Is Costing Necessary?
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Many Hauliers Quote on the Basis of Undercutting their Competitor's Rate : Having no Knowledge of the Economics Involved, they Allow themselves to be Imposed Upon by Unscrupulous Transport Users and end up in Financial Difficulties
AT the moment, " ' The Commercial Motor' Tables of Operating Costs" are much in my mind because I am considering the preparation of the next edition, active steps to be taken next month after Mr. Butler has announced the nation's financial future for another year. I am anxiously awaiting his pronouncements in respect of purchase tax as applied to commercial vehicles, and on what he is going to do to the fuel tax, if anything at all. I expect that he will do little about either, but I cannot proceed without definite knowledge.
However, my preoccupation with the subject has brought me to the point of going back over my notes, to recall some of the suggestions which have been put to me for improving the Tables and making them more useful.
Many of the points raised have been dealt with time and time again, but memories are short and I must also accept that there are always new readers to be considered. Some degree of repetition is unavoidable.
One correspondent, for example, complains that there is no provision for the cost of washing and polishing the vehicles, which can, he says, be quite an important and expensive operation. His experience, he adds, relates to a fleet of vehicles which are made to serve as travelling advertisements, and, for that reason, must always be spick and span.
Contributing to Profit "It may be," he continues in his letter, "that you regard this work as part of the duty of the driver, but even so it would really be just as expensive, for while he is occupied in that work he could quite possibly be on the road with his vehicle earning something to contribute to the profit tho vehicle is intended to earn."
Actually there is provision in the Tables for that work. It is provided for under the heading of "Maintenance (d)." I have always appreciated that washing and polishing a vehicle is expensive. I should seldom agree to its being done by the driver unless the work the vehicle was engaged upon was of such a nature as to leave him plenty of time. Whenever I collect figures for use in assessing the average cost of maintenance, I endeavour to provide for what may be the operator's procedure in this respect.
In the Tables, of course, a mean has to be taken between extremes. On the one hand, for example, you have the 1324 operator who must keep his vehicles in a first-class condition. At the other extreme are those engaged in such work as the conveyance of sand and gravel, tarmacadam, sugar-beet and the like, in which cases too much insistence on cleanliness would be absurd. In the first instance, vehicles must be washed daily, whereas in the other they would need that attention only once a week.
Moreover, when the vehicles must frequently be washed, provision is usually made for it to be done by someone other than the driver, in which case, where records are kept at all, the cost is itemized under the heading " Maintenance." If the vehicles are infrequently washed, the work is usually part of the duty of the driver and there is no mention of it in the accounts. There will be a divergence between the two sets of figures relating to maintenance of the vehicles of these two fleets.
Not a Substitute
It may be as well for me, perhaps, to emphasize a point which has been consistently made since the first publication of these Tables. They are presented to operators as a guide and a check: they are in no sense intended tq be a substitute for the keeping of records of operating costs.
Another item which is often called into question is that of the provision for garage rent and rates. One operator complains that the provision made is insufficient, at least so far as he is concerned. He states that he is unable to obtain premises which will afford shelter to his fleet at anything like the low figure which is given in the Tables.
In London, whence his letter came, I should imagine that his complaint is justified, but not elsewhere. Here, again, it is necessary to take into consideration conditions throughout the country, and it is in that way that the amounts quoted in the Tables have been reached.
It should be appreciated that whatever is quoted for an item such as garage rent will bring criticism from somewhere. If a figure comparable with London prices is set down in these Tables, operators in the provinces will assert that it is excessive. If! were to quote some provincial rents and rates, the disparity between these amounts and those which the Londoner pays would be excessive and might undermine confidence in the Tables. By striking a mean, the experience of the majority of operators is most nearly exemplified. The figures in the Tables are nearly accurate no matter where the operator is or what may be the conditions under which the vehicles are operating. In some rural areas, especially hilly districts, the running costs are heavier because the roads are not good and the contours militate against the achievement of minimum running costs, but, at the same time, costs of insurance, garaging and, in some cases, wages, are less than in large cities so that these economies can be set off against the higher running costs.
Time and time again, in perusing the cost figures of operators, I have been able to confirm that. As regards individual items, differences arise, but so far as the total costs of operation per mile for given weekly mileages are concerned, the figures in the Tables are seldom different from actual results.
Another critic complains that there is no provision in the Tables for the payment of clerical staff, or for articles and spares bought for the vehicles. The difficulty which arises • here is that none of the items named can be included in the prime figures for the cost of operating the vehicles. In this matter I must be adamant. I regard it as fundamentally essential that the figures in the Tables must give completely and comprehensively the actual cost of operating individual vehicles of the type and size specified. Any expenditure extraneous to that must be rigidly excluded. There can be no departing from that principle.
Wages of Mate
A particularly good example, of what is meant by that arises when the work is of such a nature that the driver must have the assistance of a mate. There is no provision in the Tables for the wages of a mate. That is an extra item of expense and must be added to the figures given in the Tables whenever a mate is employed.
The other expenses mentioned, provision for the wages of clerical assistants, are variously named as overheads, administrative or establishment costs. They used to be specified in the Tables and referred to as establishment costs. That practice was discontinued but provision is made for them in arriving at the "Hauliers' Figures (Charges) " which are placed at the end of each set of cost figures. The haulage figures provide for operating costs plus establishment costs and profits. The last named are put forward not in any dogmatic sense except that they are definitely the minimum the haulier should charge.
One suggestion frequently made, usually after I have dealt with some such criticisms as related above, is that the Tables should be arranged so as to be applicable on the one hand to London and on the other the provinces, that they should, perhaps, be on the lines of the tables of premiums issued by the insurance companies, dividing the country into areas designated A, B, and C with a set of tables prepared for each.
Infinitesimal Effect
The idea is undoubtedly a good one but in my view is not practicable because it would enormously increase the bulk and complication of the Tables. Even supposing that the garage rent in London were taken as averaging 50 per cent, more than the figure quoted in the Tables, the net effect on the total cost per mile or per ton for any reasonable mileage would be infinitesimal.
Take for example the most po-pular type of vehicle as operated by hauliers, namely the 30 m.p.h. type. The figure quoted for garage rent in relation to this type of vehicle is 10s. per week. If I add as much as 50 per cent, to that the total addition to the cost per mile over a 600-mile week is equivalent to only 0.1d. per mile. I can say from experience that a difference of 0.1d, can easily be corrected in either direction by the slightest variations in conditions of .operation.
The Tables are intended, as I have just stated, as a yardstick by which a haulier who is not sure of his own costs can measure up the rate which ht is offered for a job of haulage. Not all operators use them as they should. The average haulier is still, so far as these important matters of cost and revenue are concerned, like a babe in arms. He still allows himself to be imposed upon by any marauding transport user who desires his services and who seeks to obtain them at a minimum price, being not at all squeamish about the methods he uses to gain that end.
It is still possible for a trader, merchant or manufacturer, seeking transport for his goods, to bluff a haulier into accepting uneconomic rates for the work. He simply states (with or without a basis of truth) that some competing haulage contractor is willing to do the job for the rate the tra'nsport buyer is offering, or even less.
I am not venturing to suggest that there is anything immoral in this procedure: it always seems to me that, in this skin game called business, anything goes. What I am trying to do, and what the Tables are intended to do, is to put the haulier in a position where he can know just how far hc can go to meet this potential customer; in other words, I am helping him to call the trader's bluff.
Worth of the Work
Many hauliers find themselves unable to withstand the temptation to accept work at a rate which cannot show a profit or even cover operating costs, because they have not the knowledge to enable them to judge of the worth of an offer of work.
In the "good old days," when I had the habit of travelling the country giving lectures to meetings of hauliers, I learned almost as much as I taught about the ways of the road haulier. I remember one case. I had been explaining the fundamental basis of costing and showing how to use cost figures as a basis for assessing rates. I had thought I was doing well, and questions were numerous. One man began to ask questions and, right at the beginning, showed that he had understood most of what I had said, He raised a particularly useful point, namely, that vehicles engaged in the haulage of sand and ballast were likely to be more costly to operate than those employed in classes of transport which made a less rigorous demand upon the mechanism of the chassis and bodywork.
To my surprise he then volunteered the opinion that figures for cost were eatirely unnecessary. He had no use for them. He had never had any figures for his own costs and such figures, had he gone to the trouble of getting them, would never have been of any use to him, The only thing that he was concerned with, he said, was rates.
If he wanted to know what sort of a rate he should get for a job he went to the trouble of finding out what his competitor was charging and, thereupon, quoted accordingly. He did not actually state that in order to make sure of getting the job hc would quote a little less than the rate his competitor was getting, but I am quite sure that such a procedure was not unknown to him.
No Need for Standard
Another, at the same meeting, went even further. Not only was it his view that knowledge about costs did not matter, but he was of the opinion that there was no need for a standard of rates. "What we have to do," he said, "is to take the job and accept what they give us for doing it."
It is difficult to know what to do to help hauliers whose mentality is similar• to that -exemplified in these two instances.
That it is the common practice among the less knowledgeable types of haulier to quote on the basis of a competitor's rate is something which I have always known to exist. I was more than a little amazed, however, that a man should get up at an open meeting of his fellow hauliers and suggest that it is a reasonable and proper procedure.
There is a curious feature here upon which I would like to dwell. It is strikingly illustrated by the two examples I have cited. Not only do many hauliers know little about the business side of their occupation, they seem to lack the incentive to acquire that knowledge.
One operator will agree that it is quite easy to obtain the rates quoted in the Tables and sometimes better, whereas another will not only refuse to accept them but flatly deny the possibility of obtaining rates anything like those which the Tables recommend. S.T.R.