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Planning for Profit
Page 94
Page 97
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Limiting Responsibility
Whilst Ownership Permits Complete Control of Vehicle . Operation, Contract Hire can Offer Greater Flexibility
THE contentious issues which arc now being discussed and decided, relative to the transfer from contract-A to open A licences, should not be allowed to bemuse the practical and economic advantages and disadvantages associated with the ownership or, alternatively, the hiring of commercial vehicles. Whilst several of the recent licensing cases concerning vehicles already on contract-A licence were relative to medium or long-distance operation, there remains a high proportion of vehicles operating under carriers licences which are limited to retail delivery, or similarly restricted work. It is in this field, in particular, that potential operators should consider carefully the merits of both ownership and hiring before committing themselves to capital expenditure.
Repeated inquiries which are received for advice before making such a decision indicate that it is a problem which is being given increasing attention from trade and industry. In the initial approach to this problem it should never be overlooked that however large and efficient a transport department or organization. may be. it remains fundamentally a service to trade and industry. Paradoxically, in the very striving for greater efficiency it could well be that a transport department becomes, albeit imperceptibly, no longer ancillary to the manufacturing or sales department it was set up to serve. The danger of such a situation arising is all the more likely when large sums have already been committed on the purchase of a fleet of vehicles. .
THE tempo of modern industry is another factor which has to be considered relative to the operation of commercial vehicles. Because transport is inevitably interwoven with the time factor, its operation and control has always been an exacting business. This is doubly so today when ever-increasing demands on industry for greater output necessitates strict time scheduling throughout the process of manufacture and subsequent warehousing and distribution. '
In such circumstances, transport management can never be a part-time job and any trader or manufacturer entering into transport operation under such an impression may soon find much of his time diverted away from his primary responsibility. Due to the modest returns which transport operators generally have to accept, an ancillary user in such circumstances may ultimately find that he has been spending the greater proportion of his time on the less profitable section of his undertaking.
In a similar context, many large and efficient manufacturing organizations with adequate-capital reserves to purchase a fleet of vehicles if they had so wished, have decided that hiring is the best policy even if the hiring of vehicles whether on contract or day-by-day, should cost a little more than what is shown to be likely when running their own fleet. This is because the returns likely to be obtained by a similar amount of capital invested on the manufacturing side of the business would invariably be greater than any benefit derived from the operation of an ancillary fleet of vehicles, no matter how efficiently run.
But as with so many generalizations there are several exceptions when the outright ownership of vehicles engaged in the carriage of goods can be justified. The urgency of a particular traffic and the absolute necessity for strict personal control from the moment of collection to final delivery is a common reason, whilst the ratio of transport costs to that of the finished product is another.
The size of a manufacturing company or trading organization would naturally have some bearing on whether or not it would prove profitable to operate one's own vehicles. This alone, however, is seldom the primary factor on which a decision is reached. The geographical location of centres of manufacture and ultimate sales areas and, additionally, the location of depots and warehokses may prove to be of much greater significance in assessing whether an economic balance of traffic movement could be achieved.
As mentioned earlier, however, the urgency of a particular traffic—fish, horticulture and other perishable foods are obvious examples—may be such that return empty running must be virtually accepted as inevitable. Similarly, sales policy, and particularly problems which can arise in the collection of cash from customers, can also dictate that ownership of vehicles is desirable, although uneconomic from the point of view of balanced traffics.
DERSISTENT and possibly an increasing number of break.11.downs of ancillary vehicles is often a starting point for reviewing the merits of hiring as opposed to owning commercial vehicles. When new vehicles have originally been acquired there will no doubt be an interim period when such breakdowns seldom occur, thereby giving the illusion of art efficient transport department. Freedom from breakdown over a longer period coupled with operation at economic cost, however, is achieved only by careful forward planning of maintenance based on extensive practical experience.
Relative to maintenance, the labour problem is particularly acute due to the high wages offered by manufacturing industries. Whilst this problem still remains even for the contract hire specialist of medium or large size, he would at least have some nucleus of staff at any one time despite a comparatively rapid turnover, if in fact that should be the situation. With a small ancillary user, however, who possibly employs only one or two fitters he may find that he has no maintenance facilities whatever during the interim period between staff leaving and their ultimate replacement.
DEPENDENT upon the age of the vehicles operated, this 1.A/temporary lack of maintenance facilities may not imply the cessation of operations, but ultimately the cumulative effect of servicing tasks left undone could prove very expensive_
. It is also difficult for an operator of a small fleet to provide, economically, equipment with which to undertake siMpie servicing. This is because it is unfortunate that the capital outlay on air compressors and lubrication equipment, which is virtually essential once it is accepted that something better than the hand grease gun is required, is relatively high. The small operator is thus placed in the dilemma of either having to accept the comparatively high capital outlay or be content to pay the high labour cost involved in undertaking servicing largely by hand. Even if this latter course were adopted it would still presuppose that drivers would be sufficiently skilled and conscientious to ensure that the various tasks had been carried out satisfactorily.
In addition to the problems of capital outlay and recruitment which must inevitably arise when organizing motor vehicle maintenance, the necessity to ensure that work has, in fact, been satisfactorily carried out requires the existence of an efficient control and recording system. As this would be in addition to whatever system was employed in operating the vehicles, only the largest ancillary users would have both the time and experience to set up and keep such a maintenance system. But without it, the standard of reliability of the vehicles must inevitably, if not immediately, deteriorate and with it the standard of service which the transport department should have provided.
An industrialist or trader would naturally have expert knowledge of the product he handled, including the conditions under which it was necessary for it to be transported and the frequency of delivery relative to comparable services provided by his competitors. Beyond that stage, however, it would be by no means certain that he would have the experience to determine correctly the type and size of both chassis and body which would most economically carry his goods wherever he wanted.
The larger ancillary user can afford to employ an experienced transport manager who could competently advise on vehicle selection, but for a large number of smaller users this would not be the case. Once the wrong type of vehicle had been purchased, no amount of efficient operation and maintenance could reverse an uneconomic decision. In contrast, the professional operator, whether haulier or contract hire specialist, would have the necessary experience to make the right selection both in his own and customers' interest. With the wide range of motor vehicles now available, the possibility of making a wrong choice should not be too readily discounted.
PROBABLY even more difficult than the selection of the right type of vehicle is the economic size of a fleet. Even such long-established industries as breweries have to contend with seasonal fluctuations in traffic and there must be few, if any, users who do not have to deal with uneconomic ebbs and flows at some period during the year. Whilst this has been a long-standing problem of transport operation generally, it has become more acute during post-war years for several reasons. Two of the main ones are the substantial, if uneven, rise in national productivity, coupled with a highly competitive labour market, as a result of which it becomes impracticable to vary one's labour force to any extent relative to changing traffic requirements.
When an industrialist or trader is faced with this problem of determining the economic size of a proposed ancillary fleet. the access which he would naturally have to advance information as to possibly expanding sales would he invaluable. But nevertheless after the most careful estimates have been made and vehicles purchased, it is highly probable that in the light of subsequent operating experience, some adjustment to the original estimate as to the ideal size of fleet would have to be made. This expensive period of trial and error would have been avoided if a policy of hiring vehicles had been adopted.
Unfortunately, even if an efficient costing system had also been set up at the time the fleet was acquired, it would be extremely difficult to determine just what such a period of trial and error had cost the trader or industrialist, but it may well more than offset the apparently greater cost of hiring vehicles, if in fact this was the case.
Prominence has been given to the ancillary users' habit of creaming the traffic." This implies carrying a convenient proportion of the more remunerative traffic and hiring out the remainder. Whilst such policies are undoubtedly adopted by some users, the extent to which this is done can be overemphasized. Many C-licence operators can, in fact, instance examples of loads which they have carried on their own vehicles which have been totally uneconomic, and which could not have been carried within the limited time available by any other means.
ALSO, as mentioned earlier, many drivers of ancillary users are concerned with the handling of cash and, in addition, a substantial measure of their company's goodwill depends upon such drivers' relationships with customers. In these circumstances the introduction of outside drivers at irregular intervals could have serious repercussions on both immediate and future sales. Because competition is so keen in many distributive trades, any saving which a transport department could show to be obtainable by using their own vehicles to move, say, 75 per cent, of their total traffic, and hiring for the remainder would be more than offset by objections raised by the sales department.
In such circumstances, the advantages of a trader employing his own drivers and operating the vehicle under a C licence, whilst the ownership and responsibility for its provision and maintenance is undertaken by a contract-hire specialist, are substantial. In many respects it can be held that the best of both worlds is thereby achieved. The trader retains complete control of the driver, since he is his own employee, together with the day-to-day operation of the vehicle, whilst he has the assurance that he has the support, experience and resources of an organization set up precisely for the purpose of maintaining vehicles both efficiently and economically.
Whilst the reasonable profit which a contract-hire specialist must necesarily include in the charges has to be met by his trader customers, it should not be overlooked that if he is in any sizeable way of business he will undoubtedly enjoy the benefit of fleet discounts on the cost of vehicles, subsequent equipment and spares which would not normally be available to an ancillary user or, at least, not at similar high rates. Coupled with the more efficient employment of garage equipment and labour because of both a greater throughput and the existence of a strict maintenance•schedule, these factors should give the contract-hire specialist the opportunity to quote competitive rates to his customers compared with the cost of operating their own vehicles. S.B.