When EFFICIENCY Is Only ILLUSION
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REDUCED costs are understandably a major objective of road transport operators, and the main purpose of cost recording is to indicate opportunities of possible economies. Provided the necessary authority and drive are available ' to effect such savings, the combined exercise is justified by the positive results achieved.
There is, however, a distinction to be made between reduced and omitted costs, and it can be more easily .confused in practice than might at first appear. One commonly quoted example of alleged lower cost of operation is that provided by owner-drivers, as opposed to fleet operators. Because they drive their own vehicles it is claimed that they can tender lower rates which arc not necessarily uneconomic.
There could, of course, be several reasons why an operator could quote a lower rate than his competitors but still make a profit. The simple fact might be that he was more efficient, however strenuously that would, no doubt, be denied by the less efficient. Alternatively, he might be better situated geographically or have vehicles ideally suited to the contract. Such economic factors are encountered and accepted daily in transport operation.
In making this comparison between one-vehicle and fleet operators, however, it is not acceptable to introduce an element of philanthropy, unintentional though this may be. A large fleet may necessitate employment of a traffic department in addition to incurring other overhead expenses.
The owner-driver has a much smaller proportion of clerical work, which he will probably do himself, perhaps assisted by his family. It would be quite wrong, however, to suggest that this labour should be unpaid. Where such omission occurs, it could hardly be termed efficiency, as would seem to underlie the oft-repeated claim that the small operator has no overhead costs.
Though seldom stated, two factors are implicit in commercial costing. The first is that continuity of the undertaking is intended for at least a reasonable. period, and .the second that material, labour and services are charged out at cost. To ignore either must inevitably invalidate comparison with other costs, yet such omission is more commonly encountered in road transport than most other ine'..istries.
Because transport -provides a service, as distinct from a E32 commodity, it is often more difficult readily to recognize and then assess, in terms of cost, variations in the standard of service. Yet failure to supply it may be only too rapidly assessed—by the customer—when, because of delay or breakdown, an urgent delivery misses a market or boat.
This aspect is introduced by inquiries for estimates of the cost of operating a particular make of used vehicle, often without specifying either its age or condition. Even if this information had been supplied, the requests could not have been complied with for two reasons.
First, whilst comparisons are made in " ' The Commercial Motor' Tables of Operating Costs" between the operating costs of most types of commercial vehicle, no distinction is drawn. or implied, as between different makes. Additionally, any attempt to assess the future operating costs of a known used vehicle of doubtful mechanical condition must amount, at best, to little more than guesswork. The results of trying to formulate average operating costs for groups of used vehicles would, therefore, be so dependent on arbitrary assumptions as to be almost valueless.
As an indication of the problems likely to be encountered in drawing comparisons between new and used vehicles 1 will give the operating costs of a petrol-engined 5-tonner operating 400 miles per week, as shown in ' The Commercial Motor' Tables." This will be followed by corresponding costs for a used vehicle of the same type and capacity, coupled with the reservation that such figures must be largely hypothetical. They do, however, serve the purpose of showing that 'lied vehicles do not necessarily return lower costs which are economic both to provider and user.
Assuming a new vehicle is purchased for £1,200 and has an unladen weight of 2 tons 12 cwt., the annual licence duty will amount to £32 10s., or 13s. per week. Wages for a 44-hour week will total £8 19s, in a Grade I area, as provided for by R.H.(64). and with appropriate allowances for insurance contributions and holidays with pay. Rent and rates are reckoned at .10s. 6d. per week and vehicle insurance at 12s. 10d. Interest charges will be assessed at 14s. 5d. per week, making the total for the five items of standing cost f I 1 9s. 9d.
Assuming a consumption rate of 12 m.p.g.. the fuel cost per le will be 3.75d., whilst lubricants will be reckoned at 0.23d. th a set I tyres costing £160 and an estimated mileage life 30,000, the tyre cost per mile will be 1.28d. Maintenance will assessed at 2.22d.
With a residual value of 121 per cent, of the initial cost price d an estimated vehicle life of 125,000 miles, the depreciation per mile will be 1.73d., resulting in a total running cost r mile of 9.2Id. If 400 miles per week were operated, the at weekly cost of these five items would be: Fuel, £6 5s., wicants, 7s. 8d., tyres. £2 2s. 8d.. maintenance, £3 14s., and preciation, £2 17s. 8d.; total. £15 7s. Adding this amount the standing costs, the total operating cost for a 400-mile ek would be £26 16s. 9d.
The corresponding cost for a similar model purchased as a :d vehicle for half the original cost (600) would remain the ne for licences (13s.), wages (£8 19s.). and rent and rates )s. 6d.). The cost of vehicle insurance, however, would be ghtly reduced to 12s. per week, as the amount of premium yable is determined by a combination of carrying capacity and tial cost, among other factors. Interest charges would be If the previous amount (7s. 2d.), making total weekly standing cost £11 Is. 8d., slightly over 8s. per week less than corresponding amount for the new hide.
Running costs will be much more diffiIt to assess and any estimate made must tail a large degree of arbitrariness. I II assume that the cost of fuel and bricants remains the same at 3.75d. d 0.23d. per mile respectively.
Tyre costs, however, need special conleration. Whilst there is no reason to ;ume that the rate of wear will neccs rily be higher, it will be more than likely that the set of tyres ted to the used vehicle when purchased will be in a similar rt-used condition. In terms of percentage wear, this may bunt to any figure.
Sinking Fund
will assume in this instance that it is 50 per cent. If, at this ige, the original owner had maintained a proper system of sting, the equivalent of half the cost of a set of tyres would ye been credited to a sinking fund for their ultimate replacemt. Therefore, after purchase. until the mileage is eventually ached when the tyres will have to be replaced, the new owner ll have to double his tyre cost if the full amount is to be ailable when it is needed. Thereafter, however, actual tyre st may well revert to the original figure of I.28d. per mile. 1 11 reckon a tyre cost per mile of 1.92d. as being mid-way tween 1.28d. and double that figure.
Estimation of maintenance costs in these circumstances is obably the most debatable of all the 10 items of cost. I will ace them at 50 per cent. above normal-2.33d. per mile. :spite this increase, however, it would be unrealistic, when lculating depreciation, to take the same vehicle mileage e as before (125,000) and I have reduced it to 75,000. As this, ovever, is now applied to half the original balance, depreciam cost per mile will amount to 1.44d., making the total nning cost per mile 10.67d., as compared with 9.21d. for the w vehicle.
The corresponding cost of operating the used vehicle 400 miles r route would thus be: Fuel, £6 5s., lubricants, 7s. 8-d., tyres, 4s., maintenance, £5 I Is., depreciation, £48s.; total running at, £17 15s. 8d. This would then make ate total operating cost for the week £28 17s. 4d., as compared with £26 16s. 9d. for the new vehicle, an increase of £2 Os. 7d.
Although it is not the purpose, when including the item of depreciation, in operating costs, to enhance the value of the original asset, it is intended that this should be maintained. Whilst in no way invalidating this principle, newcomers are often faced with additional problems necessitating, sooner or later, a higher rate of depreciation costs. This results from operators being compelled to start with used vehicles, although they intend ultimately to acquire new ones.
In order to do this in the present instance, it will be necessary to double the depreciation cost per mile to 3.36d., which would make the total running cost per mile 12.59d. The corresponding weekly totals would then be: Running cost, £20 I9s. 8d., and operating cost, £32 Is. 4d.
Where the lower rate of depreciation was charged for a used vehicle it would mean that the operator would, in effect, be able to offer customers a service only relative to the condition of his lorry. Whilst this may have little or no effect on the success of canvassing lower-rated traffics, he would not be able to compete on equal terms with operators of newer vehicles for loads demanding delivery to a strict timetable.
I may be accused of underrating the value of used vehicles. In support of that contention, many examples could admittedly be quoted of large and successful fleet owners who started in business with such equipment. I suggest, however, that criticism is valid only when applied to a short-term policy and that the real cost of operating the original vehicle was actually higher than it appeared, being subsidized by the owner's unpaid services as a fitter.
It is significant that when the opportunity occurred such operators invariably built up fleets of new vehicles. They found that their services as organizers and canvassers provided higher returns, whatever their engineering abilities might be.
S. B.