May Tow I Country Rates Differ
If you've noticed an error in this article please click here to report it so we can fix it.
National Scale of Charges Impracticable: Rail Rates Inappropriate as a Basis for Road Haulage'. Costs Favour Country Operator
MY letter box, always a good guide to the topic of the moment, tells me that suggestions are being made that rates in general should be agreed and applied to all traffics in all areas. I do not agree, for it is impracticable to devise a nation-wide schedule so long as there arc such wide divergencies in the costs which hauliers have to meet. Some of those operators who are in favour of a universal scale of rates and charges refer to the railways and say, "The railways can do it, why cannot we?"
The railways can do it because they are not called upon .to do as road hauliers must, that is, work out their rates on a cost plus profit basis. The railways cannot do this because of the difficulty in discovering what their .costs are as regards any particular traffic. Many operators, tired of having to discuss this matter day after day without achieving more than a modicum of agreement, suggest that the whole problem would be solved by charging rail rates and agreeing to let the customer make his choice according to the value of the services rendered for the agreed rate. The traffic would then go according to the suitability of the transport medium—according to the experience of the hirer.
Rail Rates Unsuitable
I am not at all in agreement with that view because, whilst rates for road traffic are largely based on cost plus profit, there is no similar method open to the railways. Rail rates are not so based and there would, therefore, always be disagreement. A rates structure based on cost cannot be made to line up with one founded on some such empyrical method as, "what the traffic will bear."
Another factor which must be taken into account is that the railways carry goods all over the country, so that even if there were a difference in cost of transport as between one part of the country and another, it would not matter. A narrow margin of profit as between one part and another would, in the end, be ironed out because, so far as the railways are concerned, the rate can be assessed on a basis which would provide for the setting of one area against another.
The railways would be satisfied, and the customers would be content, because they would appreciate the fact that there was no discrimination between the treatment awarded to one buyer of transport as against another.
Railway costs do not materially differ, as between one area and another, because they are, in the main, overheads. What are, in relation to road transport, running costs form a very small proportion of railway traffic charges whereas, in road transport, running costs are the major item, being much above standing charges and fixed costs.
But my business, in this article, is to refute an observation made in my presence, to the effect that there is no great difference between the cost of operating vehicles in one part of the country and another.
The fact is, of course, that there are considerable differences, but they are not usually sufficient to justify one operator charging a comparatively high rate and another, because his charges arc lower, cutting that rate_ It is essential, in dealing with this matter, to be logical and consistent.
If, as is generally understood, road haulage rates are to be based on cost plus profit, then a haulier in a rural area, finding his costs to be considerably less than a competitor in a more expensive area, may ask for less in the way of a rate. He cannot, in those circumstances, be charged with rate cutting.
Nor is it any solution of the problem to take the line that the rate should be fixed on the basis of costs in the most expensive area, on the assumption that the man in the rural area should not object to making a little extra profit because he has the good fortune to operate in a less expensive area.
Robbing the Customer
In such cases, a good deal turns on the amount of the extra profit. Supposing, as is likely, that this excess profit to the rural haulier is considerable. A conscientious operator would have the feeling that he was robbing his customer and on that account would refuse to make such high charges.
It has sometimes been said that "` The Commercial Motor' Tables of Operating Costs," because they are recommended for use as a basis for rates assessment, are, in effect, a suggestion that rates can be universal. That is not so. I have time and time again stressed the fact that the figures in the Tables are averages and that the individual operator should use them as a check. If he does so he may find that his costs are higher than those in the Tables, or he may find that they are lower.
Let me deal with the matter in relation to the cost of operating a petrol-engined five-tonner. I will take it that the average weekly mileage is 500. I shall begin by taking out three sets of figures. First, the average and similar to those in the Tables but modified to bring them up to date; second, London figures, and third, those applicable in a rural area. I will deal with the standing charges first of all.
Tax, Levy and Wages The Road Fund tax is the same everywhere in the country. For my present purpose it will be better to assume that this five-tonner is over 24tons unladen weight, so that the tax is 14s. per week. Next comes a new item, the levy, which will approximate to 4s. per week. Wages have increased since the current issue of the Tables was compiled and for my average I shall take £6 18s.
In the London area, however, they will be V 3s. per week and in rural areas £6 14s. By the way, I should mention that in the item of " Wages " I make provision for National Insurance payments by the operator, insurance under the Workmen's Compensation Acts and holidays with pay. The total is 10s. per week.
Now for...garage rent: The average is 10s. A Londoner will no doubt find that 12s, applies. A haulier in a rural 7
area would think he was being robbed if called upon, to pay more than 4s. per week. We must, in any case, make some sort of provision for that item and I cannot make a smaller allowance_ than 45.
For comprehensive insurance the average figure for a haulier is EL The amount quoted in the Tables is for application to C licensees. A Londoner would no doubt have to pay £1 5s., whilst in a rural_ area the premium might well be as little as 18s. Interest on capital, the next item, is of course the same all over and in this case 12s. per week will provide for it.
Difference of El 4s.
These totals give £9 18s. per week as an average figure, or £10 10s. in London and £9 6s, in the country, The maximum difference, then, between London and rural areas, is £1 4s. Taken by itself this seems to be so small a sum, rather more than one halfpenny per nile, as not to be worth bothering about. Let us, however, carry the investigatioa a little further by turning to the running costs,
The average ligurb for petrol costs is 3.85d. per mile. That is based on 4s. 2d. per gallon and indicates that the average return is 13 m.p.g. I shall take that figure as being universal in its application, for whilst I am aware that there are three zones with provision for a farthing per gallon between each, the fact is that such differences are so small that the best way to cater for them is to take the middle figure and apply it to them all.
The probabilities are that the London ;vehicles, owing to general traffic conditions, will use more petrol than the average, I should imagine that 11} m.p.g. would be quite a good performance; it brings the cost per mile for fuel up to 4.3Id.
In the country, apart from certain characteristics peculiar to Devon, Cornwall and parts of Wales, which admittedly would tell against those areas, fuel consumption figures are less than in industrial areas where I should expect to find the average to apply. I think that a fair figure would be about 14} m.p.g. and cost about 3.5d. per mile. The average of 3.85d. still stands.
Tyre Costs Average Out
I will take the average cost of 0.20d. per mile for engine oil to apply to all three districts. As regards tyres, I am inclined to apply the average figure of 0,80d. per mite.. It roust be admitted that whilst road surfaces in London and the provinces_ are better than in the country, the frequent stops and starts involved in negotiating traffic in industrial areas can be set off against those poor roads, which the country haulier has to use.
Now I come to "maintenance," and this is. where I urn going to find some contradictory figures. First of all, take the figures for "maintenance (d)" from the Tables which, as I have so frequently explained, is provision for routine operations including cleaning and greasing, as well as such major operations as painting and varnishing.
The average allowance for this item is 0.33d, per mile, based on a 500-mile week. In London, such work would cost more, perhaps as much as 0.40d. per mile: In rural areas, on the other hand, wages are lower and the cost of these routine operations is correspondingly reduced.' My experience goes to show that about 0.20d. per mile is a_ likely figure.
A corresponding. difference occurs in connection with "maintenance (e)," which refers to repairs, top overhauls,. major and minor overhauls, and so on. Wages in London are higher than those paid in the provinces, whilst those in rural areas are less than those in the provinces. The average amount is 1.47d. per mile; I should reckon on 1.67d. in London and 1.00d. per mile in the country, although, of course, there may be considerable individual differences in those figures according to the operator's concern, the use of bonus systems, etc.
Depreciation will be the same in London as the average, but in the country it will cost less. This may surprise some readers but it is a fact. Depreciation, as I have so often pointed out, refers to first; the actual Wear arid tear, and secondly obsolescence, which means growing out of date and looking like_it.' If a vehicle looks unduly old it may have a bad influence on the customer, who may decide to place his business with a haulier whose vehicle looks in better trim.
Provision for obsolescence can be less in the country because there is less tendency for the customer to take notice of the condition of the vehicle. Farmers and market gardeners are in the habit of keeping machines in service as long as they will work, and it is a fact that customers of that type have additional respect for a man who can do the same with his lorries.
Moreover, vehicle maintenance costs in the country are less than elsewhere, so that the expense of keeping a vehicle in running order is less than in the industrial areas. Therefore obsolescence does not enter into the matter to anything like the same extent, so that depreciation allowances in the country can be considerably less than elsewhere. The average amount is 2.10d. per mile, and this average may be taken for London. In the country the total might well be 0.75d. per mile. The totals are: London 9,48d„ average 8.75d.; rural areas, 6.40d. per mile.
In order to discover what is the total operating cost, the running-cost figures, the amounts quoted, must be multiplied by 500. That gives the running cost per week instead of per mile. The amounts are: £19 15s. Od.. £18 4s, 7d., and £13 6s, 8d.
Add the standing charges and we thus arrive at the total operating costs per week. They are: £30 Ss. Od., £28 2s. 7d., and .1.22 12s. 8d.
These figures need some further examination before they can be accepted as complete. In particular, there is an item, not as yet provided for, which tells against vehicles operated in London. I have in mind the congestion which prevails in the Metropolis, not only in and around the docks but in almost every street. The upshot is that it is practically impossible to cover 500 miles per week without overtime.
I suggest that an average amount to allow for that circumstance is El per week. This, added to the total operating cost, brings the London total of operating costs to £31 5s, Od. And in industrial areas the same thing may apply, but not quite to the _same 'extent, In that case I would add 10s., bringing the total for the "average" figure for the week's costs to £28 12s. 7d.
Next week I propose to extend the investigation into these matters, taking into account establishment costs and profit allowances. S.T.R.