The Threat of Rate-cutting
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Hauliers Should Keep Accurate Records of Their Overhead and Running Expenses to be Able to Quote Charges That, Whilst Competitive, are Not Uneconomic THE announcement that -British Railways are to cut the fare froth London to Edinburgh to £3 10s. must have made many a haulier think about the sort of world he is going to live in when denationalization is complete. , So far as passenger operators are concerned, the threat of rate-cutting implied in this move by B.R. is direct; it is a challenge they had best accept
The haulier should realize that a similar challenge is
.bound to Come his way as soon as the railways are given leave to charge what they like for the carriage of goods. They too should make _provision to meet it. The first step should be that of examining their own rates schedules, in so far ,as they exist,. and make an effort to ascertain what is the real profit margin provided for. The first step is the realization of the irriportance of accurate cost records.
First, let us rid ourselves of some wrong ideas about ratecutting and what is meant by thc term. The practice is not Confined to the haulage industry. Most transaction's in the industrial world are governed by competitive buying. Large operations are "put out to tender" and orders are, as a rule, awarded to the company that quotes the lowest price. However, the prices which are quoted are based on careful examination of cost data, and every contractor who 'quotel has made quite sure that all,. --his costs are covered and that profit is allowed for.
Supply and Demand ,
Each trade has its own particular problems and most of them are in connection with costs and prices. The agricultural and market-gardening industry is I should think, most subject to the law of supply and demand and, with the exception of produce the price of which is controlled, is in the unfortunate position of having to take whatever prices are offered by the buyers in the market. The farmer or market gardener is practically compelled to accept them and must pay for transport out of them. The worst factor is that the prices arc set in the markets according to the demand and the supplies available. If the farmer has a bunmer crop, the price he gets is correspondingly low: if A34
the crop is not a bumper one then although he gets a better price the result is still the same, for there is not sufficient of the produce to make a good profit.
At any rate, the haulier would seem to be in a much better position. With what corresponds to bumper crops, that is to say plenty of work, he is in a position to raise his prices -rather thah lower them. That is not the case at present:
• many industries upon which the haulier depends for his traffic are themselves in the doldrums. Loads are fewer and smaller and the outlookfor those who will shortly be entering or re-entering the haulage business is not too good.
No Middleman Still considering the matter from the point of view of supply and demand, there is this to be said: the haulier is in a better position than the farmer because the haulier has no middleman and can fix his own rates. Faced with lack of business, however, the haulier is apt to cut his rates and often does so in the dark, as it were, because he has no idea what are his costs and therefore does not know with any degree. of accuracy what is his profit margin in any price he may quote. It is not -unknown for a haulier to quote a rate which shows no profit at all.
I have often thought that the worst feature of the haulage business is that rate-cutting in connection with one traffic, because of scarcity, brings about rate-cutting in another in which conditions are good. and traffic abundant. The ratecutter who customarily carries that traffic which for the time is scarce, muscles in on that which is plentiful and starts a run of rate-cutting where it did not previously exist.
Assume, for the sake of argument, that bricks are in demand, that it is one of those times when operators have to wait in the brickyards for loads which are still in the kilns. The bricks are really too hot to be handled, so hot, indeed, that even by the time they reach their destination the bricklayers cannot take hold of them.. That was the state of affairs which. prevailed when I received a letter from a correspondent complaining that hauliers in his area were cutting rates for the haulage of bricks. They were carry
ing bricks over a 10-mile lead for 15s. per 1,000 and 18s. per 1,000 on a 15-mile lead. He wanted me to tell him whether those rates were enough to show a reasonable profit and, if not, what the rates should be. The vehicles most in evidence in the brickyards were of 5-6-tons capacity and the usual load was 2,500 bricks.
The problem as it is put is a simple one and I propose to deal with it in a simple way, first by showing what profit if any there is in carrying the bricks at those rates, and secondly by indicating what the rates actually should be to show what I regard as a fair profit to the operator.
The first thing to do is to agree upon the cost of operating a vehicle of the capacity named when engaged in this kind of work, which is arduous, Involves high maintenance and tyre costs, and makes for rapid deterioration. In order to simplify the matter, I am going to set out the running costs to the nearest farthing, thus avoiding the use of decimals. In that way, and making provision for the extra cost of some items as mentioned above, I make the running costs to be: Petrol and oil, 5d. per mile; tyres, 11d.; maintenance, 2d.; depreciation, 24-d. The total is lid, per mile.
The standing charges per week are: Tax, 14s.; wages, including all insurances and provision for holidays with pay, £6 12s.; insurance (of the vehicle), £1 5s.; garage rent, 7s. 6d.; interest on capital outlay, 1 Is. 6d. The total is £9 9s, per week.
Now consider the operational aspect of the shorter of the two journeys. Allowing 2 hr. altogether for loading and unloading and an average of hr. each way for travelling (the times including some small provision for delays at terminals and on the road), I get an average time per journey of 3 hr. which means that the haulier will be able to cart three loads per 9-hr. day from Monday to Friday inclusive, and one load on Saturday morning. That is 16 journeys per week, and a total of 40,000 bricks carried. For that the earnings are £30. That is at 15s. per 1,000.
Showing the Profit
To deliver those 40,01:10 bricks the vehicle has run 320 miles and the cost at lid, per mile is £14 13s. 4d. The standing charges have been shown to be £9 9s. per week, and the establishment costs will be approximately £3 per week. The net cost is the sum of these three items, namely £27 2s. 4d. Adding 10s. 6d. for overtime, the total becomes £27 12s. 10d. The net profit is therefore £2 7s. 2d. per week.
Now for the longer lead of 15 miles. The loading and unloading times will be the same as before, namely 2 hr. The travelling time will be 4 hr. each way, and the total time per round journey 31 hr. To accomplish three journeys per day would necessitate 10i hr. per day. I assume that there is no reason why overtime should not be worked and that one load is carried on the Saturday making, as before, 16 trips per week carrying 40,000 bricks. The rate mentioned by my friend is I8s. per 1,000 and the earnings correspondingly amount to £36 per week.
Now to ascertain the cost. First the running cost at 11d. per mile. The miles run during the week total 480, costing £22. Add the fixed costs, £9 9s. plus £3, and the total is £34 9s. per week. There is still to be added the extra cost involved in the overtime worked and I make that to be £1 6s. 10d. The total cost is thus £35 15s. 10d. and the net profit, 4s. 2d. per week.
There is some profit to be earned at the rates quoted but not enough. What should be the profit percentage in work of this kind? I think not less than 20. On that basis the operator should receive for the 10-mile haul 20% on the cost per week. That was shown to be £27 12s. 10d. Add 20% to that and the total revenue becomes approximately £33. For that swirl 40,000 bricks have been carried and the charge per 1,000 should be not less than I6s. 6d.
For the second task, over the 15-mile lead, 20% must be added to the total cost, £35 15s. 10d., say El 3s. 2d., making Is. less than £40. The rate per 1,000 must thus be El.
In my previous article I dealt with the problem of sand and ballast haulage. In the calculations I made the assumption that the loads were put in the vehicle by chute and were tipped off, one drop only. There is, in this same letter, a further inquiry about sand and ballast haulage, but this time the conditions are more difficult than those described in the previous article.
The load of chippings, my inquirer remarks, is shovelled into the lorry, but he does not state whether it is shovelled out or tipped. He does not give any information about the size and capacity of the vehicle used, and that is important. It may be that he took it for granted that I know that, as a rule, chippings are shovelled out, usually being deposited by the roadside in heaps. There is normally enough chippings in one load to make several of these heaps, so that unloading may take some time. The mileage is also sometimes more than usual because of sundry digressions from the main road.
Time for Unloading I will take it, therefore, that 'unloading is to be effected in this way and assume that the time taken is at the rate of 5 min. per ton. For loading I shall take an average of
hr. per ton, assuming that one man only is employed.
Now comes the question of the size of the vehicle employed. This may make a great difference to the economic rate, as I shall show. First of all there is the perhaps obvious fact that, other things being equal the larger the vehicle the lower the cost per ton. There is a condition here which may suggest modification of that statement; the type of vehicle weighing less than 3 tons unladen, has the privilege not only of travelling 30 m.p.h. when loaded but, when empty, may travel at any speed, except when in a built-up arca. Vehicles above that limit of unladen weight must not travel at more than 20 m.p.h. anywhere, at least as I understand the latest legal rulings in this respect. The advantage conferred on the lighter vehicle is not always of use, as the roads travelled and the conditions make it impossible for it to travel at more than 20 m.p.h. anyhow.
It might be urged that I can safely ignore this speed-limit factor, but I do not take that course for two reasons. First because it is wrong, in principle, when assessing rates to assume any advantage as the result of frequent breaches of the law. Second. it is just as well for readers to be told that enforcement officers are becoming keener on spotting cases where the time tables are only possible if the law is broken.
The first thing I propose to do is to establish the principle that, in the majority of cases, the bigger the vehicle the lower the cost per ton carried and I will begin with vehicles weighing over 3 tons unladen, thus eliminating, for the moment, the factor of speed. Proof can be best illustrated by taking extreme cases, and I will initially endeavour to estimate remunerative rates for this type of haulage assuming also that an 8-ton vehicle is employed.
The letter which brought me to discuss this problem started with a reference to a 52-mile lead. It will be convenient if I deal with the problem taking that lead mileage as an example. The total mileage per trip is, of course, 104 and I should say that, if the law governing speeds is not broken, the travelling time will be just over 6 hr. For loading and unloading the provision to be made is 10 min, per ton for each operation, which means, therefore, 86 min. for loading and the same for unloading, a total of 2 hr. 40 min. The total time for the round journey will thus be 8 hr. 40 min. As it is likely that the operator will wish to have the lorry at work on Saturday, the total time worked per week will be 52 hr.
S.T.R. (To be continued)