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LOSS OF USE
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Page 118
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THE effect on operating costs of vehicles not being available for service was coiSidered in this series last month. Basically, the causes of such non-availability are engineering or traffic in origin. Either there are goods or passengers to be moved, .but with the vehicle not mechanically fit for service, or alternatively a sound vehicle is available but not in use because there is no profitable work tp be done..
Whilst the two extremes of use and non-use are selfevident, both as regards the vehicle and the effect on operating costs and revenue, in practice the effect of only partial use is of more direct concern to every operator. As pointed out two weeks ago, the minimum charge per mile for a 7-ton goods vehicle when averaging 800 miles a week could be less than half that at 200 miles a week, even though the actual profit margin was the same.
. Although intervals between major repairs have been lengthened with successive improvements in vehicle design and manufacture, and garage time reduced by the wide range of replacement units now available, there still remains some period when the vehicle is not available for service whilst undergoing maintenance, however abbreviated. Virtually as an extention of the principle underlying the
replacement unit, an attempt to still further reduce "down " time—the appropriate Americanism for non-productive lorry time—is an increasing trend for more frequent vehicle replacement. Supporters of this trend maintain that the extra earning capacity thereby made available more than offsets any higher operating costs incurred by such a policy if, in fact, an overall increase did occur. (Whilst such a policy must inevitably increase the cost of depreciation, the saving in maintenance and possibly tyre costs could go some way to offset this increase, if not completely cancel it out.) Because, by definition, a commercial vehicle is purchased and operated to serve a commercial objective, either for profit or the provision of a necessary service, it follows that no objective is being served whilst the vehicle is not in use. But, as with many generalizations, there can be exceptions. It could be contended that the very availability of, say, an ambulance or a fire engine is, in itself, a service. Without such availability, even though not actually made use of, substantial rearrangements—for example, more elaborate fire precautions than at present exist at all
premises--might then be considered essential. Similarly, the current trend towards regionalization of hospitals could not be considered if an adequate ambulance service was not ready to hand, whether actually used or not.
But though a commercial vehicle is obviously not earning its keep whilst standing idle, the newcomer may take undue satisfaction from the fact that at least no running costs are being incurred. Unfortunately, whilst this situation continues, his competitiveness is being steadily reduced.
This deterioration is because of the inter-relation of standing and running costs. The five items of standing costs—licensing, wages, rent and rates, insurance and interest—have to be met whether a vehicle is used or not, and whilst running costs are incurred almost in direct relation to the mileage run, the ratio of standing costs to running costs as they comprise total operating costs is of vital importance. Whilst running cost per mile will remain virtually the same whatever the mileage operated, the standing costs per mile will steadily decrease with increasing mileages. Correspondingly, the addition of the two gives a reducing operating cost per mile and with it a more competitive position for the operator.
Scheduled periods off the road for maintenance were considered last month, as were means of increasing utilization of vehicles, particularly where it was possible to revise traditional methods of distribution.
However, there are also unscheduled periods when a vehicle may not be available for service, even though there would have been work for it to do. Excluding mechanical breakdowns--which, fortunately, are becoming rare in well-organized fleets—increasing traffic congestion has resulted in an increasing likelihood of accidents, even though the operator's own driver may have been blameless.
When such unfortunate incidents occur, and providing there has been no personal injury, the operator's first concern is likely to be transfer of the load (if the vehicle involved is no longer mobile), so as to retain customer goodwill.
Itis at this stage that operators will appreciate the advice that they should read their insurance policies. Admittedly, the conditions are seldom easy to understand, at least at first reading. But this is all the more reason why this should have been done at leisure beforehand because, added to the normal urgency of a transport office, the additional problem of an accident -calls for several immediate decisions, including the removal of the damaged vehicle.
Unless the operator is familiar with the terms of his insurance policy he may subsequently find that, in making a claim on the company, he has taken action to which he was not entitled and for which no repayment can therefore be made. Whilst comprehensive insurance policies on commercial vehicles usually authorize the operator to incur reasonable cost in removing a vehicle damaged in an accident to a convenient repairer, previous reassurance as to the extent of such authorization would facilitate decisions if an accident occurred.
Extent of Repairs The established operator, with a long-standing relationship with his insurers will probably agree on the extent of actual repairs verbally, at the time of the accident, possibly by telephone, with confirming estimate in writing when the vehicle has been brought to a garage and examined.
Many fleet users having their own repair depots may prefer to bring back the damaged vehicle to their own garage, no matter what the distance, if this is possible. Here, again, prior agreement with the insurers would be an advantage. Despite the high mileage, the insurance company may be more than compensated by the lower cost which could apply if the repair was done in the user's own garage.
With the increasing use of specialized bodywork the likelihood of a vehicle involved in an accident having to receive attention from more than one repairer--for example: chassis, bodywork and paint shop—additional intermediate journeys, not necessarily under its own power, could easily arise. Such journeys could add appreciably to the total repair cost, for which reason a prior agreement with the insurers as to payment for this expenditure should be reached. Additionally, of course, there would be the actual cost of the repair work involved.
But even when all payments in connection with the removal of the damaged vehicle to a gaiage, its repair and subsequent• delivery to its home depot had been met, the operator has still not been fully recompensed for his loss as the result of the accident. This is because the accident has deprived him of the use of a vehicle purchased solely to provide a transport service which obviously it did not• provide whilst undergoing repair.
This additional loss to the operator is commonly and variously referred to as loss of use, loss of earnings or loss of profits. But, because these terms will not apply in certain circumstances, the term "consequential loss" is more suitable for comprehensive use.
Superficially, it might be considered the operator was adequately recompensed if, in addition to repair costs, his insurance payment included loss of profit over the period concerned. But, by definition, standing costs will continue to be incurred during the period the vehicle is off the road. These could well exceed the net profit which would otherwise have been earned by the vehicle if the accident had not occurred. Therefore, consideration of consequential loss must cover a wider scope than profitability, and it could well be that at the time of any particular accident a transport business was actually passing through a period of trading loss. If that were the case, one could hardly claim for "loss of profit ". Nevertheless, expenditure other than c54 that actually incurred on repair of the vehicle would have to be met.
A working understanding between operator and insurer is particularly advantageous when dealing with practical matters following an accident. In many instances, much as both parties would like it otherwise, it is just not possible to make an accurate assessment immediately as to the length of time a damaged vehicle is likely to remain unfit for service. Thus, the full extent of the damage may not be revealed until it has been brought to the garage and dismantled. Next, even when a complete list of replacement material has been drawn up, the current supply position may also be unInown until inquiries are made.
Consequently, tentative decisions have often to be taken, because more accurate information is not available at the time, although such decisions may well have been otherwise in the light of subsequent information-.
Thus, the first item of standing costs—licences--could be suspended following an accident by the simple process of de-licensing. But in practice it would seldom be known immediately following an accident that a vehicle was likely to be off the road a sufficient length of time to justify this action. Similarly, the wages of the driver will in practice be continued to be paid whatever nominal work he does in the meantime. If garage accommodation has already been provided for the damaged vehicle prior to the accident then, again, this expenditure will continue irrespective of where the damaged vehicle might be receiving attention. Likewise, the cost of insurance and interest charges, possibly payable on an annual basis, will also continue.
In contrast with standing costs, none of the items of running costs will have to be met whilst the vehicle is off the road. This still applies even when the item of depreciation is calculated on a mileage basis as a running cost, as the total period off the road, even after a major accident, will still be a small proportion of the total estimated life of the vehicle.
Further aspects of consequential loss incurred by an operator, following an accident to a vehicle, will be considered next week.