Solving the Problems
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THIS WEEK'S PROBLEM of the Carrier IT is always possible to learn a good deal from any haulier's figures of costs and earnings, and it is not always those which are most nearly correct that are most useful in this regard. Indeed, it is rather as the result of omissions and fallacious recording that lessons
are learned. .
There was a man whom I met recently, and whom I had encountered about a year previously, when he told me that he was thinking of taking out a contract for the haulage of cattle foods. He did not give me details at the time, otherwise I might, perhaps, have helped him to avoid the troubles with which he was eventually beset. He told me at our second meeting that he was most dissatisfied with the way matters were going. He said that he started quite well and was making a fair profit for a time, but that had fallen off rather badly and he could not see the reason for it.
At the time, 'little more could be done, because he had no detail figures with him and it was not possible to discover what the
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trouble was, merely from the rough data that he could give me, speaking from memory. We arranged to meet later, when he said he would bring his accounts with. him. Actually—and this shows how agitated he was— he came to see me a week ago, making a special journey from his headquarters in the Midlands to do so. He had summarized his accounts for two quarters. His figures appear in Tables I and II.
Before relating the conversation which I had with him, it will be of interest to study the figures as they are, for they contain, in themselves, certain lessons which can be amplified later. They refer to a 3-ton lorry of well-known snake, vintage 1926. This machine he bought in September, 1934, for £80, and put to work at once on the cartage of oil cake and meal, and so on, under a year's contract. He held a contract A licence, and was debarred from employing the vehicle for any other purpose. The importance of that fact will transpire later.
The first thing to do in a case like this is to examine the headings, so as to obtain some idea of what is included and, at the same time, see whether anything has been omitted. The first and most obvious deficiency is the figure for mileage. I gather that the work was entirely short-distance haulage, being that of loading up the meal and cake at the contractor's warehouse and distributing it to farmers, all within a 10-mile radius.
No Record of Mileage.
The haulier had never thought it worth while to keep any record of the mileage, but he told me that it approximated to 250 per week. If it be taken that an average journey is about eight miles, that a load is 3 tons, and that the average is 16 to 17 loads per week, then the figure for mileage appears to be approximately correct.
There is a column for petrol and oil and its cost and another for work done, thelatter being recorded as total tonnage. The next heading is "wages and insurance." It will be noted that there is a considerable variation from week to week, the explanation being that the driver is paid at piece rates, actually at is. 4d. per ton, that sum including insurance, as well as wages. The next column shows the figures for receipts, and I should state that the rate was a "flat" one of 4s. 3d. per ton.
Now conies "gross profit." A brief examination of the figures shows that this sum is arrived at by deducting from the receipts the total of wages and insurance and expenditure on petrol and oil. Obviously, there is a good deal to be accounted for under this heading before we arrive at net profit, but, possessing our souls in patience, as it were, we inquire into the next column, which is headed "standing charges and depreciation." I had this explained to me and will, therefore, pass on the-explanation just as I received it, reserving the right and opportunity to criticize a little later.
What this operator calls standing charges comprise the tax, 237 per annum ; insurance, 222 10s. 6d.; garage rent, 222 2s. ; and depreciation, 226. The total is 2107 12s. 6d., which is 22 1s. 6d per week, as set down. Deducting 22 is. Gd. from the gross profit gives the figure for net profit. That is set down in the last column There are some notable omissions in this schedule of costs, which, as will ultimately appear, are very serious. Ttere is no provision made for Maintenance, or for expenditure on tyres. There is no allowance of any kind for establishment costs or contingent expenses. In some cases, these proved to be sufficient to turn an apparent profit into a serious loss.
It is rather interesting to analyse this operator's figures for petrol and oil consumption. It will suffice if I take into consideration only the winter quarter. The total consumption of petrol during the 13 weeks was 308 gallons, equivalent to 28.3 gallons per week. For 250 miles that is equivalent to 8.83 m.p.g. and, with petrol costing Is. 3d. per gallon, as it then was, the cost per mile for fuel is 2.2d., a figure considerably
in excess of the average of 1.50d. quoted in The Commercial Motor tables. This circumstance is only to be expected, having in mind the nature of the work, involving short hauls, a considerable amount of low-gear travel and an old and considerably worn vehicle.
Excessive Oil Consumption.'
The oil consumption for the same period was 121 pints, or 9.3 pints per week. The haulier told me that he• paid is. per pint, so that his weekly expenditure on oil was practically 9s. 4d., which is 0.44d. per mile for a 250-mile week. That compares with the figure of 0.06d. in the tables, and is thus more than seven times as much as the average. There, again, the figure should occasion no surprise. It is a common experience that oil consumption rises with petrol consumption, but at a steeper angle. The class of work concerned would naturally tend to increase the consumption of oil. An even more potent factor is the use Of an old chassis, evidently requiring a rebore.