MORE DISAGREEMENT ABOUT STABILIZED RATES
Page 22
Page 23
If you've noticed an error in this article please click here to report it so we can fix it.
Another Haulier Who Disbelieves in the Principle, and Emphatically Denies the Practicability of Adopting Rail Rates
Is a Basis
IMITATIONS of space prevented me from concluding, in the preceding article, the story of an argument I had with a haulier about the subject of stabilized rates for road transport. He derided the idea of a rates schedule and expressed the opinion that the chief effect of any attempt to establish one would be to encourage rate-cutting, by setting up a.• rates ceiling under which hauliers could quote.
' The basic principle of his scheme of economics was that each haulier should have freedom to quote for traffic, using his business ability to enable him to undercut competitors and, at the same time, earn kmple profit for himself.
In support of his views, 1st rather cleverly introduced the subject of commercial-vehicle prices—speaking, of course, of pre-war figures. Vehicle makers, he pointed out, were as keenly competitive -as any haulier, and one of their stock sales methods was to offer a buyer a price concession, a discount off list prices, either directly or, when a part-exchange deal was concerned, indirectly, in the way of an enhanced price for the used machine.
No one, he said, ever paid the full list .price for a commercial vehicle. Tha price lists were an indication of the point at which the Dutch auctioning commenced, it being generally accepted_ that, -other things being equal, the order would go to the agent or representative whose bid—the price he would accept•for his vehicle—was the lowest.
"Rates in the Schedule 'as Something to disregard" .
He was of the opinion that any road-transport rates schedule would be trelted in ahnost, but not quite, the same way. Both hauliers and hauliers' customers would regard the rates in the schedule as something' to disregard, except in so far as they showed the charges which need _ not be paid. , He did admit that sometimes, when negotiations for a new vehicle were in progress, factors other than price were considered. He agreed that many operators preferred, if possible, to stick to one make of vehicle without paying too dearly for the privilege, and that whenever there was experience of good service in respect of any particular make that might turn the scale.
Actually, he pointed out, those things had their counterpart in the dealings which hauliers have wittheir customers, in that traders will continue to empoy the same haulier, in face of rate-cutting offers by competitors, because they do not like to change. The factor of good service, too, he said, was just as important as when buy. ing a vehicle. In fact, the more we argued the closer grew the analogy between vehicle list prices and rates schedules.
A reference by me to the work of the Road and Rail Central Conference evoked, first, derision and then an invitation to another haulier, Bill, who happened to be present, to join in the discussion. Bill, it appeared, was on the Area Committee of the Conference, and knew all ;about that side of rates stabilization. From then onwards the conversation became a three-sided one.
In point of fact, Bill didn't start by discussing the roadrail side of rates -stabilization. He had some views of his own on the general aspect of the subject, which he was
apparently determined to voice. • " You'll never do it," he said.' , "Never do what? " I asked.
• " Get the road-haulage ,industry to work to standard rates," he replied. "Because it's fundamentally unsound. It's wrong to try and standardize prices for a commodity which in one case costs much less than it does in another. It is uneconomic and for that reason is hound to fail."
" But what makes you think there is so much difference between one man's costs and those of another?.-" I asked. " Well, I know that to be so," he replied. • " Nonsense," I rejoined, " taking them by and large, the operating costs of vehicles are practically the' same when engaged on similar work. Certainly the difference is not sufficiently great to justify any material difference in the rate."
Some of the Factors that Go to the Making of a Rate
" I'll take you up on that in a minute," he said, "but before I do so I'd like to remind you that there are many other things besides vehicle costs which go to the making of a rate."
" I agree," I replied. " I suppose you-include establishment costs as one? "
" Yes, as well as organitation. . . ."
" You are thinking of the return-load problem, I suppose," I interjected, " like Charley, our mutual friend who is with us? " "I don't know what Charley has been saying, and I don't quite like the term ' return load" in this connection. What I had in mind Was the factor of tonnage, tonnage. per week in relation to the mileage run." "A rose under another name, I think," I butted in, " but go on with your argument." " Well, in the first place," he began, "I can prove that my vehicle operating costs are 10 per cent. below average." "Possible," I said, " but in only rare instanced."
"What I can do others can," he retorted. " I use a mike of vehicle which I do knew is more economical in fuel and lubricating oil than any other. I buy that make for that reason, and not on price." ' "Are you listening, Charley? " I said, remembering his homily on vehicle prices.
." That's all right,'' said Charley.
Then Bill continued. "Then I am most careful with tyres, and I have found from experience that I can reduce costs on these, as against the time when I was not so careful, by 40 per cent.
" Again, my maintenance costs are low—not because I neglect maintenance, hut for precisely the opposite reason,
because I have a good mechanic. Like me, he it abeliever in the truth of the old proverb, ' A stitch in
• time saves nine,' and he doesn't cost me much because my headquarters are right in the country, where wages, whilst reasonable, are below the town levels. And, by keeping maintenance well in mind, I am able to keep my vehicles on the road for a greater percentage of days per annum, and that, besides being a point which so many hauliers overlook, is an important factor in overall costs red uction . "
" Very true," I murmured.
"Then," he continued, "this 'same practice of main
fenance makes my vehicles last longer, so that I can cut average figures for depreciation by from 10 to 15 per cent.
" Now all these add up to a considerable saving," he went on, " and I. can show you figures which will prove that my running costs are at least 10 per cent, below average."
" Another time, perhaps," I said, " let's finish this argument first. A 10 per cent, reduction in running costs does not mean a 10 per cent. reduction in operating costs. I suppose you realize that?
"Days Worked Per Annum Per
.Vehicle are above the Average" " I do, but I also know, that 111 the annual mileage is high as it is in my case, totalling about 70,000 miles per annum per vehicle, and if you take into consideration the point I have already made—that my 'days worked per annum per vehicle ' are above the average—the saving does not fall far short of that percentage." But," I objected, "you have mentiOned that you live right in the country. Surely that means you must run a lot of dead mileage getting your vehicles to and from the 'terminal points, and if teat is so, you are likely to lose most of your 10 per cent. saving from that cause? "
" On the contrary," he replied, "I save by it, not only in direct costs, but also in establishment charges."
" I agree you may save something in establishment costs " I said, " but I don't see your other point."
" It comes about this way," he explained. "My country residence, as I like to call it, is almost midway between the terminals of my principal route.. It is, in fact, the point at which my drivers change, and by careful routing I have arranged that most of my drivers, who are natives of the district, or at least live there, always sleep at Ifbme, so that in that way I save a considerable amount in subsistence allowances and expenses of that kind,"
" Mm," I murmured, "that's rather clever,' and I must admit you've got something there."
" I certainly have, and, in view of all these circumstances, I maintain that my operating costs are more nearly, 15 than 10 per cent, below the average. However, I will meet you half way by claiming only 121 per cent. But that isn't all. The question of traffic density must be considered; that is what I. mentioned a minute or two hack, calling it tonnage in relation to weekly mileage. In devising a rates schedule you must take an average figure for that, just' as you do for operating and for establishment costs. Am I not right? "
• " Yes; that must be so. To take maximum traffic density would be to rate the charges below the economic level for those who operate over routes on which traffic density is low. On the other hand, to base a rates schedule on the poorest routes Would be to fax charges at too high a level. To take an average figure is the only practicable way."
" Very well, then. .Now, I maintain, that because of the high percentage of return loads over the routes I serve —my average is 98.2 per cent, of loaded mileage—my costs per ton are reduced still further by an amount which I must admit I do not know with any degree of accuracy, but which I estimate to be at least another 10 per cent."
" Are you trying to persuade me that your total costs per ton, over these routes, are 22i per cent. below average? It wants a bit of swallowing, you know."
" I am well aware of that, but it is true, I can produce figures to prove it, but actually I needn't do so.. I have , been in business for nearly 15 years and I have built up a cdnsiderable business which is to-day showing me a handsome profit. Moreover, I am well aware of the fact that my name is ' mud ' amongst all .my competitors. I am known as the worst rate-cutter in this area.
" Now, my point is that I am not a rate-cutter, for the simple reason that up to now there have been no recognized rates, and you can't cut what doesn't exist. I have always quoted on a cost plus profit basis, and a genuine net profit at that. If rates schedules are introduced, as you so strongly recommend,. then I automatically become a rate-cutter." .
" That is just what I have been telling him," broke in Charley: " The result of all these fancy rates schedules will be to start as fierce a battle of rates as has ever been known in the industry," Stabilized Rates Schedules „ will be Made Compulsory
" What you fellows are overlooking," I replied, " is that these stabilized rates schedules are to be made compulsory. Anyone failing to observe them runs the risk of losing his licence. Anyway, Bill, wh3S. should you worry? You are going to get returns which will show you a better profit. You will have nothing to grumble at."
" Oh, but I shall," was Bill's reply. " I shall lose half my traffic to the railways. My customers may be willing to pay a little more than rail rates for the convenience they get by sending traffic by road, but they won't pay the rates you are proposing, not by a long chalk.
" If the rates are increased, as you propose, I shall lose all the advantages I have in the way of traffic density. My costs per ton will rise, and I shall not be making these lvonderful profits you speak of—I shall be running at a loss.
" Indeed, I tell you quite bluntly now, I shall not vary my rates, but shall continue to charge as I am now."
" And run the risk of losing your licence? " I interjected. " Certainly. I may as well lose my licence as run at a loss. But I have no fear that I shall lose my licence."
" What makes you so confident of that? '
" Simply this. In my view no British Government will dare to insist on my rates being increased, in the face of the fact that I can now show they are commercially practicable and that my business methods are sound. I believe, with Charley, that the stabilized rates will be maximum rates, and that we shall be forbidden to exceed them."
(To be continued) S.T.R.