AT THE HEART OF THE ROAD TRANSPORT INDUSTRY.

Call our Sales Team on 0208 912 2120

Owners of Oilers

8th August 1952, Page 54
8th August 1952
Page 54
Page 57
Page 54, 8th August 1952 — Owners of Oilers
Close
Noticed an error?
If you've noticed an error in this article please click here to report it so we can fix it.

Which of the following most accurately describes the problem?

Can Make Bigger Profits

Hauliers Running Oil-engined Vehicles are Entitled to Take Full Advantage of their Better Competitive Position Compared with Operators of Petrol Models : "The Commercial Motor" Costs Expert Contrasts Conditions in India with Those Here

IN my article in the July 25 issue, when I discussed a problem of providing for differentials in cost of operation when attempting to schedule rates, I gave data for costs and charges relating to a 5-tonner running 500 miles and carrying 50 tons of traffic in a week.

The data on which 1 based my article related to three different sets of conditions: the first concerned a vehicle operating under what I would call average conditions; the second, a vehicle operating from a London headquarters and engaged mostly on work in and' about London; and the third, a vehicle based in a rural area and under most favourable conditions as regards the cost of operation. The figures I gave were authentic and were taken from records received from a variety of users, although I will admit being somewhat selective in my choice of the figures so as to emphasize the points I was discussing.

As the outcome of these calculations, I was able to show that whilst a fair rate per ton under average conditions and showing a profit of 20 per cent. on total cost was 18s. 10d., £1 applied to a vehicle operating in the London area and only 16s. 6d, to a vehicle operating in a rural area.

I assumed for the sake of argument that the vehicle in every case was petrel-crigined. I have had several letters from readers—a • s&e indication of interest—and I am propOsing in this article to give details of some of the inquiries and deal with the problems they raise.

Perhaps the most important of them came from a friend who asked me if I had not overlooked one important factor in rates assessment, namely, the economies provided by using oil-engined vehicles instead of those driven by petrol engines. The writer suggested that if I were to take the case of an oil-engined 5-tormer operating in a rural area. I should find yet another example of a cost differential which might or might not be taken into consideration in determining a fair arid proper charge.

In a Quandary

Whilst admitting that in writing the article 1 did overlook the importance of drawing attention to this aspect of the matter, I find myself, in something of a quandary because the effect of the use of an oiler provides a problem in itself.

There are several aspects to be taken into consideration and I will deal with them in order, after having first set out the figures for costs and charges comparable to those given in Table I.in the July 25 issue.

It might be as well, for the benefit of those readers who do not happen to have the previous article available and, of course, for new readers, to indicate how 1 arrived at the conclusions, namely, that whereas the rate for average conditions could be 185. 10d. per ton,. that in a rural area could be 16s. 6d., and in London £1.

The first factor is the amountof wages to be paid; next, the rent and rates of garage premises—tow in the country but high in London; then come insurance premiums and establishment costs. The last-named item was also discussed at length and I showed tha:t whereas the average figure might be £3 14s. 6d, per week per vehicle, it rose to as much as E5 8s. per week in London and was as little as £2 per week in a rural area.

S. far as the running costs were concerned, I came to *36 the conclusion that fuel costs would be high in London, moderate under average conditions and low in rural areas. Similarly, there is usually some difference in cost of maintenance in the three sets of conditions and finally, considering depreciation, I pointed out that the factor of obsolescence, which could apply with some force in the London area and under average conditions, would not be regarded as of so great consequence in a rural area. The result was that whereas in the London area the running costs were shown to be 11.95d. per mile, they were only 10.401, under average conditions and 9.14d. in a rural area.

The figures which I have, relating to the operating costs of oil-engined 5-tonners comparable with those used in that Table I are as follows. For the standing charges per week: taxation, 14s.; wages, including provision for National insurance premiums, premiums under the Workmen's Compensation Act and holidays with pay, £6 12s.; garage rent (these figures apply to a rural area), 4s.; insurance, 18s.; interest on capital outlay, 18s. Total of standing charges £9 6s.

Running Costs

For the tanning costs, I take fuel to be 2.64d.; lubricants, 0.20d; tyres, I.30d.; maintenance (d), 0.25d.; maintenance (e), 1.11d.; depreciation, 1.80d. Total, 7.30d. per mile, and for 500 mites per week that is £15 4s. 2d Adding the standing charges and running costs I get £24 10s. 2d. as the net cost of operating this 5-ton oiler running 500 miles per week. I take the establishment costs to be the same as for the petrol-engined vehicle in ,a rural area, namely, £2 Os. Id., which makes the total cost of operation, including establishment costs. £26 10s. 3d. To that I add 20-per-cent. profit, 15 6s., and by so doing arrive at the figure for the minimum weekly revenue which the vehicle musi earn, namely, £31 16s. 3d. The rate per tnn, calculated on the assumption that the vehicle carries 50 tons of traffic per week, is thus 12s. 9d,

Before going any farther, I would like to mention a point which is a matter of principle with me. It relates to the real meaning of the term "rate-cutting." I have always felt that fundamentally if a man assesses his rate on cost and makes proper provision for every item of cost, inciuding the driver's wages and establishment costs andprofit, he is not rate-cutting. Rate-cutting, as 1 have always imagined it, is the quoting of A rate for a job having little or no relation to the actual cost.

I depart from that in the case where a group •of hauliers in an area have met and, either at that meeting or through the association, have agreed upon a rate. Any operator who cuts a rate so assessed, unless he has at the meeting and in some way made known his disagreement with the rate, is guilty. Considering the question of rate-cutting in relation to the differentials indicated by the sets of figures put forward in these articles, it is seen that in the absence of any local agreement, operators will be entitled to quote from 12s, 9d. to £1, according to the conditions under which they are working and the district in which they are operating, but special consideration needs to be given to the case of the haulier using the petrol-engined as compared with a competitor who is operating an oil-engined machine.

Put bluntly, this particular problem may be summed up in the query as to whether an operator of an oil-engined vehicle is well or ill-advised to use the economic advantages gained as a means for cutting the rate, and so obtain traffic at the expense of the operator who uses a petrol vehicle.

Garnering Profits

Logically, he is not only entitled to take that course but in the interests of efficiency and in the promotion of economy of transport he is bound to do so. If, however, we ignore for the time being this somewhat ideological method of dealing with the subject and just consider ourselves to be ordinary haulage contractors, concerned not so much with the interests of the nation as a whole but with the garnering of such profit as is available, we might be inclined to consider the matter on the following lines.

There are two hauliers, shall we say, competing for the same traffic, one being the operator of the petrol-engined vehicle whose minimum profitable rate is 16s. 6d, per ton, and the other, operating an oil-engined vehicle, who can reasonably quote 12s, 9d. per ton and still earn the minimum

profit of 20 per cent. on cost. If the operator with the oil-engined vehicle quotes his -12s, 9d., he is presumably fully justified. How does the other fellow stand? His rate, 16s. 6d., embodies a profit margin of 2s. 9d. per ton so that his actual cost is 13s. 9d., is. more than the economic rate for using an oiler. I am afraid that the only answer that can be given to this question is that if a man has had the foresight to spend an extra £400 on an oil-engined vehicle, he is entitled to take fullest advantage of his improved competitive position.

No discussion such as this is complete without reference to the case of the owner-driver and the owner-driver family. I mean the case where a business is run by a family and all the members have a hand in it. If such a firm be content to accept the driver's wages as their .profit, and further if they be willing to drudge along doing their own accounts at night and thus cutting establishment costs, they are able to put up rates which no fully equipped organization could meet in competition.

Indian Operation

Touching upon the important matter of the economy arising from the use of the oil engine instead of a petrol engine in the lighter types of chassis of those vehicles weighing less than 3 tons unladen, a letter has come to me from a friend in India. He sends me some figures relating to the operation of that type of vehicle in that country and suggests that his method of comparison is more simple than those I have hitherto put forward and asks my opinion.

I have from time to time dealt with this particular subject in so many different ways that I am sure I have on one occasion or another put forward a method of comparison which is quite as simple as this one. However, the point is not of sufficient importance to justify any argument and it is certainly a fact that his method is simple and for that reason may be of particular interest to some readers. It is, in any ease, useful to know what this problem looks like over there and incidentally to note the comparative prices of petrol and oil fuel, and discuss the advantages conferred on the oil engine by the fact that there is a greater difference between the cost of petrol and oil fuel than prevails in this country. He tells me that the difference in price as between the petrol-engined 5-tonner and one poWered by an oil engine averages about Rs.5,000. Dealing with that as a debit against the oil-engined vehicle, he assumes that depreciation is assessed on a time basis and is intended to cover a life of six years, which is equivalent to Rs.833 per annum. For interest on extra capital involved in the purchase of the oil-engined vehicle, he takes 5 per cent, which is Rs.125_ The debit against the oiler per annum is the sum of these two amounts, that is Rs.958.

He turned next to deal with the credit aspect of the matter, and in so doing takes into consideration only the direct saving in expenditure on fuel. He tells me that petrol costs Rs.2-6-0 per gallon and oil fuel Rs.1-2-6. He assumes an average of 9 m.p.g. on petrol -and 16 m.p.g. on oil fuel. At 9 m.p.g. with petrol at Rs.2-6-0 the cost per mile is 4.2 minas; the expenditure on oil fuel is 1.2 annas, so that the saving in cost of fuel is actually 3 annas per mile. In a year in which the vehicle covers 10,000 miles the saving is therefore 30,000 annas, which is Rs.1,875. The economy on various annual mileages he sets out as follows: 10,000, Rs.1,875; 20,000, Rs.3,750; 30,000, Rs.5,625; 40,000, Rs.7,100; and 50,000, Rs.9,375.

Next, he tabulates figures for the net saving per annum. Taking the assumed mileage to be 10,000, which as has been shown affords a gross saving of Rs.1,875 per annum, he deducts from that amount the debit of Rs.958 per annum, revealing a net saving of Rs.917 per annum, and he again tabulates these figures as follows: 10,000 miles, Rs.1,875 less Rs.958 equals Rs.917; 20,000 miles, Rs.3,750 less Rs.958 ' equals Rs.2,792; 30,000 miles, Rs.5,625 less Rs.958 equals Rs,4,667; 40,000 miles, Rs.7,500 less Rs.958 equals Rs.6,542; and 50,000 miles, Rs.9,375 less Rs.958 equals Rs.8,417.

He does not, as 1 think is essential, calculate what I call the critical mileage, that is the distance to be run per annum in order exactly to compensate-for the debit of Rs.958 per annum. This is assessed by finding how many miles must be run in order that the net saving is Rs,958, having in mind that the actual net saving per mile is 3 annas.

Critical Mileage If I multiply Rs.958 by 16, I get the equivalent in annas. say 15,328, and dividing that by three I get 5,109 miles as the critical mileage. It is 'sufficiently accurate at this stage to state that if the vehicle runs 5,000, miles, the savings in fuel are equal to the debit on account of depreciation and interest. I like to quote that figure because it puts me in the position of being able to say that so soon as the 5,000 miles mark is passed, the vehicle returns to its operator a net saving of 3 annas for every mile run in that year.

It seems_ to me that I should give equivalent figures for the debit and economy as they are in this country, and if I do that I shall at least have answered the criticism that I have not considered this problem in the same simple manner as my correspondent. An average figure For the difference in costs between the petrol-engined and the oil-eng,ined 5-tonner is £400. Assessing the depreciation and interest in the same way as my correspondent, I must allow, to the nearest pound. £66 per annum for depreciation over six years and £20 per annum for interest at 5 per cent. on the initial extra outlay. That is £86 per annum debit against the oiler.

Taking the cost of petrol to be. 4s. 2d. per gallon and that of oil fuel to be 3s. 9d., and assuming the same fuel consumption as suggested by my correspondent, the cost per mile for fuel in the case of the petrol-engined machine is 5.56d., and that of the oil-enginecl vehicle 3.00d., showing a saving of 2.56d. per mile.

Savings in Cost

Now I can set out in a manner similar to that above the annual savings, gross and net, for different annual mileages. The savings in fuel cost are as follows (to the nearest pound): 10,000 miles, £.213; 20000 miles, £427; 30,000 miles, £640; 40,000 miles, 053; and 50,000 miles, £1,067.

The net savings per year calculated by subtracting the debit of £86 from the above saving are: 10,000 miles, £213 less £86 equals £127; 20,000 miles, £427 less £86 equals £361; 30,000 miles, £640 less £86 equals £554; 40,000 miles. £853 less £86 equals £767; and 50,000 miles, £1,067 less £86 equal £981.

The critical mileage occurs when with the saving of 2.56d, per mile the £86 debit per annum is eliminated: a simple calculation shows that that occurs at approximately 8,000 miles per annum of 160 miles per week. It is of interest to note what an important factor in dealing with this problem the price of fuel is. In India, where the difference between the prices is greater the critical,mileage is 5,000 miles per annum or 100 miles per week, as against 8,000 miles per annum and 160 miles per week ,here.

In my next article I shall deal with costs in rural areas, giving 50111e amending figures comparable with those dealt with in previous articles. The figures I shall give will be those offered by a small operator whose traffic includes anything from seed potatoes to livestock.

The operator concerned runs three vehicles—a lone.' wheelbase 5-tonner, a similar 2-tonner, and a 30-cwt. tipper. He also has a livestock container for each vehicle.

Tags

Locations: London

comments powered by Disqus