RH/D/20 Under• Comparison
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‘-.The Commercial Motor" Costs Expert Draws up his own Charges Schedule to Correspond with the Official Publication and Discusses the Differences between the Two MOST hauliers will be familiar with the publication referred to as RH/D/20. There was a reference to itins" The Commercial Motor" dated September 7 on page /36 Where it was stated that: "Schedules of rates for the weekly and daily hire of goods vehicles, included in RH/D/20, have been completely revised and brought up to .date by the Road Haulage Association. Copies of the new document may be obtained from the Secretary of the Association, 146, New Bond Street, London, W.I, or from area offices at 9d. each." ' This schedule of rates was brought into force as. a wartime measure in 1943 and was generally used by the Ministry of Transport as a basis for the payment for hire of vehicles during the war. The original schedule was drawn up by what was then Associated Road Operators, which is now the R.H.A., and was agreed with the Minister. The schedule although it had its critics, was reasonably popular and was generally applied in connection with the local hire of vehicles.
It has, of course, been revised from time to time in order to keep .Up with -Steadily rising costs, and the most recent revision is that referred to. It became operative on May. I of this. year: ' • . . .
As I have already ;Stated, this schedule is reasonably popular and 'all. the rates which it embodies are usually accepted as showing, a fair profit to operators who work to them. It haS been suggested to me by one or two of my acquaintances who are engaged in this class of business that they would like me to use my own methods to draw up a corresponding schedule and compare the two. Among other things, it was pointed out that operators themselves have no idea as to how RH/D/20 Was compiled, whereas if I were to deal. with the matter I should indicate the basis of my schedule. and operators would be able to compare their actual costs with those quoted by me and be able to judge if any modifications be necessary.
Independent Calculations I have done so, studying first the form of the schedule and then calculating my own figures independently., The first step towards my schedule is embodied in Table I, where I have set out figures in full detail for the average cost of operation for the use of vehicles ranging in load capacity from 2 tons to 7 tons.
Readers will note that my investigation is going to he somewhat limited compared with RH/D/20, inasmuch as that publication relates to vehicles of load capacities ranging from 5. cwt. to 15 tons inclusive. I do not think it neces s38
sary to draw up a schedule of such dimensions here, but shall be willing at any time on request to produce figures for any particular load capacity if any reader desires me to do so.
In the explanation of the data in Table 1, 1 will take a 5-tonner as an example to show how I have arrived at the figures set out under that heading. The first point with which I. shall deal is iniportant as it has a great effect on the results. I refer to the way in which depreciation as an item of operating costs is treated.
Reckoning Depreciation As a general rule, depreciation is treated as a running cost, that is to say, it is calculated on the basis of miles run. From general experience, a mileage is assumed which bears a direct relation to the expectation of life of the vehicle. The net cost of the vehicle is divided by that mileage figure and the amount of depreciation per mile is arrived at.
In some cases, that method of assessing depreciation is not the best. Where the annual or weekly mileages are low, the effect on the calculated charge for hire is to the detriment of the operator and in such cases depreciation is better regarded as a standing charge, that is to say the vehicle is given a life in years and depreciation is reckoned by the year, month or week.
I have recently been adopting a method of dealing with depreciation which is, I might say, halfway between these two extremes. I have taken half the amount of depreciation and assessed it as a standing cost, and the other half as a running cost.
Taking the initial cost of the 5-tonner as £950, I first:of all deduct the cost of a set of tyres, £160, and obtain a figure of £790. Next, I assume a residual value for the vehicle— the price it is expected to fetch when the operator gets rid of it and buys a new one. In this case I have assumed that to be -£90. Taking that from the £790, the cost of the vehicle less tires, I am left with £700 as the basic figure on which depreciation must be calculated.
In calculating depreciation in this way I must make two assumptions. I must assume a life assessed on the basis of time and one assessed on the basis of mileage, Here, I am taking it that the vehicle, as will be obvious from the cost price quoted, is not among the more expensive machines and will have a life of four. years on time and 100,000 miles on mileage. I divide £700 by two, giving £350, and that divided by four gives me £88 as the depreciation per annum. DivNing £350 by 100,000 I get 0.84d. per mile.
Another modification to my usual practice is in transferring "Maintenance (d)" from running costs to standing charges. As a matter of fact, that is where it belongs because that item refers •to such operations as washing, greasing and painting which are done on a time basis. The standing charges comprise: tax, £35; wages, Grade area, assumed at £5 16s. per week, which is what they are likely to be in the very near future, plus an allowance of Ws. per week to cover provision for National Insurance, insurance under the Workmens' Compensation Act and holidays with pay. That makes the gross amount £6 6s. per week, which is £327 12s. per annum. For garage rent I have assumed 10s. per week or £26 per annum; insurance on the 13-licence scale, £26 10s. per annum; interest on capital outlay at 3 per cent. of £950, £28 10s.; depreciation (half) from above, £88; maintenance (d), £32 (an average estimate); and finally, overheads, £150. The total is £713 12s, per annum.
The next thing I have done is to reduce that to a cost per hour and to that end I have taken a 50-week year, five days in each week of 44 hrs., which is 2,200 hrs. per annum. If I divide £713 12s. by 2,200 I get, to the nearest farthing, 6s. 6d. per hour as the debit for standing charges.
In considering the running costs, it must be appreciated that vehicles engaged in this type of work are heavy on petrol, oil and tyres and cost more than normal to maintain. I have taken 3s. 4d. per gallon as the average price paid by hauliers for petrol. I have assumed that this 5-tormer does 11 m.p.g. Tnat means that the cost per mile for petrol is 3.36d. Oil consumption is assumed to be a little higher than average, and the cost is set down as 0.20d. per mile. For tyre life I have taken 200,000 miles, and as £160 is the cost of a set, the cost per mile works out at 1.92d. For maintenance (e) there is an allowance of 1.63d., which is a little more than average, and the remaining item, depreciation, at 0.8441. has already been explained. The total is 8.22d. per mile. In assessing profit, regard must be made as to whether the vehicle is on daily or weekly hire. If it be weekly, 15-percent. profit should be regarded as reasonable, because in the case of weekly hire the operator is fairly sure of regular work. If I add 15 per cent. to the set figure of 6s. 641. per week I get 7s. 6d. (to the nearest penny) as the hourly charge, and if I add the same percentage to the total cost per mile of 8.22d.. I get 91d. per mile as the mileage charge.
In RU/D/20 the assumption is made that the vehicle runs an average of 5 m.p.h. and the figures in the Schedule are based on that. In this case,therefore, the charge per hour should be 7s. 6d, plus five times 91d., which is nearly 4s., so that I should suggest a rate of Ils. 6d. per hour for the weekly hire of the 5-tonner according to the figures for cost for operation which are set out in Table 1.
For daily hire, the minimum profit should be 20 per cent., and that gives me the figures of 7s. 10d. per hour and lOd. per mile setdown in Table H. Taking 5 m.p.h. again as the 'average, I should need 7s. 10d. plus five times 10d., which is 4s. 2d., making 12s. per hour as my figure corresponding to RH/D/20 in a Grade I area.
I may now compare my figures with those. in RH/D/20 and 1 find that RH/D/20 gives 1 ls. 3d. per hour for weekly hire compared with my Ils. 6d. _ and Ils. lOid. per hour for daily hire compared with my 12s. 4d.
For every mile in excess of 5 m.p.h. I should charge the amount quoted in Table II, and it would be reasonable to take the lower figure. In the case of the 5-tanner that would be 91d. per mile compared with 7d, in RH/D/20.
In conclusion, a point arises in con
nection with the heaviest size of vehicle included in Table 1, the 7-tonner. Operators may ask •what the corresponding figures for oil-engined vehicles might be. Such a vehicle would cost, perhaps, £2,500 and would have 36 by 8 tyres costing £216 per set. The cost less tyres would thus be £2,284. It would be reasonable to expect a fairly substantial amount to be set down as the residual value because prices of used vehicles of this type are good. If I take £484 as the residual value, 1 get a balance of £1,800.
240,000-mlle Life Figures must be assumed for time and mileage depreciation and I am going to take eight years as the time and 240,000 miles as the mileage. According to that assumption, I have to spread £900 over eight years, which gives me £113 as the amount to be debited under depreciation for the standing charges, and £900 to be spread over 240,000 miles giving me 0.90d. as the amount to be set down under depreciation in the running costs.
The corresponding depreciation figures for the petrol
machine in Table I are £112 standing charges and 1.08d. for the running costs. On that basis there is therefore nothing to choose between the two. There would, however, be further savings because of the use of an oil-engined vehicle. Approximate figures for the running cost would be for fuel oil, 16 m.p.g. and 3s. lid. per gallon, 2.30d.; lubricants, 0.22d.; tyres, 2.16d.; maintenance, 1.62d.; and depreciation, 0.90d., giving 7.20d. edinpared• with 9.81d. for the petrol, engined machine.
There is therefore no point in dealing with this vehicle in drawing up a comparative schedule, since the number of operators handling this class of work and likely to use a 7-8-ton oil-engined vehicle is comparatively small. In a subsequent article I propose to give corresponding figures for tipping vehicles and then to set the results out in a form directly comparable with that of RH/D/20.