It Pays to Use Oil
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AT the close of my previous article I referred to a man who appreciated that he should have his vehicle converted from petrol to oil but was of the opinion that he should first get all he could from the petrol engine before he made the change. He proposed to run the petrol engine until it was fit only for scrap before he bought the oil unit. I registered my disapproval and promised to deal with the matter fully in this article.
Basically, my opinion springs from the fact that for every mile the petrol engine is run the operator is losing money which he would save if he fitted the oil engine, and the sooner he makes the change the sooner the benefit will accrue,
Let me take an example, a 6-tonner with petrol engine, costing new £1,000, with 34 by 7 tyres, covering a weekly mileage of 500. Depreciation is taken over 150.000 miles, the engine is likely to need overhaul or substitution by a reconditioned unit at 50,000 miles. The cost of conversion to oil is £400.
First let me assess the operating cost of the vehicle as bought. The tyres can be taken to cost £80, so that the vehicle less tyres is assessed at £920. Allow £90 as residual value and the balance, £830, is the basic amount on which depreciation is to be calculated. At 150,000 miles that is 1.33d.
The standing charges per annum will be approximately as follows: tax, £35; levy, £8 2s.; wages, £364; rent and rates, £24; insurance, £40; overheads, £150; total, £621 2s. Running costs: petral, 4.50d. per mile; lubricants, 0.19d.; tyres, 0.80d.; maintenance, 1.96d.; depreciation, 1.33d. Total, 8.78d. per mile.
Taking the annual mileage to be 25,000, the total cost per annum is £621 2s., plus 25,000 times 8.78d., which is £915, making the grand total £1,536 per annum (omitting the odd shillings).
Interest Omitted
It will be noticed that in the above schedule of standing charges I have omitted the item " interest." I have done so mainly to simplify the calculations, also I obviate the need to run over the standing charges again for the oil-engined vehicle: without the item interest the standing charges are the same for both types of vehicle.
The running costs for the oiler are approximately: fuel, 2.51d.; lubricants, 0 19d.; tyres, 0.80d.; maintenance, 1.80kl.; depreciation, 1.57d. Total cost per mile, 6.87d. Total running cost per 25,000 miles, £716 (to the nearest £). Total cost of operation per annum, £621, the standing charges, phis £716, the running costs, making £1,337. Savings accruing from the use of the oil engine, £199. I am sure no one will object if I call it £200.
Now the situation I have in mind is that my haulier friend has the petrol-engined _unit and is being advised to convert it to oil. He agrees that it would be a wise move but, says that he will continue to run his vehicle on petrol until the engine is worn out and therefore due for replacement. I advise him to change at once, and have to persuade him that I am right.
There are quite a number of points to watch in considering this matter and dealing with the problem in such a way that it will be of use to all readers, even those who are only just entering haulage, having bought some of the. B.R.S. units, The hardest case, of course, is that of the man who has just taken delivery of a new vehicle. Actually, of course, he should have bought an oil-engined machine in the first 1328
place. That he did not is surely due to his having been given the wrong advice. At least there will seem to be some sense in his decision to get some work out of his new engine before he replaces it. I have to prove that his decision is wrong.
The cost of conversion is £400. The oil engine, when fitted, will remain without any need for renewal for upwards of 100,000 miles, probably 120,000, according to the care which is bestowedon it. I have just indicated that, in this case, the economy of the oiler is such that the saving per annum or per 25,000 miles approximates to £200. In one year, therefore, half the possible benefit of conversion has gone "down the drain," never to be recovered. Probably the petrol engine will give 50,000 miles of service before it is due for replacement, at a cost of about £60. By that time the cost of postponing the conversion will hase amounted to £400.
If the operator takes my advice and has the vehicle converted at once, he will have to spend £400 to save £400 in two years, after which he will continue steadily to earn that extra £200 per annum.
£200 Per Annum It does not matter whether the engine and vehicle are old or new, it is folly to wait for the petrol engine to give up before effecting the conversion. The point to bear in mind is that, in the case of a vehicle running 500 miles per week. the.f3Clay 'costs the' operator in extra running costs £200 per annum. Suppose the haulier has bought a unit from the B.R.S. and that he has paid £500 for it, of which £100 is the assumed value of the A licence, so that the vehicle is reckoned to cost £400.
The conditions, as regards cost of operation, remain unaltered. So far as the chassis and body of the vehicle are concerned, the owner may reckon that he will have to spend some money on repairs, but the total, repairs and depreciation, will probably remain about the same, so that the figures for total running cost will be the same as above.
Lower down the scale of annual mileages the problem becomes somewhat more difficult. Suppose that the mileage of the new vehicle is 300 per week, 15,000 per annum, how does the change justify itself?
The standing charges, including overheads, remain the same, namely, £621 (ignoring odd shillings). The running costs per mile remain unaltered too, but, of course, the total of running costs per annum is now only 15,000 times the running costs per mile which, in the ease of the petrol. engined vehicle is £549, making the total operating cost £1,170, and in the case of the oiler, £1,050. The difference, in favour of the oiler, is £120 per annum. For every year of delay in effecting the conversion, therefore, the operator is losing £120, which seems to me to be sufficient to justify the change-over being carried out at the earliest possible moment.
A chat about the value of these special A licences brought forth some interesting information about the way some operators arrive at the rates they charge. The methods were not in any way novel: at least they were not so far as I was concerned. They may be new to newcomers to the industry. My view is that the value of these new licences can be assessed only if the prospects of profit-earning loads can be calculated. The licence is a measure of the goodwill of the business which the haulier proposes to set up, and it was in that way that the following rates calculations were brought forward. The line I took was that goodwill is at all times to be leasured by the profit which a business is making; therefore, an operator is trying to discover what he should pay for se A licences he anticipates he will receive as part of his urchase, he must first calculate what profit he expects to lake out of them.
One of those present when the discussion took place escribed a contract he had been offered. It is the sort of antract rarely offered to any businessman. It related to iateriaIs which had to be carried over a 70-mile lead. The vekty tonnage was 60 and it was to be taken in 15-ton 'ads. The railway rate was 45s. per ton and the operator ad already picked out, in the Disposal Board's lists, a mple of 15-ton eight-wheelers, one of which he had trmarked for this contract.
Referring to "'The Commercial Motor' Tables of rperating Costs," Table V gives the data relating to this rpe of vehicle, According to that, the bare operating cost, isuming the employment of two drivers, is £58 per week, .dd a further 114 to cover the wages of two driver's mates rid a total of £72 is reached.
In a case of this kind, the establishment charges, which tould include allowance for contingent expenses, will be tiny high, amounting in all probability to about £8 per eck. The grand total of outgoings is therefore about £80 er week. The cost per ton is thus £1 6s, 8d. and there is margin of 18s, 4d..between that and the railway rate. The yntraet provided for a rate of 35s. per ton, equivalent to revenue of £105. I wished the operator luck; no further )mment was needed.
The other ease, curiously enough, also related to a contract carry 60 tons per week, • This time, however, the distance as 2.00 miles each way. The railway Tate was £2 15s. per on, plus certain charges, the exact amount of which was not sown. The operator decided to charge £3 per ton and ietned likely to get the job at that price. He proposed to se a couple of 12-tonners and do the work with them, veraging 2l journeys per week with each vehicle.
Two Drivers and Mates Now that is equivalent to 900 miles per week from each iachine. It will be necessary to have two drivers and two ales per machine. According to the Tables, the net perating cost of each machine is £69 per week, that winding provision for the wages and allowances for two rivers.
Add £14 for the two mates and we obtain £83 as the are operating cost of the vehicle. Here again, as in the revious example, the combined total of establishment (penses and contingencies will be high, probably amounting t not less than .£7 per week. That brings the total expendiire per vehicle per week to £90, and that should be igarded as a minimum. The total cost is therefore £180 id that will enable 60 tons per week to be conveyed etween the two termini.
Actually, the cost of operation, including the sundry cpenses which I have described as establishment expenses td contingencies, is rather more than £3 (I am providing ir additional expense on unknown and unexpected items). is clear, therefore, that the revenue, at £3 per ton, will ital £180, which equals the expenditure only with no rovision for profit.
His comment, when I pointed out that this arrangement )11.id not be regarded as a sound business proposition, was lot he anticipated being able to obtain return loads. He id he believed it was possible to get such loads from caring houses and even if the rate was as low as £1 per in he thought it would suffice. In a way, he took up recisety the same attitude as the haulier to whom I referred few weeks ago. And, as in that case. I was almost at a tss for words in which to express my opinion of his mduct.
I quite believe that he will find no difficulty in getting :turn loads at £1 per ton: hundreds of merchants will be ore than willing to pay that. My attitude, if I were a ierchant, would be one of doubt. I should be wantIng to now how he came to be in a position to do the work for so little, and I do not think I should be so ready to accept his explanation, even if he told me the truth, as no doubt he would. After all, many merchants must be well accustomed to hearing that excuse (that he wanted a return load): many, no doubt, get a good deal of their traffic executed at low rates simply by selecting hauliers who are looking for a return load.
There was a third conversation at about this time, which brings other aspects of rates quotation into the limelight. This time there were three of us, myself, an experienced haulier—one who most definitely does not cut rates—and a potential customer of his who had a certain amount of business to place.
It appeared that the man who wanted to place some traffic wanted to get his goods moved at rates which were unacceptable to the haulage contractor. Neither would give way. and it appeared that the possible customer was in a position to command the services of other haulage contractors at the rates he had in mind.
Missing the Contract Those rates were not such as would bring a reasonable profit to the haulier who did the work, that, of course, being the reason why the two parties concerned could not come to terms. When I came upon the scene they had reached the stage of agreeing to differ. The haulier had resigned himself to missing the contract and the other man was convinced that he had better carry on according to his existing arrangements.
He as good as admitted that he realized that the rates he was paying could not be profitable to the mdfn who was doing the work. He had, however, been having the work done for 10 years and was quite satisfied with the service he had been receiving. That, of course, made it particularly difficult to present any satisfactory argument in favour of a change.
Generally, in a case like this some poverty in the service rendered made it fairly easy to persuade the buyer to change his haulier, or, at least, there was a basis for argument on those lines. The question therefore arose: How is it possible for a haulage contractor to continue to work at an unprofitable rate, year after year, and still remain in business?
The answer is I think, in the case just described. Hauliers set a potential profit from one customer against a certain loss from another. The man with goods to be carried who is determined to obtain a cut rate can usually get it. What he does not know is that he is being subsidized by another tradesman who is paying more for his work than he would otherwise need to do. Nor do I imagine that the cut-priCe merchant would be greatly perturbed if he had that knowledge,
When Trouble Occurs The position is tenable and will remain so only until the man who is paying the higher rate discovers what is happening. Then there is trouble, and the haulage contractor concerned has to look for someone else to carry the burden which has hitherto been borne by the complacent fellow who has been paying excessive rates.
It did not occur to me at the time to ask the haulier whose story is the second of this trio what he would do supposing a fellow haulier operating in the contrary direction offered to carry the basic traffic for which he obtained £3 per ton for ft a ton. It needs little thought to arrive at the conclusion that it is a succession of operations of this kind that, in the ctId days, was responsible for the general reduction in haulage rates, and it is not only the little man who is ignorant of his operating costs who is to blame. Experienced operators are wondering how Icing it will take to get into the same parlous state of affairs as then existed.
I sometimes think that the only solution is that the haulage business should be entirely confined to ownerdrivers, so that all would be down to bedrock with their rates and no one would tell on anyone who did cut rates.
S.T.R.