Unfairness of That ‘60 per Cent
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on Tangible Assets
In this Second Article it is Shown that it Makes no Allowance for the -Reward of Enterprise, Ignores the Existence of the Professional Ability of the Haulier and Condemns Him to Penury
Solving the Problems of the Carrier
THAT there is something fundamentally wrong in the method of payment to controlled undertakings, on the basis of 6 per cent, of the written-down value of the tangible assets, is obvious to every thinking operator. Why it should be wrong is not so abundantly dear.
Now, it so happens that I have had some personal experiences of this attitude of mind on the part of dovern ment officials. The first case was typical, and arose about three years ago in connection with a claim by a haulier for loss of profits due to unnecessarily prolonged detention of two large vehicles, Whith were stood by in anticipation of the need for their services on A.R.P. work. '
The assessment of loss of profit, by the official of the department concerned was, even at. that early date, on the basis of 5 per cent. of the value of the tangible assets. It is true that he had not conceived the bright idea of writing down that value, but apart from that his methods paralleled those of the present Ministry of War Transport officials. I had a long argument with this official, much of which was aset out in my article in last week's issue: the conclusion follows.
For the benefit of those who have not read the previous article it would be as well to give a summary. The value of the tangible assets—the two vehicles, plus sundries— was £5,000.The rate of profit suggested was £250 per aminum, that being at the rate of 5 per cent. per annum on the value of the tangible assets.
Professional Ability Must be Taken into Account
I am trying to prove that the haulier is entitled to have his professional ability taken into Acount, because it is due to that fact he is able to obtain work for his vehicles. To make that point, I have cited extreme examples of .use of the two 12-tonners. In one, each vehine carries full loads each way twice per week over a 200-mile route, thus completing 19,200 ton miles of work. In the other, wherein professional ability is clearly lacking, each vehicle does one journey per week, carrying 8 tons in one direction only : toe ton mileage is thus 3,200.
Stating that he was still unconvinced of the validity of my argument, the official then 'asked for a statement of cost plus profit in respect of these two undertakings. I gave him these figures. In tin first case: operating costs £80 per week ; establishment costs 220 per week ; total, £100. Profit at a minimum of 15 per cent., £15 per week, or £750 per annum. . In the second case: operating costs 450 per week ; establishment costs £10 per week ; £60. Profit at 15 per cent., £9 per week, or £450 per annum.
Pit this point the official spotted what seemed to him to be a weak point in my argument, in that an operator working his vehicles, so well as to be able to do 19,200 ton miles per week receives £750 per annum profit, whereas the other, doing only 3,200 ton miles, receives £450 per annum.
It was at this juncture in the story that the previous article terminated, When I said that " the difference does not exist in actual fact. To explain it involves a further discussion of themore practical aspects.
" They can, however, be summed up in a few words. The inefficient operator cannot obtain the specified revenue, and will not long remain in business:" " I am afraid I must ask you to explain how that comes about," he said.
It is largely a question of rates," I answered. " The inefficient operator is not likely to he able to Command rates much, it at all, in excess -of those obtained by the
efficient haulier, and in these circunistances the desired revenue will not accrue."
"Can you give me some figures" he asked.
" Certainly," I said. " We can take an average rate of 35s. 'per ton. Some of this traffic will be .carried at 40s. to 42s. per ton, but against that must be set a good proportion Of low-rated traffic at round about 28s. to 30s. per ton."
" There is something wrong there," he objected, after some quick mental arithmetic. "The two vehicles carry 96 tons per week, and at 35s. per top that is £168 per week, instead of £115, which is all that you have budgeted for."
" To explain that I must get down to the practical aspects I mentioned. In' the first place, it is a practical impossibility to obtain full loads in both directions on every journey. Taking into considerationloads short of 12 tons, occasions when there is dead mileage from the point .of delivery of the outward load to that at which the inward load is collected, as well as those occasions when the return load is missed altogether, it is fair to expect a total of no more than 75 to 80 tong per week as the yearly average. That brings the revenue down to -between £132 and £140.
" Then there is another factor. The average number of days per annum on which a vehicle works isbetween 260 and 265. Reckoning six days per week, that means only 43 or 94 weeks per annum, instead of the 50. The figure of £132 to £140 is thus further reduced in the proportion' of 50 to 44 and becomes £116 to £123—and remember I said that £115 was to be regarded as a minimum."
" Agreed," he said, "1 'accept these figures as being near enough to the standard set. Now, what about the other fellow? "
" There is no need to go deeply into his case," I replied.
A State of.AfFairs that will •
not Cover Operating Costs
.fAssume for the sake of argument that he is getting as mach as £2 10s. per ton for his traffic, he is still .earning only £40 per week, which will not cover his vehicle operating costs. He will soon be out of business. Actually, of course, I don't suppose there is a case like
that. I quoted it merely to throw into high relief the example of the man who has the professional ability to keep his vehicle profitably employed."
" Well, I now know mood deal more than I did about the financial side of the haulage business and I accept your figures as being fair and reasonable . . . ," he said.
" Then you will . . . ," I began.
" Oh, no," be interrupted. "It does not mean that I am gojng to agree to pay you for loss of profits on the basis of 15 per cent, on turnover or anything like it. I still adhere to my original view that we shall compensate your client at the rate of £5 per week, that being at the rate of 5 per cent, per annum on the value of his assets."
" You are going 'to stick to that in the face of all I have said? "
".Certainly," he replied, "and for a reason which you connot dispute, for it arises directly out of your own argument."
" Whatever can you mean?" I asked.
" Simply this," he said, "you have based the whole of your argument for better terms on the fact that a haulier, in the prosecution of his business, utilizes his professional skill and knowledge and thus earns emoluments in excess of those 'calculated according to my standards,"
" Yes." I butted. inhere. " There was no exercise of that professional ability during the weeks in which my department detained the vehicles and there is, therefore, no need to pay for it. In other, words, you must agree that-I cannot be expected to recommend the department to pay for something it never had, to wit, the professional services of your client."
So now, readers, you know, and is not the analogy between that case and the Ministry of War Transport's attitude over the payments to controlled undertakings perfectly clear? The Ministry is taking over the undertakings, but is not relying upon the sagacity and professional abilities of the owners for keeping the vehicles employed. On the contrary, the Ministry is providing a horde of officials whose principal concern will be to keep the vehicles, so far as possible, unemployed!
Composition of a Fleet That Originally Cost £100,000 Suppose we try to apply the above reasoning to the fleet of vehicles, costing originally £100,000, specified in the example quoted by the S.J.C. and mentioned in the article I wrote in the issue of "The Commercial Motor " dated March 5, 194.1.
There is room for a deal of guesswork in surmising the • make-up of a fleet which costs so much, There is, however, this to go upon—it is mainly engaged on long-distance haulage. The following is, therefore, reasonable (remember that the prices are pre-war figures) :— The operating costs, of these vehicles will approximate to £100,000 per annum—the figure cannbt be accurately quoted because the range of possibilities is so wide.
A concern of this magnitude will have depots in some of the following towns :—London, Liverpool, Manchester, T.,eeds, Hall, Newcastle-upon-Tyne, Glasgow, Cardiff, Birmingham, Coventry, Southampton, Bristol, and where it has not a branch depot it will have a branch office. Its establishment expenses are likely to total £12,000 per annum, so that the total expenditure will be not less than £112,000 per annum and may well be 2120,000. On the minimum basis of 15 per cent, on turnover, this concern is entitled to a profit on the year's working of upwards of £8,500, and is probably accustomed to making .£10,000. The Ministry of War Transport will award it 42,609 !
No wonder Mr. R. W. Sewill, in discussing the scheme with members of A.R.O., has stated that 'The industry is being asked to sign a blank cheque, and in doing to will be signing its own death warrant."
But why, it will be asked, if this be a true picture of the comparative benefits (a). of enrolling as a controlled undertaking and (b) of remaining free, has such a large number of concerns agreed to serve? •
The answer may well be that they have decided that a guaranteed profit, however microatopical, is better than the almost certain loss which is likely to result frbrn trying to be independent 'and operating such vehicles as can, under the ensuing conditions, be kept upon the road, Will Non-controlled Undertakings Have a Thin Time?
. What will he the conditions under which non-controlled undertakings will work is not quite clear. It does appear, however, that they are going to have a very thin time.
Apart from the exceptions already quoted, almost ad nauseam, it appears that all traffic for conveyance over distances in excess of 60 miles is to he " controlled " and, as such, is subject to the approval of the Unit Controller. As I understand it, the Unit Controller will decide how that traffic is to be conveyed, and it seems to me to be perfectly obvious that, as the scheme develops, the business will be, more and more confined to controlled undertakings, those concerns which are not controlled being given only that which is surplus to the total load 'capacity of. the combined fleets of the ccntmlled undertakings.
Moreover, such traffic as does get through the very fine sieve of the controlled undertakings Will be carried in vehicles which are " hired " from non-controlled undertakings. At the time of writing the rates of hire do not appear to have been determined. ' But the uncontrolled operator will, for a long while, ecdeavour to keep his organization in being. He will 'not be able td cut his establishment charges to any great extent, or to avoid depreciation charges against his vehicles and equipment. He will have garage rent to pay, interest charges and so on. On the whole, therefore, the reason why so many concerns have decided to become controlled is not far to seek.
HoweVer, how parlous is likely to be the state of the industry if this war lasts another couple of years, and, how easily will it become the prey of any competing form of transport. Alternatively, what with the degree of control already operating, and no financial strength to resist 1.poliation, how easy will it be to prove a. case for
nationalization'? S.T.R.