Don't Underestimate Your Operating Costs
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Full and Generous Account of All Items of Expense Has to Be Taken When Reckoning a Charge for a Contract of Haulage, Otherwise the Operator Will Not Receive Adequate Remuneration for His Work IN my previous article I ended while I was arguing the question as to whether depreciation should be calculated on mileage run, being thus a running cost, or on a basis of time. I was able to convince the haulier that, in his case at -least, mileage was the best. Since holding that discussion, 1 have had a further argument with another haulier who found that when he used figures from " ' The Commercial Motor' Tables of Operating Costs" he lost a contract to a competitor whose proposed charge was less than his. He wanted to blame the Tables for this but agreed, when I met him, to check his figures against mine, with a view to dis
covering who was right. • He began by saying: "Surely there is something wrong with your figures? This other fellow quoted a much lower charge than you recommend and he seems to be quite happy with what he is getting, which makes me think that I made a mistake in using your figures and not my own."
"You don't know for sure that he is making a profit, do you? " I said. "You cannot know, for he has not been working on this job for any appreciable time and may go on for a couple of years before even he can know for certain. But let us go into the figures in detail, working to the Tables and checking mine against yours."
42,000 Miles a Year
I should state here that the contract he had in mind involved running from London to Manchester and back, with a full load each way and covering 840 miles per week or 42,000 miles per annum. (There is a little running around to be done at each end of the trip, which accounts for the mileage over and above the bare London—Manchester distance of 400.)
"I do not think that there is anything wrong with my figures," I said, "but we will go into them and see. What was your quotation ?"
"I took the figure ttraight from the Tables," he replied. " £66 19s. per week, which is the amount quoted for a net weekly mileage of 800, and added £2 Is. for the extra miles over and above the net 800. The contract was placed with Blank at £55 per week."
"At that rate Mr: Blank is losing money, as would you if you had taken it at that rate."
c32 I should like you to go into the costs and show me where I am wrong," he said.
" I shall start with the running costs," I responded. "What type of vehicle did you say) you proposed to use?"
" An articulated oil-engined 12-tonner: the figures are in Table VII."
"Good," I said. "We can start straight away with the first item: fuel. The figure in the Tables is 4.09d. per mile. but I suppose that will not mean much to you. You will have only the m.p.g., if you know that? "
" Yes," he answered. "1 get 15 m.p.g."
15 m.p.g. Checked
"When the Tables were compiled, I took 3s. 9d. as the average price of fuel, so that if I want to know the cost per mile now, with the price at 4s. Old. per gallon, I must divide that by your 15 m.p.g. to give me the fuel cost per mile.' The answer is 3.25d., as compared with the 4.09d. quoted in the Tables. To compare your cost per mile with mine I must divide 3s. 9d., the then price of oil fuel, by 4.09d., which gives me 11 m.p.g. Are you sure your figure of 15 m.p.g. is right?"
" Yes. I could swear to that. I have checked it regularly."
"Very well then, I will accept your estimate. Now ablaut oil. In the Tables the allowance for lubricants is 0.25d. per mile. I assume you will allow me that? "
No answer came to that, so I proceeded: "What abozt tyres? Have you any idea what mileage you get from a set? "
"I cannot reply to that as regards tyres on this vehicle; it has run only about 20,000 miles and there appears to be plenty of wear left. Shall we take 30,000 miles? A set today would cost £300."
" In that case the cost per mile, obtained by dividing £300 by 30,000, is.2.4d. I sec the figure in the Tables is 1.93d. per mile, but there have been two increases in price since they were made up, so we may he said to be in agreement as regards that item."
"Next," I said, "comes maintenance. How much do you reckon you spend per annum on keeping your vehicle fit ? " funny you should ask that," he replied. "I was :g to myself the other day that the vehicle could do thorough overhaul and, from what I can gather he local agent, it's going to cost me about £160. of course, I have spent something like £40 on odds ds of repair during the 18 months I have had the ie. It's time it was repainted, too, and taking it all, I suppose I should say I shall have spent about n it by the time the second year is ended."
u mean that you will have spent £240 in two years ?" mething like that," he replied.
sat mileage will have been run by then ? " t me see, now. The speedometer reading is now )52 and there was a month during which it was sected; I suppose I should add about 2,000 for that. we say 100,000 miles altogether by the end of this year of use? It's a round figure, but near enough : purpose."
sat about routine maintenance; the cleaning, greasing ling?"
lo most of that myself at the week-ends, but I reckon myself £2 per week on account of that."
any gasped. "How did you arrive at that figure?"
£2 a Week for Cleaning
can't tell you, really," came his reply. "I didn't at first, but by the end of the first month I got up with the job that I suddenly said to myself, 'I'm to pay myself what this job is worth, even if I have e it out of the till, and I'm going to take a couple d each week for it,' which I did there and then, and done it ever since."
iat's £100 a year, £200 by the end of this year."
t is the first time, I thought, that I have found a ,ensible enough to credit himself something out of itty cash to pay himself for work done. I didn't m that, of course.
iat makes your total expenditure £440?"
iat is so," he replied, "although I didn't realize that going to be nearly as much as all the other amounts on maintenance."
is always the case," I replied. "I have pointed it 'ten enough in my articles. It is very small in your at least, it is compared with other vehicles which do n as big an annual mileage as you do."
don't get you," he said. "What has the annual le to do with it?"
Higher Mileage Cost
on't you know?" I asked. "Look at it this way. eckon on £2 per week, during which the vehicle covers
800 miles. Dividing the £2 per week by 800 gives ost per mile. The cost per mile in your case is per mile. But suppose you were doing only 200 miles ,eek. Your expenditure per mile would then be £2 )0 miles, which is 2.4d. per mile."
don't agree with you there. There would not be my routine operations to be done per week; they are on mileage, and I work to the manufacturers' ction book, which, in 800 miles, would call for a good attentions, whereas at 200 miles per week many of would not be needed more than once a month, if that." es, there is something in that, but I have brought that Lsm on myself by taking so small a mileage. In doing vas going to extremes. If I had taken 400 or 500 miles .d of 200 you would probably have accepted the figures ,ut remark.
'ake a look at the Tables. Table VII includes data ing to vehicles like yours. Maintenance (d) is the which provides for washing, polishing and routine required to be done once per week or something like At 200 miles per week maintenance (d) is given as . per mile; at 300 miles per week it is 0.85d.; at niles per week it is 0.644.1.; and at 1,000 miles per week only 0.25d.
gow in your case T have not gone to the trouble of
splitting the maintenance costs into (d) and (e). It would be difficult to do so and would mean a careful examination of the work you do at the week-end. If you agree on that I suggest we continue and try to get at what your maintenance costs per mile.
"We have agreed that £440 has been spent up to date during two years during which the mileage run has been 100,000. If, therefore, we divide £440 by 100,000 we get the cost of maintenance per mile. The answer is 1.056d.,, which is very low indeed, so low as to make me doubt the accuracy of your figures. You must have left out quite a number of things. The figure in the Tables is only 1.86d. per mile for a vehicle running 800 miles per week, and that is low enough in itself. However, we will let it go and turn to the other items of operating cost. We now come to depreciation, the last of the running costs. What did you pay for your vehicle when new?"
Depreciate Over 10 Years "It cost £2,700. But did I hear you say that depreciation was a running cost? I never thought of it that way. I have
been accustomed to depreciate my machines over 10 years."
"I doubt that you will be able to keep this vehicle on the road for as long as that. It is running, according to your own figures, a matter of 42,000 miles per annum and by the time it has run at that rate for 10 years it will have run 420,000 miles. It is possible, but if you insist it will probably be costing you so much for maintenance as to make it not worth while to keep it on the road. Do you always keep your vehicles going for as long as that? "
"Yes, at least, ever since the war."
"What's the war got to do with it?"
"Well, it's like this. Before the war I used to write off my vehicles—those of this type—aver eight years.
Then, while the war was on, and for a long time after, vehicles could not be bought and I was compelled to keep them on the road longer than I liked. I managed to make them last longer without spending as much as all that on maintenance and I increased the period of depreciation to 10 and have stuck to it."
Time Basis Incorrect
"Did you apply that to a vehicle running 42,000 miles a year? "
"No. I can't say that I did, Half that distance would be nearer the mark."
" Now," I said, "I have got the answer to your preference for time as a basis instead of mileage. I can show you where you are wrong in that matter. If you depreciate your vehicle on a time basis, in this case 10 years, then the amount per mile for a vehicle running 20,000 miles per annum is £2,700 divided by 200,000, which is 3.24d. per mile. That is rather high, which seems to indicate that your 20,000 miles per annum will last more than the 10 years you have in mind. However, that doesn't affect the argument, so we will let it go for the moment.
"Now take the present machine, costing the same, but running 420.000 miles in the depreciation period of 10 years. This time we divide £2,700 by 420,000 and get 1.54d. per mile. All I propose to do about that is to ask you if both figures for depreciation, 3.24d. and 1.54d., can be right? "
" My goodness, no."
"Then suppose we depreciate them on a mileage basis and take, as I should with a machine such as this, 300,000 miles of life. In that case the amount to be set aside for depreciation would be 2.16d. per mile, and that figure would apply to both vehicles. Even at that the figure is not as much as that in the Tables, but this is because your vehicle is not as costly to buy in the first place." S.T.R.