Cost of Maintaining Smaller Stocks
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By S. Buckley
Assoc. Inst. T.
iT week. in discussing the assessment of traffic 3tentiality, it was pointed out that although the actual )st of operating a vehicle was basic to the problem, there ther factors involved. These could include the nature commodity carried (for example whether or not it was and aspects regarding terminal points and general flow ic. In this latter connection some rates schedules not ifferentiate relative to tonnage and mileage but also tish between delivery points in populated areas as d to rural areas, the reason for this being that there is sly a greater possibility of a return load from the ted 'areas.
e is much misinformed criticism to the effect that far .ny goods vehicles are operating and in support of this :km the substantial increase in the number of C4icensed s is exampled. There are several good reasons for this .dly large increase, including the most obvious of
an overall increase in national productivity. But nposcd on this basic increase is the undoubted fact that crease in productivity has often only been achieved at Dense of -reduced warehousing and loading facilities.
CT ON COSTS in turn has resulted in an increasing demand for more it' deliveries. Whilst, overall, this might he justified nically, it does mean that there are greater demands transport services needed to distribute the products conand the ultimate effect is that more journeys have to le by extra vehicles.
1st it will be readily recognized that greater expenditure ■ Ived when more vehicles than before arc needed to meet mand for a more frequent service, the effect on costs of g vehicles being required to make more deliveries of r average quantity is not always fully appreciated. Wireipart from the comparisons which can be made purely on ing basis. consideration also has to be given as to the ions on the maximum number of hours which a drives mined to be in charge of his vehicle. This is because. tctice, a small proportion of deliveries left over from evious day owing to the effect of these statutory requireare unlikely to be delivered in a time pro rata to a total delivery. For example, if a particular run could tically be completed in I} days it is unlikely that three ourneys would in fact be accomplished in four days. More two such journeys would require three days, despite and figures to the contrary.
h apparent inconsistencies may not be so irrational as first appear. An experienced driver will in a short time the most convenient times when to deliver at certain • and will naturally so arrange his journey for the maximum nience both of himself and his customers. 1 he addition ore and more consignments to deliver, however, will ttely have the effect that some of these deliveries have to ide at inconvenient times. In that event, even if the extra ries can be effected, it is more than likely that the standard time per delivery originally etimated would go by the board on such occasions.
The difficulty in formulating an acceptable example of this trend as it affects operating costs, is that there is -virtually no limit to the variations in time and mileage necessary to complete a round of deliveries. Nevertheless, the following hypothetical example will at least indicate the variation in costs, even though the actual amounts in each case may not correspond with individual operators experiences.
For the purpose of this example, a standard 5-tonner with platform body and fitted with .petrol engine is chosen. -Its unladen weight of 2 ton 12 cwt. incurs an annual licence duty of 1.39, and with an appropriate addition for a proportion of the A licence fee, the equivalent standing cost per week for licences is then 16s. 5d. The cost of wages to the employer is reckoned to amount to £10 13s. I Id. This includes insurance contributions and an adjustment to permit holidays with pay. Rent and rates in respect of garaging the vehicle add 19s. 6d. and vehicle insurance 11 19s. 10d. a week, based on an annual premium of 199 12s. Od.
Allolving for a nominal rate of five per cent on the initial outlay of £1,054, interest charges then amount to £1 Is. Id. a week, so giving a total for these five items of standing costs of 115 10s. 9d. a week. Based on a 42-hour week, this would be equivalent to a cost per hour of 88.78d.
With petrol purchased in bulk at 4s. Id. a gallon, and a rate of consumption of 12 m.p.g. maintained, the fuel cost per mile amounts to 4-08d. Lubricants are estimated to cost 0.24d. and tyres 1-30d. per mile, on the basis of a cost per set of 1163. Maintenance is assessed at 2.64d. a mile, inclusive of washing, servicing and major repairs.
As it has been assumed that this particular haulier commences operations with a new vehicle, it would be unlikely that the type of service which initially demands such a standard would subsequently tolerate a vehicle being run virtually to destruction. Consequently an allowance will be made for residual value when calculating depreciation. But before that stage is reached it will be assumed that the vehicle runs 150,000 miles whilst in the first owner's possession.
This results in a depreciation cost per mile of 1-26d., so giving a total for the live items of running costs of 9-52d. per mile,
THREE EXAMPLES
These costs will now be applied to three hypothetical examples of a delivery round. In the first case, it will be assumed that 20 deliveries are effected in a total run of 80 miles. This run is then increased to include 25 deliveries over 100 miles and, finally, 30 deliveries over 120 miles.
In all three cases it is assumed that the vehicle commences its journey fully loaded, i.e., 5 tons, and that the loading time (one hour) and combined unloading times (two hours) remains the same. But there will, of course, be additional terminal time as the number of deliveries increase, although the overall quantity of goods delivered remains the same. This is because
virtually the same amount of time for location and documentation will be required on each delivery irrespective of the weight. There will also be additional travelling time as the mileage increases. This, incidentally, will be calculated at a nominal 20 m.p.h. overall.
Dealing with the first journey, the combined loading and unloading time would amount to 3 hours and allowing 6 min. per delivery for additional terminal time a further 2 hours will be involved, giving a total of 5 hours. Travelling time for the 80 miles at 20 m.p.h. adds a further 4 hours, making 9 hours in all. As the standing cost per hour is 88.78d. the cost for the 9 hours amounts to 66s. 7d, whilst 80 miles at 9.52d. per mile (as already calculated) adds 63s. 6d., giving a total of 130s. Id. for the complete journey. Irrespective of the actual weight of individual consignments, the cost per delivery (20) is 6s. 6d. or alternatively the cost per 1 cwt. delivered is 15-61d.
Dealing similarly with the journey involving 25 deliveries and a total mileage of 100, to the basic loading and unloading time of 3 hours is now added 2 hours 30 min. (25 deliveries at 6 min. each terminal time). Travelling time is now 5 hours (100 miles at 20 m.p.h.) giving a total for the journey of 10 hours 30 min. The equivalent cost calculated as before is then 77s. 8d., whilst the running costs for the 100 miles now amount to 79s. 4d., total 157s, Ocl. With 25 deliveries effected the cost per delivery, despite the additional mileage, is reduced to 6s. 3d. But more significantly the cost per I cwt is increased to 18.84d. Compared with the first example (15-61d. per cwt.) this represents an increase of 20.68 per cent.
When 30 deliveries were made and 120 miles operated the additional terminal time would then be 3 hours and the travelling time 6 hours, which when added to the basic loading and unloading time would result in a total time of 12 hours. The corresponding costs are 12 hours at 88.78d. (88s. 8d.) and 120 miles at 9.52d. (95s. 2d.) giving a total of 183s. 10d. The resulting cost per delivery is then 6s. Id. and the corresponding cost per cwt. 22.06d., an increase of 40.68 per cent as compared with the journey when only 80 miles were involved to effect 20 deliveries.
But, as will be noticed, in the third example just quoted, the total time taken exceeds the statutory limit of 11 hours. Theoretically, one hour of the delivery round would be left for the following day's work. In practice this would pot be so. At the very least, some part of the journey would have to b retraced before the balance of the delivery could be effectec so adding to the original one hour.
In all probability, however, there would be other complica tions. The actual deliveries it was prudent to leave to th following day would not conveniently comprise the ones a the end of the round, as originally devised. Consequently, th amended rearrangement would inevitably result in a greate overall mileage, assuming that the original round was the mos economical possible.
INTANGIBLE LOSS
Moreover, all such additional costs would be quite apar from the real but intangible loss of customer goodwill by till late arrival of those deliveries left over to the following day In total, the cost of the extra deliveries could be substantial!: above what costing in isolation from practical aspects migh indicate it to be.
As stated earlier, these are purely hypothetical examples ant their sole purpose is to highlight the variations in the relativi costs per delivery and per cwt. Even after reasonably accurab costing has been calculated, it is nevertheless possible to misusi thesewhen formulating charges. It is important when makini a quotation to a customer for work of this type involvinl several deliveries per day to try to ascertain what changes if any, can be anticipated in the immediate future and thi effect such changes would have on the operating costs.
Thus, for example, the haulier may be fully aware that thi greater the mileage run the lower the operating cost per mile. Ii the case of this 5-tonner, when averaging 600 miles a week, tlu operating cost is 15-74d. per mile, reducing to 14-18d. at 80( miles and 13.35d. at 1,000 miles. But these advantages at the higher mileages will be illusory if charging has been on a fla. rate in relation either to the number of deliveries or overall weight. In that event the relevant cost per week would be 600 miles, £39 7s.; 800 miles, £47 5s., and 1,000 miles, £55 45 It will be apparent that far from the vehicle cost then beini lower (in terms of mileage) there will be an additional cosi of £7 18s. or alternatively £15 17s. per week to be met by the haulier with no additional revenue if a flat rate based on the number of consignments has been agreed to. Provision should at least be made for periodic review of such charges.