Costing Van Operation
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FLEXIBIL1TY has been a major factor in the success of the road transport industry. It has enabled it to meet the varying needs of trade and industry more readily than competing forms of transport—always provided, of course, that both men and machines are equal to the challenge of change.
Such flexibility is exemplified in the variety of types of body which are now available on commercial vehicle chassis. A more recent development is their availability as _ standard production rather than specialized modifications or additioi3s, with resulting economic benefit by way of lower initial outlay.
Because this process of widening the range of bodies available is a continuing one, the precise point in time at which a specialized vehicle becomes accepted as " standard " is virtually indefinable. But it should not be overlooked that in the initial stages such commonly accepted vehicles today as the tipper or van body vehicle were once the exception. In statistics recently published by the Ministry of Transport the extent to which once specialized bodies are now produced in quantities is exemplified. Thus, for example, in the A-licence category, of a total of 89,700 vehicles, 37,100 were fitted with other than platform bodies and of this latter amount 20,000 had box bodies. Similarly, in the B-licence category, 10,600 had this type of body compared with 23,100 with platform bodies.
But in addition to the technical differences arising from varying types of body, almost inevitably there are changes in the type of operation to which such vehicles are put. Accordingly, when endeavouring to estimate the cost of operating vehicles fitted with other than standard bodies, a wide range of factors has to be taken into consideration. Moreover, because of these distinctions in both types of vehicle and operational conditions to which they are put, it becomes more difficult to calculate costs which could be considered " standard " for a practical range of operation.
It is at this stage that some confusion might arise as between the fundamental principles of commercial vehicle costing and the specialized type of operation to which it may be applied. The overriding factor to be observed in such an exercise is that the underlying principle of such costing remains valid. This principle is that the cost of operating a commercial vehicle arises from two components—namely, expenditure incurred on a time basis and that arising from the mileage actually operated. Although when so stated this appears a relatively simple principle to observe, there are several examples in transport operation where the time factor is a major item not only in expenditure, but also as part of the overall service provided.
The "Ends" are Important Separated into its component parts, a single journey consists of loading, proceeding and unloading. In general haulage, and particularly long-distance operation, the intermediate part—namely, proceeding—is often considered as virtually the whole exercise itself with the loading and unloading as relatively minor additions. Recent events by way of terminal and dock delays and statutory limitations on loading and unloading from the highway have cornpelled operators to re-assess the importance of the two "end" bits of the overall journey.
In some types of operation, however, the importance of loading and unloading has always been recognized, even to the extent of providing the major concern, with the intervening mileage run being of secondary importance. A typical example of such a situation is to be found in furniture removal, where not only do terminal arrangements assume major importance but, additionally, the extra men forming the necessary team to carry out a removal are usefully employed only at the terminal points. As a result the standing costs and labour costs are of paramount importance, whilst conversely—because such a high proportion of time is taken up at the terminal points—the mileage actually run and resulting cost is a relatively small proportion.
Before estimating the cost of operating a typical vanbodied vehicle, such as would be used in this trade, it will provide a useful comparison to make a similar estimate for a standard platform-bodied vehicle, assuming that a 5ton oil-engined chassis is used in both cases.
With an unladen weight of 2 tons 17 cwt., the annual licence duty incurred would be £42, and with an appropriate allowance for the carrier's licence fee the weekly equivalent for licences for this vehicle would be 17s. 8d. Wages for a 42-hour week based on a Grade f area as specified in R.H.80 would cost the employer £11 2s. 6d. This amount includes national insurance contributions and art adjustment for holidays with pay. Rent and rates in respect of garaging the vehicle is arbitrarily assessed at £1 Is., and vehicle insurance at £2 2s. 9d, a week. This latter amount is based on an annual premium of £106 18s. to provide comprehensive cover in a medium-risk area.
Although queried in some quarters, interest on the capital outlay is considered a valid charge to standing costs, as otherwise there would be no logical reason-for accepting the additional responsibility of running the business as compared with receiving interest on gilt-edged securities. This would still apply even if all the other items of operating costs except interest had been met out of revenue. Moreover, the item of interest is not to be confused with any hire-purchase payments that an operator may make.
Unfortunately, compared with pre-war ycars, what was once a stable "institution "-namely, the Bank Rate-now fluctuates along with other prices and costs. For' the purpose of compiling "The Commercial Motor Tables of
Operating Costs' a nominal rate of interest on capital outlay of five per cent per annum is assumed. Recently, however, the Bank Rate has been raised to seven per cent. Just to what extent this may be a temporary increase is outside the province of this series, but as a compromise a rate of six per cent will here be assumed in both instances.
With an initial outlay of £1,310, the cost of interest on this amount would be LI I Is. 5d. per week. This gives a total for the five items of standing costs for this platformbodied 5-tonner of £16 I5s. 4d. a week.
Dealing now with running costs, it will be assumed that fuel oil is purchased in bulk at 4s. 80. a gallon, inclusive of the recent addition of 6d. to the fuel tax, so giving a total tax of 3s. 3d. per gallon. With a platform body it will be assumed that fuel is consumed at the rate of 18 m.p.g., giving a fuel cost per mile of 3-13d. Lubricants add 0-26d per mile and tyres I.26d., assuming a mileage life per set of 30,000. Maintenance, inclusive of washing, servicing and repairs, is reckoned to cost 2.94d. a mile and depreciation 2-044. per mile. In calculating the latter figure the equivalent cost of the original set of tyres is first deducted from the initial price of the vehicle, with a further deduction in respect of the estimated ultimate residual value, whilst a vehicle mileage life of 1513,000 is assumed.
Because, as already mentioned, the average-mileage of a vehicle engaged on removal work is relatively small, a similar assumption will be made in respect of this platformbodied vehicle. Accordingly, an addition to the normal cost of depreciation (1-63d. a mile) is made to allow for an element of obsolescence. The total for these five items of running costs is therefore 9.63d. The total operating cost per week is therefore £26 I5s. I Id. when 250 miles are run.
When the same chassis is fitted with a 1,200-cu.-ft. van body it will be assumed that the initial outlay is £2,250, whilst the unladen weight is also increased to 3 tons 14 cwt. This results in an annual licence duty of £55 10s.. giving a standing cost per week in respect of licences of £1 3s. 2d. Wages, as before, will be reckoned at LII 2s. 6d. for the basic 42-hour week. Rent and rates in respect of garaging the vehicle are increased to £1 10s., bearing in mind the better accommodation that may be required.
Insurance to provide comprehensive cover in a mediumrisk area is again assumed, but because of the higher initial outlay, additional premium will be payable in respect of excess value over £1,000. The resulting annual premium would then be £131 5s., or the equivalent of £2 12s. 6d. a week.
No Discounts Included
In all these calculations, including insurance costs, no allowance is made for fleet discount or any other type of discount obtained as a result of individual negotiation. Obviously, these must be peculiar to the individual concerned and cannot be considered as an average cost. Moreover, as regards insurance costs in particular, these will also vary substantially in direct relation to each and every individual operator's accident record. Indeed, more and more there is increasing emphasis being given to such factors rather than to any basic scale of premium. Nevertheless, some estimate has to be included, however much this may vary in individual circumstances.
As before, interest on capital outlay will be charged at the rate of six per cent, but because of the higher initial cost, this will now amount to the equivalent of £2 14s. a week.
These five items of standing costs for this 5-ton van, therefore, amount to £19 2s. 2d. a week, or 18-344. a mile, assuming an average weekly mileage of 250, or 12,500 in a year. Because of the van body some allowance must be made for its effect on fuel consumption, as compared with the standard platform body. Accordingly, a rate of fuel consumption of 16 m.p.g. will now be assumed, and with fuel costing 4s. 81d. a gallon as before, the fuel cost per mile will now be 3.52d. Lubricants, as before, are reckoned to cost 0.26d. and tyres 1.26d. a mile.
Maintenance cost, however, has to be adjusted. because of the van body. At this stage a further consideration has to be made as to the standard of appearance which a particular operator requires to be maintained. This will not only vary according to individual evaluation, but also to the type of traffic carried. Where, for example, new furniture was carried from a manufacturer to a wholesaler in plain vans, then the appearance of the vehicle might not be considered so important than in the case of household removal. As a result, what might be considered a reasonable interval between repainting might be considered excessive in other circumstances, or vice versa. Although to a certain extent this consideration has to be allowed for with a platform vehicle, it becomes obviously more prominent with a van.
Accordingly, the cost of maintenance is raised to 3-44d. per mile. Similarly, depreciation is increased to 5.43d. per mile. Not only is the initial outlay considerably higher. but because of the low mileage and nature of the work involved, a seven-year life—the equivalent of 87,500 miles— is allowed for. The total running cost per mile is therefore 13.9Id., or £14 9s. 9d. a week. The addition of standing and running costs gives a total operating cost per mile of 32-68d., or £34 Os. 11d, a week.
As mentioned previously, however, a team of men may be engaged at both terminal points in effecting the removal, with the driver being considered a member of that team. It may well be convenient for costing purposes, therefore, to calculate labour charges, inclusive of the driver, as a whole and to consider the vehicle cost without the addition of wages. In that event the standing cost per week would be £7 19s. 8d., or 45-62d. per hour, based on a 42-hour week. Similarly, the total operating cost per week for this 5-ton van would be £22 9s. 5d.
Finally, it must be emphasized that all the costs given for both vehicles relate directly to the cost of operation and do not include any allowance for overhead charges or profit margin. Moreover, even on the limited 42-hour working week, relatively continuous operation of the vehicles is assumed.