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ADVICE ON TRANS PORT PROBLEMS • • • • •

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Off-beat Costings

VALIDITY of costing comparisons was the subject of an article in this series earlier this year. It was then emphasized that because road transport was such a comprehensive and flexible service the conditions in which vehicles may be operated could vary substantially. Such conditions may result from the traffic carried, which often directly determines the type of chassis and body necessary for the job. But even when standard platform bodied vehicles are employed, the urgency of a particular traffic and the direction of the flow of traffic can also have a considerable effect on the cost of operation.

Recognize and Segregate

Normally, therefore, it is necessary first to recognize and se"4 regate the various types of operation before useful comparisons can be made of operating costs applicable to respective groups of vehicles. This emphasis on the differences in traffic conditions is necessary because, unlike geographical differences as, for example, between operating in hilly or flat country, traffic variations are not always immediately apparent. Nevertheless, where a high stan

dard of service and frequency is demanded because of possible competitiveness in that particular industry, the addition to operating costs can be most marked.

Despite the need to ensure as far as possible that comparison of operating costs are valid, insomuch as like is being compared with like, neve,rtheless there are circumstances where some estimate of operation in exceptional conditions has to be attempted, however limited the basic information might be. In fact, where previous estimates have been made on the basis of detailed information, compiled possibly over a number of years, any attempt to assess the likely cost of operation in exceptional conditions based on little or no firm information might appear valueless. It should not be overlooked, however, that this was precisely the position in which the pioneers of road haulage found themselves when making their early costings, as reference to The Commercial Motor of half a century ago reveals.

Principles Still Valid

No matter how much exceptional operating conditions may vary with more normal usage, the principles of costing will still remain valid. To that extent the whole cost of operation conveniently can be divided into standing costs and running costs with a further segregation into five items in each category. These are standing costs: licences, wages, rent and rates, insurance and interest, whilst the five items of running costs consist of fuel, lubricants, tyres, maintenance and depreciation.

There will also remain the three aspects of costing— past, present and future. No matter how novel a form of operation might be or how exceptional the geographical conditions, some use can be made of past experience in other types of operation as the basic ground work. Then adjustments--admittedly speculative in the first attempt— can be made until early returns of actual operating experience can be used to make further and more realistic adjustments if necessary.

Continuing Efficiency When this latter stage is reached, then useful purpose can be made of comparison between current day-to-day operation and past records as a means of maintaining continuing efficiency.

Equally important, however, will be estimates as to future operation, possibly forming part of a budgetary control system. But, as already conceded, such estimates of future operation where exceptional conditions apply must be arbitrary in the first instance.

In making the original and possibly speculative adjustments of previous costing relative to operation in differing conditions {but as near to the new type of operation as is c17 currently available) it should be recognized that although the division into 10 items of operating costs has proved a practical and convenient procedure over many years, they are nevertheless inter-related. Accordingly, any adjustments to one or more items because of the exceptional conditions applying may-and possibly will-have repercussions on other items of operating costs.

A Further Problem

Another difficulty which can arise when endeavouring to estimate the cost of operating commercial vehicles in exceptional conditions abroad relates to differing money valuesand labour conditions in various countries. The same applies to the initial cost of vehicles and availability of spares and service in remote areas which could have direct bearing on operating costs, irrespective of the difficult terrain over which the vehicles may have to run.

Even so, an early attempt at estimating operating costs in such conditions can benefit from consideration of the effect of changes in one or more items in normal conditions in terms of percentage increase on the operating cost per mile. Accordingly, the cost of operating an eight-, wheeled rigid vehicle such as might be used overseas is now examined, first in conditions as they apply in the UK, and then with hypothetical adjustments to those items of costs which could be affected by exceptional operating conditions.

Standing Costs With an unladen weight of 7 tons 10 cwt., the cost of licensing in the UK-inclusive of the recent 50 per cent increase imposed last month would be £216 a year. With the addition of a proportion of the carrier's A licence fee, this would amount to the equivalent of £4 7s. 3d. a week based on a 50-week year to provide for two weeks a year when the vehicle might be off the road for driver's holidays or vehicle overhaul.

In the first instance it will be assumed that wages are paid for a basic week of 42 hours as applies to a driver with a depot based in an area outside London, whilst the recent increase of 6 per cent is also allowed for. Inclusive of National Insurance contributions and an adjustment for holidays with pay the cost tcr the employer for driver's wages is then reckoned at £13 Os. 3d. Rent and rates in respect of garaging the vehicle amount to £1 6s. a week, whilst vehicle insurance costs_the equivalent of £5 12s. Id. a week, thereby providing comprehensive cover in a medium-risk area.

Despite the recent increase in the bank rate, interest charges ort.the initial outlay of £4,614 will be reckoned at 5 per cent in the first instance, so giving a weekly cost of £4 12s. 3d. The total for the five items of standing costs is therefore £28 17s. 10d., or 8-67d. a mile, assuming a weekly average of 800 miles.

Running Costs

Dealing now with running costs, it will be assumed that the operator buys fuel oil in bulk at 4s. 71d. a gallon and that a rate of consumption of 9 m.p.g. is maintained, so giving a fuel cost of 6-19d. a mile, or £20 12s. 8d. a week. Lubricants cost 0-31d. per mile, or £1 Os. 8d. a week, whilst tyres add 2-75d. a mile, or £9 3s. 4d. a week. This latter calculation is based on a mileage life per set of 40,000.

Maintenance, inclusive of washing, servicing and ultimate major repairs( is reckoned to cost £11 12s. 8d. a week, whilst depreciation adds 3-97d. a mile, or £9 18s. a week, assuming a vehicle mileage life of 300,000.

The total for these five items of running costs for this eight-wheeler is therefore 15-71d. per mile, or £52 7s. 4d. a week. Added to the standing cost, this gives a ,total operating cost of 24-38d. per mile, or £81 5s. 2d. a week. Incidentally, although a weekly average of 800 miles will be assumed throughout these calculations, it is pertinent to note-relative to exceptional operating conditions, which could include excessive standing time-that the operating cost per mile for this eight-wheeler when reduced to 600 miles a week becomes 32-50d., compared with 24-38d. per mile at 800 miles a week.

Wage Adjustment

The first variation to be made to the-se basic operating costs will be in respect of a wage adjustment. This could arise from a combination of reasons, includingsubstantial overtime, differences in basic rates of pay or the consolidation of some form of bonus along with the basic pay. But whatever the reason, an arbitary addition of 100 per cent will be made to the original figure of £13 Os. 3d. which, it will be remembered, was based on a 42-hour week; this,

of course, would be unusual for this type of vehicle.

So with a figure of £26 Os. 6d. a week for wages, inclusive of the additions already specified, the standing cost per week for this eight-wheeler then becomes £41 18s. Id. With the running cost remaining the same, at £52 7s. 4d., the total operating cost becomes £94 5s. 5d. a week. With a weekly average of 800 miles still applying, the total operating cost per mile is therefore increased to 28-28d., compared with 24-38d. when a basic wage is paid. Although, admittedly, a substantial adjustment, this alteration to only one of the 10 items of operating costs nevertheless results in an overall increase of 16 percent.

Other Adjustments As already stated, the rate of interest charged on the initial outlay was initially fixed at 5 per cent, but there will be many cases when substantially more than this is paid in one form or another. Allowing an increase to 10 per cent, with a resulting weekly charge of £9 4s. 6d. for this one item, the total standing cost now becomes £33 10s. Id. The total operating cost (with the running cost still remaining the same) now becomes £85 17s. 5d., with a new operating cost per mile of 25.76d., an increase of 10.56 per cent.

The third example of adjustment to the basic cost of operation relates to a change in the initial cost of the vehicle. Here again, as with the change in wages, this could arise from a variety of reasons—for example, the same vehicle with added costs because of differences in currency rates or' extra delivery charges; alternatively, a similar chassis but with a more elaborate body than a standard platform or, thirdly, a combination of these or other reasons. In this instance, it will now be assumed that a new vehicle costs E9,228. This will have a direct effect on three items of operating costs—namely, insurance, interest and depreciation. Because the insurance premium is based on a combination of tonnage and value the equivalent weekly cost is thereby raised from £5 12s. Id. to £6 15s. 2d., whilst the interest (now reverted to the basic 5 per cent) still remains at £9 4s. 6d. because of the increased initial outlay.

Depreciation now becomes equivalent to £20 9s. 4d. a week. Incidentally, the apparent anomaly that this latter figure happens to be more than double the basic cost of £9 18s., despite the initial cost being exactly double (£4,614 compared with £9,228), is explained by the deduction of the same tyre costs in both cases.

Effect of Alterations The combined effect of these three alterations gives a total operating cost of £97 I Is. 10d. a week, or 29-28d. per mile, an increase of 20.10 per cent.

Finally, operating under arduous conditions obviously must affect several, if not all, of the items of running costs, and without specific details of actual conditions no useful purpose would be served in attempting to examine these five items in detail. Accordingly, an overall increase of 50 per cent to the total running cost will be assumed, so giving a weekly total of £78 I Is. and a corresponding operating cost per week of £107 8s. 10d. This results in a total operating cost per mile of 32.22d., which by a coincidence is 32.16 per cent higher than the basic, 24-38d. a mile when normal conditions apply.

FROM THE POSTBAG

A Scottish operator uses a 15 cwt. van in connection with civil engineering and asks what additional taxation would apply if he towed a trailer. Additionally he asks what would be the cost of operation alternatively at 300 and 500 miles a week.

As this van is presumably a genuine goods vehicle it would require a carrier's licence to carry goods in the van itself, and also an additional licence for the trailer when this was so used. Application for this additional licence would have to be made to this reader's local licensing authority—namely, for the Scottish traffic area, the address being 15 Drumsheugh Gardens, Edinburgh, 3. In addition an appropriate adjustment to the insurance cover would also be required to allow for trailer operation.

Regarding the licence duty, and assuming that the unladen weight of the van itself was 1 ton 7 cwt. the duty for the van only is now £36 per annum following the Budget increase of 50 per cent--an addition, incidentally, of £12 per annum. But if a trailer is towed then the Annual licence duty becomes £54 per annum.

In the current edition of The Commercial Motor Tables of Operating Costs, the operating cost per mile for this type of van is shown as 1610d. a mile at 300 miles a week and 11.04d. a mile at 500 miles a week. The recent licence duty increase would add approximately 0.25d. a mile or 0.17d. a mile at 300 and 500 miles a week respectively.

MONEY MATTERS Busy Martin Walter

TTIE latest annual review by the chairman of MARTIN 1 WALTER-Mr. A. D. Tapley-is a balance of optimism and caution. Trading-wise, Mr. Tapley states that the current level of sales of vehicles is buoyant, while the order position for the products made by the company is excellent.

As to whether this highly satisfactory trading position will be translated into a correspondingly higher rate of profit is by no means certain. For example, steep rises in the costs of services and the ever-rising cost of raw materials coupled with the shorter working week are factors adversely affecting profit margins in all sections of the business. As Mr. Tapley points out, there is a limiting factor beyond which a company has no alternative but to accept lower profit margins or to lift prices of products, Die latter step "with the inherent risk of loss of turnover". And there are additional difficulties stemming from the Budget as well as the abolition of retail price maintenance.

Taking these factors into account Mr. Tapley feels that it would be unwise at this stage to forecast higher profits in respect of the current trading year. Nevertheless, he states that he will be very disappointed if these turn out to be less than those for 1964. Meanwhile, these 4s. Ordinary shares are currently priced at around 11s., at which they yield n% on the latest dividend of 23% covered 1.4 times. The known difficulties would seem to be fairly well discounted at the present price.

The results of GEORGE EWER for the year that ended on December 31 last are expected to be announced in the next few weeks. During 1963 this well-knoun company of motor coach proprietors increased its trading profit to £228,727 from £185,151 the previous year. And it is noteworthy that this increase was achieved against the background of a summer that was not by any means the best for weather.

Out of these increased earnings the directors lifted the dividend 1% to 28%. At the time it was stated that the motor trade subsidiaries were taking full advantage of the large demand for both new and used vehicles. The company has pursued an expansionist policy in recent years and this policy was carried a vital stage farther by the acquisition during 1963 of three new companies. These three additional companies should have brought benefit to the results for 1964.

At the time of the last annual review the chairman stated that the then current year had started well; coaching revenue to date showed an improvement on that for the same period the previous year. The market expects to see increased trading profits and is hopeful of a further lift in the distribution. At their present price of 4s. 71d. these 2s. Ordinary shares stand about mid-way between their 1965 " high" and " low " points.

Martin younger el 8

THE COMMON ROOM The Problem of Economics

IN every transport examination scheme the subject of economics forms an important part of the general syllabus. It is the most important single subject in both the Membership and Associateship of the Institute of Transport. In the Royal Society of Arts examinations, a major paper is economics applied to road transport. The other examination bodies all include economics to a greater or lesser degree.

The importance of the subject has tended to increase in importance over recent years with so many economists turning their attention more and more to transport problems.

Students take up the subject with rare enthusiasm, feeling that a mastery of-economics will provide a bright light to illuminate transport problems and their possible solutions. Disillusionment, however, arrives all too quickly. Economics is a most difficult subject—far more difficult than many realize at the outset of their studies—and its relationship to transport practice is not always apparent.

The basis of the difficulty is that economics is a theoretical subject dealing with abstract concepts. It tries to be precise and scientific by formulating laws which, by their very nature, are theoretical, and normally includes the words other things being equal ". In the practical life of a transport business, nothing is ever equal and things are always subject to change. Indeed, it is this translation of theoretical concepts into the hard realities of transport that the student finds the most difficult bridge to cross. There is a danger—and a very real danger—of students having a good basis of theoretical economics on the one hand and a sound knowledge of practical economics relating to transport operation on the other, but with the two groups of knowledge rarely being connected.

It is the communicating bridge between economics and transport on which I .hope to concentrate attention in succeeding articles. Much of the problem is one of language. The economist uses terms which, have a specific meaning but which in general use have looser and wider connotations. Unless one can really understand the true meanings of these terms and their importance to transport, the study of transport economics can never really achieve a great deal. In these articles I intend to look at these terms closely and will try to indicate their relevance to road transport. Monopoly and costs will be the first two terms to be scrutinized.

Common Room is not going to become a digest of transport economics. Important as the subject is, economics is only one of the keys in transport education, and its importance is probably over-rated. Town planning in industry, geographical factors and political changes are all equally vital to an understanding of current transport problems. All will receive their share of attention.

By George Wilmot

Lecturer in Transport Studies University of London