult, tment must be made to allow for the effect of this us item of operating costs. Accordingly, instead of rate of 3 per cent. previously allowed, it can now that it is more realistic to make this rate correspond ink Rate. Like many other factors affecting costs em is no longer stable for any length of time and in fact been seven changes in the Bank Rate during atwith a maximum variation from 5 to 7 per cent. of 6 per cent, is therefore chosen as representative .c interest charge.
itent with the increases imposed on hauliers' costs af the main Budget in April last year, the Chancellor le cost of fuel as a result of the 10 per cent. increase the "Little Budget" of July 25, 1961. Threepence was then added to the tax on petrol and derv. comparatively minor item of operating costs, the bricating oils has also increased by approximately t. The item of tyre costs is unique in that there nominal decrease of six per cent, in the price Of tyres as from October. 2, 1961. I purposely said ' because in many cases this decrease has been largely ry a corresponding reduction in the amount of dis,ted to trade and commercial users. Since, however, ice is made throughout this series of articles or es," for the effect of any discounts which might be by individual operators either on vehicles or any Lies, it is not proposed to make an exception here. lly, the decrease of silt per cent. in the cost of tyres iwed.
ince costs consist of expenditure on materials and which the latter forms the greater proportion. ii the cost of spare parts have been comparatively can be ignored, but there has been at least one the scale of wage rates applicable to garage staff, tese are not universal as in the case with road haulage total, an increase of approximately 7+ per cent, is r in maintenance costs.
tion costs are basically dependent on the initial price ck, the estimated life of the vehicle and the ultimate due. Whilst there are inevitably some changes or ; in the price of new vehicles and new values, there no overall trends to justify a change in this item of :osts.
ct of these several changes will now be applied to
f operating a 5-tonner, fitted with oil engine, 400 week as at December 19, 1960, compared wii this year.
g the unladen weight of this vehicle is 2 tons 17 cwt. the annual licence duty payable in December, 1960, would be £35, the equivalent of 14s. per week. This latter calculation, as with all other standing costs, has been made on the basis of a 50-week year to allow for two weeks when the vehicle may be off the road either for major overhaul or driver's holidays. Due to the increase of 20 per cent. on licence duties announced in the April Budget, the corresponding amounts on January 1 this year are £42 per annum and 16s. 10d. per week. (Incidentally, for the purpose of this comparison the item of "Licences" in this instance does not include the proportion of carrier's licence fees as shown in the current edition of "The Tables.") Assuming the vehicle is based in a Grade I area, the cost of wages for the former basic working-week of 44 hours, inclusive of insurance contributions and allowance for holidays with pay, was £9 14s. 8d. as on December 19, 1960, i.e. R.H. (70), rising to £10 Os. 6d. with the advent of R.H. (72) for a 42-hour week.
Rent and rates in respect of garaging the vehicle were set at 10s. 9d. in 1960 and have now increased to Ils. 10d. The annual premium payable for comprehensive insurance cover, assuming A-licence operation, for this 5-tonner would be around £84 10s. in 1960 (El 13s. 9d. per week). This has now 'increased to £101 8s. per annum, or £2 Os. 5d. per week,
Interest charged at the nominal rate of 3 per cent, on the initial outlay of £1,200 adds 14s. 5d. to the standing costs in 1960. With the increased rate of 6 per cent, this amount is now double at 11 8s. 10d, per week. The total for these five items of standing costs in 1960 was therefore £13 7s. 7d. per week as compared with £14 18s. 5d. on January 1 this year. This is an increase of £1 10s. 10d. per week, or 11.52 per cent.
The rate of fuel consumption is assessed at 18 m.p.g. It is also assumed, in both cases, that fuel is purchased in bulk and that no price changes have taken place other than the increase of 3d. per gallon in the fuel tax. Therefore, with a price per gallon of 3s. 10-1-d. in December, 1960, the fuel cost per mile was 2.60d. Correspondingly, with a price per gallon of 4s. lid. now applying, the fuel cost per mile became 2.76d. on January 1 this year. The slight increase in the cost of lubricating oil is shown in the respective costs per mile of 0.24d, and 0.26d. in 1960 and 1,962.
The only decrease in any of the 10 items of operating costs is reflected in the tyre cost per mile of 1.28d. in 1960, which is reduced to 1.20d. in 1962. The overall increase of 74-per cent, in maintenance costs gives figures of 2.03d. per mile in 1960 and 2.18d. per mile in 1962. Depreciation remains the same at 1.71d. per mile in both cases.
The total for the five items of running costs for 1960 was 7,86d, per mile or £13 2s. per week, assuming 400 miles were averaged. By 1962 this has risen to 8.11d. per mile or £13 10s. 4d. per week-an increase of 3.18 per cent.
The addition of the standing and running costs gives a total operating cost of £26 9s. 7d. per week in 1960 compared with £28 8s. 9d. on January 1 this year. This is an addition of El 19s. 2d. per week, or an equivalent overall increase of 7.40 per cent.
Next week a corresponding comparison will be made in respect of a 10-ton articulated vehicle averaging 800 miles per
55-hour week. S.B.