An Assessment c /Ink Haulage Costs
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Notes and Convnents on a Stout Piece of Work by a Subsidiary of Associated Road Operators: a Schedule of Costs which is Reasonable, and of Rates which are Not
Quite so Good
IHAVE often written, in these columns, to protest about the rates paid or offered by the Milk Marketing Board for the haulage of milk. I have, also had the pleasure of representing a haulier who was appearing before the Appeals Committee—comprising representatives of the Milk Marketing Board and Associated British Milk Carriers, Ltd. —when he was asking for some revision of his rates.
On that occasion, to which I have referred in one' of my past articles, I found that my greatest difficulty arose from the fact that the haulier's figures for his costs were incomplete, and that those operations were inaccurate.
It should always be appreciated by hauliers that, in the carriage of milk, as in every commodity, there are two sets of figures required to arrive at logical data for cost per unit—in this case the gallon. On this point, readers may find it worth while 'tO look up my article dealing with ton-mileage which appeared in " The Commercial Motor " dated April 7, There should he accurate data relating to costs of operating the vehicles, including overheads and contingent expenses, as well as net vehicle-operating costs. There should also be accurate figures for the gallonage carried and the -nuniber of vehicles in service •per day, together with the size and capacity of the machines employed.
The information should re:ate to a period of not less than one year, so that the months when milk is scarce can he included, as well as those when milk is plentiful.
Given these two sets of data, it is possible to arrive at the cost per gallon, and it is not possible to obtain that information, so essential when negotiating for rate increases, by any other means. Since that occasion, when I .attended a hearing of haulier's appeal, steps have been taken to assist milk carriers in arriving at the former set of figures, i.e., costs of operating their. vehicles.
This assistance has been afforded by Associated British Milk Carriers, Ltd., which organization originated in A.R.O. Indeed, the address of the company is the same as that of the A.R.O. It seems fair, therefore, to give credit for this work of helping hauliers to A.R.O., and when I say credit I mean it, for the figures are well. prepared; they do not exaggerate the costs of operation and they do not minimize them: 'So far as the costs are concerned, they are as nearly accurate as it is possible for them to be. I cannot endorse the assessment of profits which accompanies them, for they seem to he low; of that, h6wever; more later.
I note with considerable satisfaction that Mr. C. W. E. Windsor-Richards, whose name is quoted as being responsible for the compilation of this data, has seen fit, as regards several items, to compare his figures with mine, and, further, that there is no material difference between them. Needless to say, that fact has not weighed with me at all in concluding that the assessment is a good one. It does, nevertheless, give me a feeling of satisfaction to find that an independent investigator endorses my data,
A point to be noted is that the figures which are set out, and which I am about to give, are intended to be used as a guide, and only as a guide, in negotiations with the Board. Operators are still recommended to prepare their own data.
The particular usefulness of this work, as I see it, is • that it shows the haulier what items he can, and should, include and, although the authorS do not make this recommendation, I add it to their warning to use the figures as a guide only. I recommend that the haulier, in preparing his own accounts, takes particular care not to overlook any of the items as here set out. He may take it as certain that he has some expenditure under each heading; to dismiss any of them, as beneath his cOnsideration, is' just sheer folly. ' It is apparent from the figure quoted for taxation, namely, £30 per annum, that the class of vehicle in mind is that weighing 2i tons unladen and, of course, that is the Most popular type in use for milk haulage.
In the opinion of those responsible for this compilation, standing charges comprise insurance, licences, wages, overheads and unforeseen eventualities. Garage rent and• tax are presumed to be included in overheads and, subsequently, when discussing the percentage of profit which the operator is offered, reference is -made to interest on first cost.
For the insurance of A-licensed vehicles, i365 per annum is' allowed. It is pointed out that I estimate £50, and that Mr. Windsor-Richards considered £40 to be correct. That sum is the gross retail figure, with no reductions on the ground of fleet operations or for other reasons. As will be gathered from the development of this argument, the compilers have thought fit to draw the data up with reference to a fleet of 10 vehicles and, for that reason, a reduction to £35 is probably justified.
Reference is made to the fact that, if the vehicles be operated under C licences the insurance figure would be only £20. That is a point which I have often made in referring to " The Commercial Motor Tables of Operating Costs," Le., that a haulier's figure for insurance can be taken to be approximately double that of an ancillary user. For licences, £30 per annum is taken, as already noted.
In the case of wages, an average figure of 4260 per annum, or just under £5 per week is taken ; and this, probably, fits the majority of cases of milk haulage in connection with which it is not usual for thereto be pinch overtime, excepting on Sundays.
Next come overheads. In'the case of a concern operating The total of £1,625, divided evenly between 10 vehicles, gives a net figure per vehicle per annum* of £162 1.0s. ConL frasting these figures with my own, a comment is made in which it is stated that the amount named, arrived at independently by Mr. Windsor-Richards and based upon authentic costs, is also given by me. " Unforeseen eventualities," for which provision is made to the extent of £50 per annum, cover an. allowance for bad luck which, as the compilers truly state, is inevitable in the transport business. They have in mind such things as accidents, rear axles ruined by oil leakage, and so on.
The foregoing is the total of standing charges amounting to £537 10s. per annum per vehicle. If those who have gone to the trouble of preparing these figures do no good beyond persuading a small operator to understand that he is involved in an expenditure of £10 per week and, even at that, his vehicle has not turned a wheel, they will have bestowed an enormous benefit upon the industry. That is the kind of thing I have been trying to put over, for many years past, both in lectures and in these articles.
We come now to the running costs: and here a fair procedure has been adopted in arriving at a Minimum figure .and setting, side by side with it, a " recommended " figure which, as regards several items, is just a little higher than .the minimum. Everyone knows that, whilst it is easy to calculate a minimum figure for costs, it is by no means easy to keep costs down to that minimum.
Petrol consumption is assumed to average the equivalent of 10 m.p.g. and, assuming the price to be Is. lid. per gallon, we get 2.3d. per mile for petrol. In this case, the minimum and recommended figures are alike.
Dealing with lubricating oil, the average consumption is assumed to be at the rate of 500 m.p.g.; that is for topping up. In addition, there is provision for a sump change at 3,000 miles, and the total thus approximates to 8 gallons per 3,000 miles. Assuming that the oil be purchased at 4s. 6d. per gallon, the resultant figure is 0.14d. per mile, The minimum and recommended figure is quoted at 0.15d. per mile.
There is some interesting information embodied. in the reference to tyre costs. Allowing six tyres and three tubes per vehicle, that is one tube replacement for each two tyres, the total cost of a set of tyres for a vehicle is arrived at as follows:-Assuming a cover costs £7 19s., and a tube 17s. 6d„ the total is £50 6s. 6d., or, say, £50 per set, reckoning on 32-in. by 6-in. tyres.
In the case of 34-in. by 7-in. tyres the cover is assessed at £10 16s. and the tube at £1 4s. 6d., which brings the total cost of a set, assessed as before, to £68 Os. 6d., or, say, £68. It has been ascertained from an authorized tyre distributor that the average mileage, to-day, for a 32-in. by 6-in. tyre is 8,000, and for a 34-in. by 7-in. tyre from 9,000 to 10,000.
That gives a cost per mile, for 32-in. by 6-in, tyres, of 1.5d., and for 34-in. by 7-in. tyres, 1.63d. The minimum figure for tyres is, therefore, quoted at 1.5d., and the recommended figure 1.6d. Maintenance is carefully assessed, there being allowance for materials and separate provision for labour. The data thus compiled is set out below.
Taking average engine life between overhauls at 30,000 miles•we get: There is a comment on this total to the effect that it is probably -high. On a mileage basis it works out at 1.77d per mile. The assessment is at the rate of I.5d. per mile, minimum, and I.75d, recommended. For depreciation, the average vehicle cost is. taken at £500, and vehicle life at 150,000 miles. That gives 0.8d per mile. The total. 'for running costs per mile. is, thus, 6.25d. minimum, and 6.6d. recommended.
Reference is then made to additional expenses comprising, first, the hire of outside haulage and, secondly, interest on capital invested, in vehicles, business premises and plant. The compilers, however, do not make any direct provision for the latter, and none whatever for the first. As regards the second, this is mentioned in discussing the amount of profit, and it is suggested that the profit element should be 10 per cent., to include 5 per cent, for the interest on capital employed in the business. It is further suggested that, in some cases, and this presumably refers to the small operator, the actual capital investment is extremely small. For a fleet of 10 vehicles, however, £7,500 is considered to be a reasonable figure.
The following examples are quoted as illustrating the way in which these figures can be Applied:
Yearly Standing Rn ining Total Mileage Charges Charges Costs 20,000 6.45 6-6 13.05 30,000 4.3 6.6 109 40,000 3.223 6 6 9 825 Total Profit ipence per Element mile) .9 13-95 .6 115 .45 10 275
My criticism of these figures., as I have already hinted, is that there is an insufficient margin for profit. Indeed, I am of opinion that it is not fair or correct to assess profits in haulage on the basis of capital invested, but on the basis of turnover. There should be an addition, on account of profit, of 15 per cent. to the costs figures. That, to my mind, is a minimum; many operators add 20 per cent., and some as much-as 25 per cent., which percentages they obtain.
The figure which may fairly be added depends upon the class of work, chiefly as to whether it is regular or irregular. As milk haulage is, admittedly, one of the -most regular of haulage employments, it may reasonably be accepted that 15 per cent., the minimum, may be taken.
Further, I am of opinion that the interest on the vehicle cost, should be included in the vehicle operating costs before this 15 per cent, assessment is made. However, accepting that that is a debatable point, I will not press it. Applying the principle that the profit element should be 15 per cent, on turnover, the final schedule should be revised as follows: