Costs UP "Output" DOWN
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WHEN replying to a reader's inquiry last week, I emphasized that revision of " ' The Commercial Motor' Tables of Operating Costs" calls for considerttion of many factors. Primarily, allowance has to be made for any variation which may have occurred in the 10 items of operating costs during the period between publication of successive editions. These items are licences, wages, rent and rates, insurance, interest, fuel, lubricants, tyres, maintenance and depreciation.
In addition, changes either in the range of vehicles offered by manufacturers, or the operational use to which they are put, may necessitate variation in the grouping of vehicles and selection of average weekly mileages.
This necessity to examine broader aspects, as well as detailed costing, is equally pertinent when considering the possible revision of rates and charges. Basically, the cost of operating a vehicle must first be determined as accurately as conditions permit. Comparison between costs during the period under review should be as valid as possible, although even during relatively stable industrial activity, allowance must be made for inevitable variations in conditions.
It has been a prime objective of The Commercial Motor for many years to stress the importance of accurately costing the operation of vehicles in the interests of individual operators, their immediate competitors and the road transport industry as a whole. Only on this basis can a profitable undertaking be built up and uneconomic competition, which would ultimately prove disastrous to all parties, be avoided.
The profitability of a vehicle, however, will also be determined by the amount of useful work it is able to perform during the day. This, in turn, will be conditioned by the amount of traffic secured by individual operators, and the efficiency with which it is routed to its destination.
Whilst the scheduling of traffic is largely under the direction of operators, several factors, over which they have no control, can seriously affectthe earning capacity of a vehicle. These include the effects of congestion on the road, as well as restrictions and delays in loading. Unfortunately for operators, these conditions have deteriorated during recent years. But whilst transport managers are fully aware of the resulting reduction in overall efficiency, these adverse effects are not easily quantified in terms of the operating costs of individual v,thicles.
In the past, such delays were only spasmodic and could be absorbed into the total operating cost without too adverse o3/ results. Now traffic and loading delays have become so common that they have reluctantly to be accepted as almost standard operating conditions. So far, however, their effects in increasing overall costs have seldom been reflected in a corresponding adjustment of rates.
The operator in urban areas has been particularly hard hit by such delays, and as an indication of the increasing expenses such a user may have had to carry over the past few years, it is useful to examine the relative costs of operating a 5-ton oiler 400 miles per week in 1957 and 1960. To ensure as fair a comparison as possible, the price of a specific vehicle will be used in contrast to average figures as employed in "-.` The Commercial Motor' Tables of Operating Costs."
In 1957 the vehicle cost £1,325, which included £214 purchase tax. The unladen weight was 2 tons 17 cwt. and annual licence duty £35, resulting in a standing cost of 14s. per week. Incidentally, the levy shown in the 42nd edition of "The Tables" (published in September, 1956), was first imposed on January 1, 1954, and ceased on December 31, 1956.
The road haulage wage regulation at that time was contained in R.H. (62) and, based on rates_ applicable to Grade I areas, the total cost of wages for a standard 44-hour week was £8 13s. 10d. This included allowances for insurance contributions and holidays with pay.
The cost of garaging the vehicle amounted to 10s. 3d. per week, whilst vehicle insurance added £1 10s, 5d. This was based on an annual premium of €.76 appropriate to comprehensive cover for an A-licence operator in medium-risk areas. Calculated on a nominal rate of 3 per cent., interest on the initial outlay of £1,325 amounted to 15s. 10d. per week, giving a total standing cost for the five items of i12 4s. 4d. This is equal to 7.33d. per mile for 400 miles per week.
Fuel-price changes are frequent and for the purpose of this comparison the price on July 24, 1957, will be used-3s. 10-fd, per gallon for oil fuel delivered in bulk to customers in the inner zones.
Assuming an average rate of consumption of 18 m.p.g., fuel cost amounted to 2.58d. per mile, whilst lubricants added 0.23d.
With a set of tyres costing £160, tyre cost per mile was 1.28d. Maintenance, inclusive of washing and servicing, added 1.85d. The cost of depreciation was 1.92d. This was obtained by first deducting the cost of the original tyres from the initial price of the vehicle, followed by a further deduction to allow for the ultimate residual value. With a life of 125,000 miles for this particular type of -vehicle, the resulting cost per mile was thus
obtained, giving a total running cost of 7.86d. Added to the standing cost, this gave a total operating cost per mile of 15.19d.'
Purchase tax on commercial vehicle chassis was abolished in April, 1959, with the result that the initial cost of this particular vehicle is now £1,200, but with the unladen weight unchanged. the cost of licences is still 14s. per week.
Between 1957 and 1960 there have been several adjustments in haulage wages, and another increase is now pending, with an overall effect of an addition of 6 per cent, to existing rates. Making allowances for insurance contributions and holidays with pay, the latest proposed increase would give a wage of £9. 14s. 8d for a 44-hour week,
A slight addition to the cost of rent and rates brings this item up to 10s. 9d. per week. Because of an increase in the insurance rates, the corresponding annual premium is now £84 10s., or El 13s. 9d. per week. The lower initial cost cuts interest to 14s. 5d. per week, making the total standing cost £13 7s. 7d., or 8.03d. per mile.
With fuel costing 3s. 100. per gallon, fuel cost per mile becomes 2.60d. at the same rate of consumption. Lubricants are now reckoned to cost 0.24d. per mile, whilst tyres remain at 1.28d. on the basis of a life of 30,000 miles. Increases in the :osts Of both materials and labour raise maintenance charges to 2.03d. per mile, whilst depreciation is slightly lower at 1.71d.. because calculations are based on the lower initial cost.
By a coincidence, although four of the five items of running :osts in 1960 vary as compared with 1957, the total. 7.86d., is the same. Total operating cost per mile in 1960 is 15.89d., :quivalent to an increase of 4.61 per cent, over the 1957 figure.
In circumstances where the average weekly mileage was 300. :he standing costs per mile in 1957 would have been 9.77d., giving a total operating cost per mile of 17.63d. The corre;ponding figures in 1960 are: standing costs, 10.70d., and total 3perating costs, 18.56d.—a p'ercentage increase of 5.27 over 1957.
The substantial increase in wage costs has been offset to ;ome extent by a decrease in other items of expenditure, resultng from the abolition of purchase tax. This has had a direct :ffect on interest and depreciation, whilst it has also limited :he amount of the increase in insurance premiums. This is lecause the approximate rate is calculated on a combination of ;everal factors, including size, value and location of vehicles. The percentage increases so far shown, however, are limited iolely to the operation of individual vehicles. No account as yet been taken of overhead costs. Unfortunately, for the purposes of this comparison, these are difficult to assess, because they are so dependent upon individual circumstances, But the local carrier, in particular, when handling smalls must inevitably incur substantial overhead costs due to the more elaborate system necessary to control and document this type of traffic.
Moreover, whilst salaries and wages paid to administrative and warehouse staff have been raised since 1957, there has been no reduction to offset such increases
corresponding to the effect of the abolition of purchase tax. In general haulage, the ratio of the total number of staff to• vehicles may be three to one. For the smalls and parcels
carrier with warehousing and transhipment accommodation, however, the ratio could be five to one, with the result that any salary and wage increases must have a particularly severe effect on this type of operation.
The operator in urban areas is also especially hard hit by the continuing worsening in traffic conditions, which must inevitably reduce the amount of useful work which vehicles can do during a working day—and with it his overall profit.
In the annual report of the Road Research Board for 1959 (The Commercial Motor, last week) it is revealed that in 1954 the Board stated that if traffic continued to increase at
the then current rate—approximately. 6 per cent, a year— the number of vehicles on the road in 1963 would have been
about double. In fact, the rate of increase has accelerated and between 1958 and 1959 it was 12 per cent. The effect of this increase on traffic congestion is made worse by the fact that some 25 per cent. of the traffic is carried on 1 per cent. of the roads in this country.
Bearing directly on the operating costs of the urban operator, tables published in the report show that the mean journey speed on main roads in central London, is continuing to fall at an average rate of 0.2 mile an hour each year. During peak periods journey times are averaging 7.3 minutes a mile, of which 3.3 minutes (45 per cent.) is spent in queueing or waiting at controlled intersections. A similar decline in operating conditions is being experienced in all large urban areas.
It therefore follows that the overall cost of effecting the same number of collections and deliveries must have increased sub stantially for the urban operator between 1957 and 1960.
Coupled to an advance of around 5 per cent. in the cost of operating his vehicle, he has also had to meet increases in overhead costs. Revenue, however, has diminished because the quantity of traffic handled during similar periods in 1957 and 1960 has declined because of greater congestion on the roads. The combination of these three factors justifies a substantial overall increase 'in charges for this class of work. S.B.