THE CARRYING BUSINESS

Te Awamutu Courier, Volume 59, Issue 4186, 15 September 1939, Page 3

THE CARRYING BUSINESS

DESIRABILITY OF CO-ORDINA-TION WHAT OTHER DISTRICTS ARE DOING While farmers’ interests in the Te Awamutu and neighbouring districts have been inclined to oppose any measure of co-ordination among the road transport interests, in the belief that unity of control must inevitably result in higher charges to the farmer, it is interesting to view what is taking place in other parts of the Dominion. INSPECTION OF BIG NELSON MERGER SCHEME. We are privileged to publish a report which delegates of the South Auckland Council of Carriers’ Associations has prepared following a visit to the Nelson district to inquire into the constitution and operation of the Coordinated company there. The report, which covers all phases of the movement is most informative and will be studied carefully by carriers everywhere. It will be noted that the result of an independent investigation is a strong recommendation that similar action be taken throughout New Zealand.

Mr Gus Walsh, organiser for South Auckland Carriers’ Council, and the secretary of the Franklin Master Carriers’ Association, Mr Mervin J. Cooper, A.P.A.N.Z., visited Nelson with a view to reporting to the various carriers’ organisations in South Auckland, on the functions, organisation, formation and progress of the only co-operated carrying company in New Zealand, namely Transport (Nelson) Limited. They were received by the manager, Mr P. S. Boyes, and were extended every courtesy and assistance possible. Several days were spent inspecting premises, trucks, routes and general systems of this progressive company. It is proposed to report the following:— (1) Formation of company. (2) Operation of company. (3) Premises of company. (4) Plant of company. (5) Finances of company. (6) General supervision and staffing. (7) Office routine. (8) Results of year’s operations. (9) General.

(1) FORMATION OF COMPANY. Thirteen operators, mostly operating four or more trucks, amalgamated and brought into being the co-ordin-ated company. In all the company took over 63 trucks but have subsequently bought out a number of operators who did not wish to come into the scheme and now the company operates 70 vehicle authorities. A number of individual operators serve the fruit growing districts but the company does not compete with them. The basis of amalgamation of individual services was that the capital value of the assets of each operator was assessed and to that amount was added a figure representing goodwill. The objects in so assessing the goodwill were:—

(a) To bring the share issue to the amount of £58,000 the capital of the company.

(b) To provide each operator with a sufficient shareholding to enable him to acquire therefrom a comfortable income.

(a) Valuation Plant: The following plant was taken over from operators and the valuation of each item was based on present-day values:—

1. Trucks. 2. Cars. 3. Tractors. 4. Crushers. 5. Hydraulic hoists. 6. Elevators. 7. Sundry tyres and tools. 8. Horse boxes. 9. Scoops. 10. Tarpaulins. 11. Gravel screens. 12. Saw benches. 13. Rotary pumps. 14. Bulldozers.

(b) Method of Valuation: The services of an independent valuer not connected with th'e operators were obtained and all valuations including goodwill were made by this expert. (c) Goodwill: To the amount valued for plant was added a figure representiifc the goodwill of the particular services. The basic assessment of goodwill was in the case of one operator who was too far advanced in years to take part in the company’s affairs and who decided to retire from active business. This man operated four trucks and in his best season netted £750 profit. He received from the company £5OOO fully paid £1 preference 7% shares from which he derives £350 per annum or £7 per week. His gain by the co-ordination is that he no longer takes a part in carrying activities but receives from his capital, £5OOO, a substantial income, i.e., £350 per annum. The goodwill of the other operators was then proportionately and equitably calculated from this basic assessment.

(d) Sundry Debtors and Creditors: With the exception of unpaid purchase money on plant, the company did not take over debtors or creditors. The company decided that the debts should be realised by individual operators and that cash thus collected would provide a source of revenue to the operator during the first two or three months of the company’s operations. (e) Mode of Payment of Total Valuation: In most cases the total value of plant and goodwill was invested in fully paid up £1 shares in the company. Operators were given option of ordinary £1 shares or preference 7% interest bearing £1 shares. In some instances the operator desired some ready cash and the company met him by paying out each month a certain amount of his capital, the balance of course being allotted in the form of fully paid shares. (f) Examples of Valuation of Plant and Goodwill: 1. Operator with four trucks, crusher and sundry plant with £2332 owing on plant, received 4231 fully-paid £1 shares. 2. Operator with 3 trucks fully-paid received 4000 fully-paid £1 shares. Thus it will be easily seen that the main point in the valuation is that of goodwill. No outside capital -of any kind is represented in the shareholding.

(2) OPERATIONS OF COMPANY. The company’s main feature is route operations although a certain

amount of area work is also done. They operate the following routes:— N el son-Blenheim. Nelson-Motueka-Takaka. Nelson-Westport. Nelson-Reefton-Greymouth. Murchison-Westport. The company handles gravel, sand and soil and also acts as a wholesale concern in coal which is brought from the West Coast as back-loading. A schedule of their carrying prices is published and circularised to the users twice yearly. Since formation the company has acquired additional road-making plant, bulldozers, etc., and now in contracting work. (3) PREMISES OF COMPANY.

The company purchased their own premises and occupy a large section on a corner property, thus allowing two entrances.

(a) Large yard for truck accommodation and terminal for incoming trucks.

(b) Loading platforms for outgoing trucks. It is proposed at a future date to close in the whole yard so that trucks may bel more conveniently housed. Depots have been established at all terminals, the property and buildings being owned by the company. In addition to above, the company is at present building its own garage, 65 feet by 50 feet. This will enable it to keep its fleet in proper order as mentioned in the next section. A feature of the main depot is that it accommodates the office staff, with separate office for foreman and waybill clerk. (4) PLANT. The company took over from various operators all types of trucks, but since commencing business they have gradually weeded’ out the older vehicles and replaced with International trucks. This has been done with a view to standardising their fleet, that is, eventually all vehicles will be of the International make. The reason for this is presumably—(l) Reduce price. (2) Simplicity of replacing parts. (3) Greater efficiency in repair work.

Repairs are all earned out by the company’s own employees, thus ensuring—

(1) Large savings on repair work. (2) Trucks kept at highest point of mechanical efficiency. (3) Longer working life and thus decreased maintenance charges. Two highly skilled mechanics are employed constantly. (5) FINANCIAL. At the inception of the company it was found necessary to negotiate with the bankers for an overdraft for which security was given in the form of a first mortgage debenture over the company’s assets. This was essential as the company did not receive cash for shares allotted as in the case of a public company offering shares for subscription. This is plainly sedn as previously set out that no outside capital was allowed to be introduced into the company, but that the £58,000 capital was made up entirely of shares allotted to individual operators and organisers of the company. It must be born in mind that payment for the first month’s service to the company’s clients would not be received until on or after the 20th of the month following. Whilst it was necessary to have available sufficient funds to meet current overhead charges, salaries of staff and preliminary expenses. The legal and preliminary expenses incurred in the establishment of the company amounted to £750. Total liability taken over by the company for unpaid purchase money on trucks and plant amounted to £15,000. This amount is being reduced by monthly promissory notes and a very substantial reduction has already been made. The Board of Directors budgeted for a £60,000 turnover for the year ending 31/3/39, but the actual year’s operations resulted in the surprising turnover of £Bl,OOO in spite of the very lean season experienced. Note: This represents a 33 J % increase on the budgeted figures. The Board confidently estimates that the turnover for the current year will exceed £lOO,OOO. Actual figures to the 30th June support this prediction.

Wages: Wages total £29,000. Al. wages are paid fortnightly. This is by mutual arrangement.

Reserve for Income Tax: At the end of the year a reserve for payment of income tax and social security cor tribution was created out of the year’s profits. Each operator, with the exception of the one mentioned, who retired from actual business, is employed in a capacity to which he is most adapted, such as depot manager, supervisor, depot foreman, storeman, foreman mechanic or driver. The policy of the company is to keep operators, where suitable, in their own locality and to place them in charge of depots. Each operator, apart from general staff, is paid well above the award rates of wages. Last year they received in the vicinity of £464 plus a substantial bonus at the end of the year. The general driving staff are also paid considerably in excess of the award rates, drivers of the larger trucks receiving 15s above the award wage.

The policy of the company in this direction has proved conclusively the following:—■

(1) Minimum charges in drivers thus tending to a greater degree of efficiency. (2) Careful handling of goods freighted. This is amply demonstrated by the fact that the company’s total claims for the year for damaged and lost goods amounted to only £7O.

(3) A marked degree of loyalty displayed by the employees towards the company.

Reduction in Freighting Charges: At the inception of the company it was found as a result of a co-ordina-tion of services that it was able to bring about a substantial reduction in freightage charges that were in operation at that time, for example: Murchison Route.—Freight when company formed 47s fid per ton, reduced by the company to 37s fid per ton.

Blenheim route.—s2s 6d per ton, reduced to 37s 6d per ton. Through the co-ordination of the thirteen services the company is in a position to obtain a considerable discount on the purchase of trucks and accessories. Operates its own bowsers and secures benzine, oil, etc.

at wholesale rates. The company is also an agent for an insurance office thus enjoying the benefits of a 10% reduction in the premiums. It is interesting to note that bad debts during the year were less than 1% of sales; in other words, 6s 8d in each £lOO of sales. (6) GENERAL SUPERVISION AND STAFFING. A Board of seven Directors was appointed by the shareholders and is responsible for the control and supervision of the company operations. Each year two directors retire by rotation but it was found that the Board had so conscientiously carried cut its duties and showed such outstanding results that the two retiring directors were re-eleeted unopposed. The manager is responsible for all company activities, staff organisation, etc. to the Board of Directors. An accountant and chief clerk have with them associated a clerical staff of ten including two expert bookkeeping machinists. Carrying staff comprise drivers, mechanics, loaders, storemen and depot foreman. (7) OFFICE ROUTINE. All accounts are prepared from waybills which are compiled by the depot staff. Monthly accounts are sent out and all bookkeeping, compilation of accounts, statements, etc., is done by bookkeeping machines which tend to greater accuracy, speed and considerable saving of wages. We do not propose to enlarge on the details of the general system as members must realise , that this will be dependent on the individual requirements. However, we confidently believe that the' system of accuracy in vogue is well nigh perfect. (8) RESULTS OF YEAR’S OPERA- , TIONS. The balance sheet produced showing the company’s operations for the year proved conclusively the benefits to be derived from the co-ordination of operators. An excellent profit was made. (9) GENERAL. Public Works: The company considers that Public Works at the present departmental rate is only a bread and butter line. Public Works is now mainly contract work. This aspect has to be watched as there is no stability as to the length of time.

PROSPECTIVE CO-ORDINATED COMPANIES. As the result of our visit to Nelson, and in view of the reports to which we have had access, it is our considered opinion that operators generally must give earnest consideration to the formation of co-ordinated companies in their own midst. Our contention in this respect is based on the fact that the representatives of the users are demanding of the industry a more efficient and economic service. Under the present system it is not possible to reduce cartage rates and it is felt that this can only be achieved under a co-ordinated scheme, whereby waste mileage and overlapping of service will be eliminated. CO-ORDINATION NEEDED , NOT MORE VEHICLE AUTHORITIES AUTHORITY INDICATES DESIRE FOR BETTER SERVICING. The No. 4 District Transport Licensing Authority (Mr V.

Raines) has again urged operators not to seek an over-supply of vehicles but to bring about a more efficient use of the vehicles already licensed. In decisions recently given, Mr Raines has acknowledged defects in the existing servicing arrangements, but he indicates how, by greater co-operation, a system could be devised to more fully use the present licensed vehicles. In what he says there is much that operators should consider very seriously.

Both cases involved applications for an additional vehicle authority which were heard at Invercargill on 31st July. In respdet to the application of Mr S. E. James, concerning the Aparima and Otautau districts, the decision was delivered on August 4th. The other application in respect to the Royal Bush district was lodged by Mr J. R. McLean and the decision was delivered on 9th August. In both cases, Mr Raines gave identical decisions, varied only by the reference to the affected localities. He said:—

Applicant has a continuous goods service license for the carriage of “goods” with one vehicle. He now asks for one additional vehicle authority for the carriage of “goods” in those areas. “Goods” in this case, includes livestock.

Among his other operations, applicant collects milk daily from farmers and carries it to the factory. This work occupies a fair part of each day. I am satisfied applicant has difficulty in handling with one vehicle all the work offered to him. But I am satisfied also, that other carriers not far away, are far from fully occupied. My experience is that many farmers expect to have a licensed operator located within a mile or two of their farms. This is not reasonable. If an operator is on the) telephone, it should not matter to the farmer if he is 8 or 9 miles away, as the operator does not charge for running empty from his home to the farm. The problem, therefore, is not one of supply and demand (the demand for carriers does not exceed the supply) the problem is rather lack of co-operation, or of co-ordination, that is to say, that the available work is not properly distributed.

Applicant could partly solve his difficulty by Arranging for a farmer to collect and deliver all the milk for the factory. This can be done now by a farmer for his neighbours without a transport license. The real solution of the problem lies in the co-ordina-tion of the licensed services alreadyexisting in the district. Applicant could go a long way to achieve this, if he were to buy the plant and business of another licensed operator in his district.

It jshould be pointed out here, that operators are not entitled to ask an exorbitant sum for goodwill when a plant and a business are offered for sale. Very few businesses are worth much more than the value of the plant. A license, strictly speaking, belongs to the Transport Department, and is not saleable; and any mono-poly-value attached to a business, was created by the Transport Department, and can be destroyed by the Department by the grant of additional licenses or of additional vehicle authorities. These of oourse will be granted if it is shown in any particular case that an operator willing to sell his plant and business, has sought to take advantage of a situation created largely by the Transport Department, and has asked an unreasonable price. Applicant is referred to a decision given by me in respect of an application by Hollamby Bros.,

Waimate. It will be reported in “Transport News” this month.

Until evidence is adduced before me, to prove that it is not possible for applicant to buy the plant and business of another operator in his district at a reasonable price, I think it is not necessary or desirable in the public interest that his application be granted. It is therefore refused.

Allegations of price-cutting on the part of some operators, were made during the hearing of this application, but no evidence to prove same was given. All operators are warned that if price-cutting by any operator is proved, he will be liable to have his license promptly revoked.

SIMILAR PRINCIPLES UPHELD. Another similar decision affecting conditions in the Kapuka district was delivered by Mi- Raines at Dunedin on 14th August when, in respect to an application by Mr W. C. Aspray,. the Authority explained that applicant has a continuous goods service license for the carriage, with one vehicle in No. 3 Southland Area, of rabbits, pigs and calves, also “goods" for sellers of rabbits, pigs and calves to licensee as agent. He now asks that his license be amended to permit him to carry “goods” in the area mentioned. This amounts to a request to have the “commodity restriction” removed from his license.

I remember when I granted applicant his first license in November, 1936, Mi- Raines continued, that I had some hesitation about doing so, owing to the fact that the district in which he lives is recognised as being a poor farming district, and at the time it was fairly well supplied with licensed carriers. I have no doubt that applicant has at times been asked to carry general goods, and that he is not always fully occupied under his existing license. But I am satisfied that the other operators in the district, three of whom object to his application, are not fully occupied. Mr Raines then proceeded to speak on lines similar to his rulings in the other cases already reported and he upheld the principle of co-ordination as the means of securing economic and adequate servicing,

SHEEP'AND LAMB CARTAGE. Again at Dunedin on 23rd August the No. 4 District Licensing Authority adhered to these principles in licensing when dealing with an application of R. J. Roger for an amendment of his license. Mr Raines explained that applicant has a license for the carriage of “goods” with two vehicles in Clutha County. He now asks for an additional vehicle authority on the same terms and conditions, and for the right to carry fat lambs to Burnside, and ewes and lambs to Allantown.

Fat lambs, cull lambs and bobby calves are exempt by Regulation from the provisions of what is known as “the 30-mile Restriction Clause.” There is no reason, in my opinion, why applicant should not carry fat lambs to Burnside when required. An extension of his license to Burnside for fat lambs, is therefore granted. So far as ewes and lambs are concerned, it is no doubt highly desirable that when lambs are very young, they should be transported ‘ with their mothers by lorry when necessary. Applicant should have no difficulty in obtaining a temporary license to do this work as occasion arises, and I do not think it necessary to insert the right in his continous license. The application in this respect is refused. So far as the application for an additional vehicle authority is concerned, Mr Raines gave a similar decision as above, his reference in this instance being to the Owaka district.