SOME NOTES ON RAILWAY COSTS AND COSTING'

By C. D. FOSTER

The source of the information used in this article is, almost withoutexception, the proceedings before the Transport Tribunal in I9-6 inconnection with the British Transport Commission's Railway MerchandiseCharges Scheme.2 The 1953 Transport Act had permitted the Commissionto replace the arbitrary rating system, required by a previous largely hap-hazard accretion of Acts of Parliament, with a maximum charges schemewhich would give it considerable power to vary rates below the fixed maxima.The Act was meant to give the Commission greater freedom to be com-petitive, but any such freer charges scheme was to be approved by the Trans-port Tribunal as conforming to the conditions laid down in the Act. TheTribunal's principal task was to decide if the scheme infringed the clauses inthe Act protecting the rail-user. The scheme was defended by barristers andwitnesses for the Commission and criticised by the barristers and witnessesrepresenting various parties objectingthe Traders' Co-ordinating Com-mittee on Transport, the British Iron and Steel Federation, the NationalCoal Board and othersfor a total of forty-four days between July, 1955,

and March, 1956. The transcript of proceedings runs to about a million anda half words. The bulk of this was naturally about charging bût in thecourse considerable information was disclosed about railway costing. Sixyears later it is still by far the most detailed source of information on thesubject. There can be few firms which have had to make so many costing datapublic. Since the ig6x Transport Bill has confined the jurisdiction of theTribunal to London fares and charges, it is unlikely that the railways will berequired to publish anything as detailed again.

This article is concerned only with what the Proceedings can tell us aboutcosts. Its purpose is pedestrian: to digest information scattered throughthese Proceedings, which has not been collected or analysed before. It willnot be possible to do anything sophisticated with the datae.g. statisticalcostingbecause the data refer to one year only, 1955-6. It would, forexample, be pointless to attempt to derive average and marginal cost curvesfor the railways. Nevertheless there are two kinds of use to which the datacan be put: to show how the railways go about the process of costingthesources they use, the costing procedures employed; and it can also show therelative significance of various components of railway costs.

I am much indebted to advice and cricitism from Mr. D. M. Dear. Director of Costingsof the B.T.C., Mr. E. F. Jackson and Mr. D. L. Munby.

2 In the Court of the Transport Tribunal, Transport Acts, 1947, and 1953, In the Matter ofthe Application of the British Transport Commission (1955 No. 2) To confirm the BritishTransport Commission (Railway Merchandise) Charges Scheme. H.M.S.O. The proceedingswere published separately for every day the court sat from July, 1955, to July. 1956. Num-bered references bracketed in the text are to questions in the 1roceedings.

74 THE BULLETIN

The principal uses of the material made are to discuss the importance ofthe various components of railways costs (section II); the sources used(section III); the effect of varying the rate of interest used (section IV);the validity of the railways' distinction between direct and indirect costs(section V); the labour intensity of railway operations (section VI); and themethods by which the cost figures used were reached (section VIT);

SECTION I: BACKGROUND

The key table is Table A. Mr. A. W. Tait, then Director of Costings andhead of theTraffic Costing Service (hereafter T.C.S.) of the British TransportCommission presented three versions of this table (s) the first showed costsat a level which was described as 'adverse but not extremely adverse'. TheCommission wished the figures of Total Standing Cost and Cost per Wagon-Mile given in this version of the table, to become the maximum charges itwas to be allowed to make under the Merchandise Charges Scheme. TheT.C.S. had estimated that approximately 90 per cent of all wagonloads costthe railways less than these maxima. The deal proposed was therefore that therailways should be allowed maxima which would mean that roughly io percent of traffic would be carried at a loss unless the Commission decided, asthe 1953 Act allowed them to do, not to carry it at all. What they could notdo was to carry this traffic at a higher charge than the maximum appropriateto the wagonload in question. These were the considerations which dictatedthe choice of these ' adverse' levels of cost.

(z) The second version of the Table was extracted with difficulty from areluctant Commission. On it were shewn 'average' or ' normal' costs. TheCommission was reluctant to reveal these figures because it believed that itwould make negotiation with traders more difficult: traders would expect topay 'average' charges and not, as the Commission intended, what thetraffic would bearup to the permissible maximum. The Commission refusedpointblank to publish ' normal ' levels of cost for Track and Signalling relatedto Trunk and Terminal Haulage on the grounds that these were costs jointto passenger and goods traffic which could not be allocated between them toget average figures of Track and Signalling Cost. They were therefore leftblank in this second version of the Table. They were given in the adverseversion for reasons to be explained. Neither adverse or average had an exactstatistical relationship to the ranges of costs disclosed. The rough notionbehind the adverse cost figures for each cost component was that io per centof consignments should travel at a high cost, but this was much modified inpractice. Roughly so per cent of consignments were said to travel at aStanding Cost and Cost per wagon-Mile higher than adverse. This wouldseem to imply that high costs tend to go together, high marshalling costs tendto be associated with high haulage costs, etc. But though this was admittedto be part of the explanation for the T.C.S.' procedure, some doubt was stillleft about thç exact rationale for it. Average or normal levels of cost were

Loads Loads Loads Loadsof8 of4 Under 018 of4

and up and up 4 and up and upto 10 to 8 tons to 10 to 8tons tons tons tons

s. d. s. d. s. d. s. d. s. d.STANDING COST PER WAGONNot Variable with Load

lJnitalicised figures represent normal levels of Costs; italicised figures adverse levels ofcosts.

For notes to all Tables see end of article.

picked by intuition somewhere near the middle of each range of costs. Againthere would seem to be an implicit assumption that average costs for eachcost component tend to go together.

() The third version of the Table was a revision of (i)-the adverseversion-to show the effect of a 7 per cent increase in wages granted whilethe Tribunal was sitting. It will be useful to us in section VI.

The version I shall use-Table A-is compounded of versions (i) and (2).Because there may be some intrinsic interest in average cost figures even now,I have put them in where they exist. The other figures italicised in the Table-are adverse. Because some of the figures are average and others adverse it

1. Provisions and Maintenance of Wagon 25.10 23.102. Terminal Shunting ... ... ... 14. 4 15. 93. Terminal Accommodation and Facilities 13. 0 13. 04. Provision of sheets and ropes ... ... 7. 8 -5. Documentation ... ... ... 3. 0 3. 06. Total 63.10 55. 7

Variable with Load7. Track and Signalling related to Terminal

Haulage ... ... ... ... 67. 6 58. 6 48. 2 67. 6 58. 68. Terminal Haulage ... ... . . 29. 6 25. 0 19. 9 33.11 27. 29. Loss and damage in Transit (per cent of

total of lines 1-8) ... ... ... 4. 6 4. 0 3. 6 8 69. Loss and damage in Transit (per cent of

10. General Administration (calculated aspercentage of lines 1-9) ... ... 13. 1 12. 3 il. 2 12. 0 11. 2

COST PER WAGON MILENot Variable with Load d. d. d. d. a.11. Marshalling ... ... ... ... 2.00 2.4712. Provision and Maintenance of Wagon... .67 1.31

Variable with Load13. Track and Signalling related to Trunk

Haulage ... ... ... ... 15.40 12.80 9.70 18.20 15.6014. Trunk Haulage ... ... ... 4.59 3.77 2.84 5.79 4.5715. Loss and Damage in Transit (calculated

as percentage of lines 11-14) ... 1.11 .94 .75 .08 .0716. General Administration (calculated as

percentage of lines 11-15) ... ... 1.44 1.23 .97 1.65 1.45

SOME NOTES ON RAILWAY COSTS AND COSTING 75TABLE A

Wagon Load Traffic

Merchandise Transit Mineral Transit

76 TIlE BULLETIN

does not make sense to add the two together. The justification of the hybridis that, in this article, we are not really interested in the actual figures but inhow and why they were reached.'

If we now consider the form of the Table, we notice first that the Com-mission gave different figures for Merchandise and Mineral Traffic. Thiswas not simply because there were different costs for the twofor it wouldalways have been possible to have included them both in a set of averagefigures. It was obviously in the interests of the Commission, as its repre-sentative admitted, to present as few sets of costs as possible at the adverselevel since the more maxima that were written into the Charges Scheme theless flexibility the Commission would have in setting charges (2401). Forinstance the Commission rejected the suggestion that there should be amaximum rate for each commodity, based upon an adverse level of costs forthat commodity.

Apart from the distinction between merchandise and mineral traffic theT.C.S. gave separate figures for Owners' Tank Wagons and Owners' Wagons.These are excluded from our Tables and discussion because they are notsufficiently important to add to our understanding of railway costs. The onlyother cost distinction conceded was based on a yardstick called loadability.Two technical reasons were given for singling out loadability. The first wasthat it was the only factor affecting the cost of every consignment. The secondwas that it was easy to calculate. This does not explain why the ChargesScheme was based on different maxima for consignments of different load-ability. It would have paid them to insert the figures for consignments offrom 8io tons loadability (Table A) which were the highest and makethat the maximum. This would have given them greater flexibility in rate-setting. Presumably the Commission felt that it would have been impoliticsince it had to persuade a Tribunal whose thinking was heavily conditionedby the 1947 Act that the maxima it was setting did safeguard the consumers'interest.

In some early evidence it looked as if loadability was a precise yardstickcapable of mathematical formulatiOn. Later it became clear that the load-ability of a consignment was something usually judged by eye and fromexperience. The loadability of a consignment is the tonnage of it which willfill a wagon of specified dimensions. It was said initially that the 10-tonwagon was taken as the standard because the cost of carrying goods in az o-tonner was higher than in any larger wagon and therefore it was a suitablestandard for determining adverse levels of cost. But later it was said that thetruck the T.C.S. had in mind was one of from io to 13 tons capacity (5324),thereby emphasising that loadability was not as precise a concept as it hadseemed at first since the standard in terms of which it was measured was

1 In any actual case, where the T.C.S. was using this form of Table to set down the costsrelevant to a particular consignment offered for transit, the object of the exercise wouldbe to hold up all the relevant figures and so determine the totals left out of our Table A onwhich the two-part charge would be baseda Standing Charge and a Charge Per Wagon.-Mileunless it was decided that in the particular case Track and Signalling was joint togoods and passenger traffic where the charge would be set so as to make the biggest possiblecontribution to this overhead providing other costs were covered.

SOME NOTES ON RAiLWAY COSTS ANI) COSTiNG 77

variable.' Every commodity carried was assigned to one of three classes ofloadability for merchandise traffic-8 to zo tons, 4 to 8 tons, under 4 tons-and one of two for mineral traffic-8 to zo tons or 4 to 8 tons. There was nothird class for minerals because it was alleged that mineral traffic consignmentswere never less than 4 tons. The two classes for merchandise and mineraltraffic were (x) from 8 to io tons of the commodity to the 10-13 ton truck(2) from 4 to 8 tons. The third class, for merchandise traffic only, was under4 tons. A different charge was made for each class in respect of those costsheld to vary with load: Track and Signalling Costs, and Terminal andTrunk Haulage. The principle is that the more nearly a consignment fillsa wagon the lower the cost per ton but the lighter the consignment the greaterthe cost per ton. It is assumed there is never more than one consignment perwagon because if the consignment weighs more than a ton it never pays toload more than one consignment into a wagonthat is for traffic other thansmalls and sundries. The T.C.S. was often asked if the loadabiity of acommodity was something a railwayman could look up in a book or work outwith a slide-rule. The reply was always that the loadability of a commoditywas a matter for the judgement of the official aepting the traffic and thatwhere the odd shape, or other peculiarities of a consignment made judgmenthard, the official could experiment.

SECTION II: RELATIVE SIGNIFICANCE OF THE COST CATEGORIES

The first use to which we can put the cost data available is to estimate therelative importance of the various components of standing cost and cost perwagon-mile. This can be done only for adverse levels of costs.

Table A shows the average percentage of Total Costs falling in eachcategory for consignments of 8-zo ton loadability going the average distanceat adverse levels of costs. The average length of haul was 130 miles formerchandise and 66 miles for mineral traffic. Track and Signalling, relatedto both Terminal and Trunk Haulage are combined because the sametrack is normally used for both purposes. This item plainly emerges as themost important, accounting for 39 per cent of merchandise and 38 per cent ofmineral costs. Track and Signalling and Trunk Haulage together account for55 per cent of merchandise costs and 51 per cent of mineral costs. Theotherimportant categories are Terminal Haulage (10.5 per cent and 14 per cent)and Provision and Maintenance of Wagons (9.5 per cent and 13 per cent).All the other costs together amount to only z6 per cent of merchandise and

1 Even in 1956 the great majority of wagons were larger than 10 to 13 tons capacity,those being the older wagons. When asked if they used this wagon as the basic for estimatingloadability when making their own cost calculation, the T.C.S. replied that it did, suggestingthat if there was a high expectation that a particular traffic would be carried in a largertruck, then this might be allowed for specially in costing. One rather got the impressionthat it was pure chance that dictated the size of wagon a consignment went in, except inexceptional cases: e.g. where the consignment was very large or required a specially designedwagon. The fact that the loadabiity of, say, a consignment of nuts and bolts, going in a16 ton wagon was calculated as if it were going in a 10 to 13 ton wagon does seem a littlecurious.

C6

78 ThE BULLETIN

TABLE A2Merchandise

TrafficStanding Costs %Track and Signalling related to Terminal Haulage ... 25Terminal Haulage . .. ... ... ... 23Provision and Maintenance of Wagons 16.5Terminal Shunting ... ... ... ... 11.5Terminal Accommodation and Facilities ... ... 8.5Provision of Sheets and Ropes ... 5.5General Administration ... ... 4.5Loss and Damage in Transit ... ... 3.5Documentation ... ... 2

Total ... ... loo

Costs per Wagon-mileTrack and Signalling related to Trunk Haulage 51Trunk Haulage... ... ... ... 29Marshalling ... ... 8General Administration ... ... 5Loss and Damage in Transit ... 3.5Provision and Maintenance of Wagons 3.5

Total Costs per Wagon-Milc ... loo

za per cent of mineral costs. It may be noted that the three categories ofterminal station costsTerminal Shunting, Terminal Accommodation andFacilities, and Documentationamount to io per cent and 14 per centrespectively of merchandise and mineral costs. This will be important whenwe come to consider sources.

Most of the differences in relative importance of costs for merchandiseand mineral traffic are simply due to differences in the average length of haul.This is shewn by Table A2 which shows components of Standing Cost aspercentages of Total Standing Costs and components of Cost Per Wagon-Mile as percentages of Total Cost Per Wagon-Mile. The figures for mer-chandise and mineral traffic were so similar that it was not worth givingseparate sets of percentages for each. Track and Signalling is still the largestcomponent of both Standing Costs (25 per cent) and Costs Per Wagon-Mile(i per cent). Terminal Haulage accounts for 23 per cent of Standing Costs;

TABLE AlRelative Importance of Cost Categories

MerchandiseTraffic

0110

MineralTraffic

0//0Track and Signalling 39 38Trunk Haulage... ... 16 13Terminal Haulage ... ... 10.5 14Provision and Maintenance of Wagons 9.5 13Terminal Shunting 5 7General Administration ......... 5 4.5Marshalling ... ... ... ... 4.5 3.5Terminal Accommodation and Facilities ... 4 5.5Loss and Damage in Transit ... ... ... ... 3.5 -Provision of Sheets and Ropes 3.5 -Documentation ... ... ... 1 1.5

Total 100 100

SOME NOTES ON RAILWAY COSTS AND COSTING 79

Provision and Maintenance of Wagons for 16.5 per cent and TerminalShunting for i 1.5 per cent. The remainder sum to 22 per cent only. TrunkHaulage and Track and Signalling related to Trunk Haulage are 8o per centof Costs Per Wagon-Mile, the next most important being Marshalling, amere 8 per cent.

SECTION III: SOURCES

Before x99 the railways had virtually no knowledge of their costs exceptfrom an accounting standpoint. There was almost no attempt to cost trafficto determine its profitability. In 1949 the Traffic Costing Service was estab-lished to improve railway costing so that it would be possible to determinewhat traffic was profitable. The costing information produced before theTransport Tribunal in 1955-6 was one of the first fruits of the T.C.S.'inquiries. It is therefore not surprising that the information on whichTable A was based was scanty. With the exception of a week's special surveyof all goods stationsthere were 6000 of themthe rest of the data wasbased on sample surveys. The T.C.S. had not the resources to conduct arandom survey of sufficient size. They were what were called 'representa-tive', but are known to statisticians as 'selective', surveys. The sampleswere chosen by the T.C.S. in consultation with regional officials as fairlyrepresentative of the range of conditions to be met with in each cost category.One would have expected the T.C.S. to collect the most information for themore important cost categories. Taken at their face value, Tables Ai and A2indicate that priority should have been given to (i) Track and Signalling; (ii)Trunk Haulage; (iii) Terminal Haulage; and (iv) Provision and Maintenanceof Wagons, in roughly that order. The facts are at odds with this order ofpriorities.

The extent of the information the T.C.S. had on each cost categoryappears to have been in the following orderalthough it is impossible to bequite sure because of the difficulty of evaluating the worth of a sample inrelation to a universe of which the size is imperfectly known.

The T.C.S. seemed to have collected the best information for the threeterminal station categoriesTerminal Accommodation and Facilities, TerminalShunting and Documentation. It was based on a week's special analysis of2000 stations. These were all the stations which handled goods only, out of atotal of 6000 handling both goods and passenger traffic. For some purposesinformation gathered from a longer and more detailed study of 28 stationsand also information gathered from all 6000 stations was used to supplementthe data from the 2000.

Next fullest information was on Marshalling which was based on a specialsample of i6 out of a total of 900 yards and on regular returns from 322 yards.

Terminal Haulage data were based on a sample of 153 terminal haulageoperations, Trunk Haulage on a sample of izo trunk haul freight trains andon a week's return of all loadings. It is here that it is particularly difficult to

So THE BULLETIN

estimate the universe; but for both terminal and trunk haulage together therewere i,ozo,000 operations in 1956.

Track and Signalling was based on a classification by engineers ofall tracks into four categories. Engineers gave different cost figures for trackof each type; but the explanation is in part circular, since what was to bespent on repair, maintenance, etc. of a track of a particular category wasdetermined by the standard thought appropriate to the category to whichit belonged.

Data for Provision and Maintenance of Wagons were based on total figuresof the amount spent on the repair and replacement cost of wagons; and totalfigures of the number of wagons in use and the average mileage performed.The only cost distinction was made between merchandise and mineral traffic.

Provision of Sheets and Ropes. The data were similar in kind to that forProvision and Maintenance of Wagons.

Loss and Damage in Transit costs were based on average claims experience.Again the only distinction made was between the claims experience ofmerchandise and mineral traffic.

General Administration costs were accounting figures of certain overheadstreated as a percentage of other costs.

Thus it does not appear that the T.C.S. had the most information for themore important categories of costs. The best information appeared to be forthe three terminal station categories which together summed to io per cent oftotal merchandise and 14 per cent of total mineral costs. More interesting isto speculate on the ability of the T.C.S. to produce more detailed informationthan they did and also on the direction of their research since. On the firstpoint the T.C.S. maintained a consistent attitude. They said it was possibleto cost any specific flow of traffic if desired but only by conducting a specialsurvey which would be worth while only if the traffic were important. (Itwould be interesting to know what proportion of traffic has in fact been costedseparately since 1956). The only refinement possible without a special surveywas a division of terminal stations into four categories (413 i).1 according totheir costs, those having thè highest Terminal Station costs in A, the lowestin D; so that they would be able to quote a lower cost for traffic going from aD to a D station than for otherwise identical traffic going from an A to a Dstation (4148). It was stated that they could not yet do the same for marshal-ling yards because their enumeration of marshalling yard costs would not becompleted much before the end of (5284). 'I should not think it wouldbe complete in the sense of having day to day, or shall we say week to week,record of what is happening at these places in a period of five years, but weshould be able to achieve something which is workable within a shorterperiodpossibly i8 months or two years.' (529I) It would seem that sincethen the railways have maintained these priorities in the improvements they

Z is not absolutely clear, but it seems that while the Tribunal was sitting the sampleof 2000 terminal stations was expanded to a complete enumeration of all 6000 stationshandling goods (e.g. 5845).

SOME NOTES ON 1AILWAY COSTS AND COSTING 8z

have made to cost data. Terminal station costs and marshalling yards havehad high priority; while information on more important categoriesTrackand Signalling, Trunk and Terminal Haulage, and Provision and Mainten-ance of Wagons has not been improved much since 1955-6.

The argument for not bothering to improve data on the cost of Track andSignalling is presumably that they are treated as an indirect, or joint, cost andare therefore strictly irrelevant to charging. However, given the great import-ance of this cost, one might have expected more detailed inquiry to helpdetermine the profitability of different lines since a small variation in thiscost from one line to another could make a great difference to the profitabilityof carrying traffic. (One would also have thought that research into what iscertainly a direct costthe wear and tear caused by wagonloads of variousweightsmight have been profitable.)

Track and Signalling apart, ene hypothesis which would explain theT.C.S.' research priorities would be that there was greater variation in therange of costs found in the three groups of Terminal Station costs andMarshalling than in the more important categories, say, Terminal and TrunkHaulage. With the exception of Documentationan insignificant categorythis is correct, but on the evidence available the variation does not seem tobe large enough to justify the priority.

To take the more significant categories from this point of view. Therange of Terminal Shunting costs was from is. ud. at the cheapest station tosome unspecified figure higher than i5s. 6d. (The adverse figure was 75. iod.)Terminal Accommodation and Facilities costs were divided into two partsfor this purposea composite range of costs was not given. Accommodationand equipment costs were found to range from 5d. to 6s. 4d., wages fromzs. 3d. to 5os. per wagon handled. Marshalling ranged from 'under zs. ' to'over 6s.': adverse level-4s. zd.

The range of costs for Terminal Haulage was from 6s. jod. to xis. 4d.per train-mile (1256), and for Trunk Haulage, 6s. to 9S. 6d. per train-mile,with adverse level costs of lOS. 6d. and 9S. respectively (1433).

A method of attempting to measure the effect of the greater variationin the first group of costs is by substituting the low level for the adverse levelcost in each case and calculating the effect on (a) Total Costs (Table Ai); (b)Standing Costs or Costs Per-Wagon-Mile (Table A2). (Since there is norange given for total costs of Terminal Accommodation and Facilities, itcannot be done for it. The effect on the rest may be illustrated by a Table.

Percentage effect on costs if adverse arc replacedby low costs

Total Costs

%Costs

Standing Costsper wagon-mile

%Terminal Shunting - -. 4 10Marshalling . - - - 3 5Terminal Haulage - . - 4 6Trunk Haulage... - -. 4 6

F

82 '1'1-I1 13tJLLIT1N

There seems no obvious reason for devoting more research to Shuntingthem to Haulage costs (unless there is some correlation between costs ofTerminal Accommodation and Facilities cost and costs of Terminal Shunt-ing), and none for preferring research into Marshalling costs. Also one mighthave expected that an attempt to break down the costs for Provision andMaintenance of Wagons might have been profitable.

The conclusion which can be drawn about the relative importance of costcategories is unequivocal. Track and Signalling is much the most important.Conclusions about the validity of sources must be less firm. The samples areselective and in most cases small and surveyed infrequently. It might be thecase that the T.C.S. has given the wrong priority to research into improvingcost data, but of this we cannot be sure.

SECTION IV: RATES OF INTEREST AND PERIODS OF DEPRECIATION

This section's purpose is to give some idea of how costs would have beenaffected if the railways had used a more realistic rate of interest. The pointis nOt to suggest that the railways should raise their charges to cover a higherinterest charge. Plainly that would be nonsense while they are in deficit.It is just to give some idea of the elevation in charges which would have beenneeded if the railways had been required to earn various rates of interest.Another way of regarding the exercise is as a speculation on the real deficit ofthe railways the difference between what they have earned and what theywould have to earn to cover various rates of interest. Much more tentativelythis speculation may have some predictive use since it gives some indicationof the increase in charges that might be needed in the future to cover variousrates of interest. But clearly this involves much more guesswork, since it isquite probable that by the time the railways are breaking even, the cost dataused in this study will be irrelevant because of the introduction of diesel andelectric haulage in particular but also because of other technical changes.

A difficulty in this calculation is that interest was not imputed to allcapital items by the T.C.S. The rate of interest used was 3 per cent. (i) Thiswas used for wagons, locomotives, brake vans, signalling equipment, rails,sleepers and ballast. (z) There was a second group of assets of which it wassaid specifically that no interest cost was imputed to them: buildings, forma-tion on which the track is laid, other earthworks and what were called'adjuncts' to stations, yards, lines, etc., unless these were 'new', that is,built since 1948. () There was a third group of assets where it was notmade clear if the T.C.S. had imputed an interest cost. The principal one ofthese shewn in Table A was Sheets and Ropes. With one exception, the effectof selecting different interest rates is calculated for assets of group (i) only.No attempt has been made to calculate an interest cost for assets of group (2).The one exception is that I have computed the effect of choosing differentrates of interest on the Provision of Sheets and Ropes also. It clearly ties up acapital sum and it is comparatively easy to calculate interest on it.

1 Assuming merchandise transit wagon-loads of 8 to 10 tons.Costs per Wagon-Mile:

Five per cent, 6 per cent and io per cent are the interest rates used tocontrast with the Commission's 3 per cent. The rationale of the Commission'schoice of 3 per cent is curious (see Provision and Maintenance of Wagons,section VII infra). A proportion of the Commission's Central Chargesrepresents interest payable on debt, the greater part of which is interestpayable on railway debt. ,C37.6 million of this was attributed to specificassets and it was found that a sum equal to the interest required would becollected by imputing a 3 per cent interest cost on these assets. The remaining£2.4 million was placed among General Administration costs as overheads ofthe railway system.

Five per cent, 6 per cent, and xo per cent have been chosen for thesereasons; per cent is the planning rate of interest the Commission was usingin its Modernisation Plan; 6 per cent is a possibly slightly pessimistic guessat the average cost of borrowing to the government over, say, the next decade;io per cent is a less obvious choice. It can be seen either as 6 per cent plus a4 per cent risk premium against the possibility that expectations will beunderfulfilled, or as a (rather low) commercial rate of return which therailways might use if they were to pursue a 'commercial policy'.

The calculations behind the tables are based on some heroic assumptionsexplained in the notes to the tables at the end of the article. The significanceof the first table, Bi, is that it shows the effect of varying the rate of intereston the Standing Cost per Wagon and Cost Per Wagon-Mile of a consignment.To take Standing Cost first the figures for Direct and Indirect StandingCosts are firmer separately than the total figure for costs. Given its limitationsit shows that a 5 per cent rate of interest implies a 5 per cent increase in

SOME NOTES ON RAILWAY COSTS AND COSTING

TRAFFIC Bi1'raffic Costs of Merchandise at Different Interest Rates

83

Standing costs per wagon-load 5% 6% 10%

Direct:Provis ion and Maintenance of Wagon 112 117 140Provision of Sheets and Ropes ... 101 102 104Terminal Shunting ... ... 102 103 107Terminal Haulagc 101 101 103

Total ... ... 104 106 113

Indirect Standing Costs:Track and Signalling related to Terminal Haulage ... 108 iii 128Total ... ... ... ... ... ... 105 107 116

Provision and Maintenance of Wagon 112 117 140Marshalling ... ... .. ... 100 100 101Trunk Haulage ... ... 100 101 103

Total direct Cost per Wagon-Milc... 102 103 107

Indirect Cost per Wagon-Mile:Track and Signalling related to Trunk Haulage 108 111 128

Total cost per Wagon-Mile (direct and indirect) ... 105 108 119

84 THE BULLETIN

Standing Costs over a 3 per cent interest rate. A 6 per cent rate implies a7 per cent increase in Standing Costs. A o per cent rate implies a x6 per centincrease in Standing Costs.

Easily the most important factor in this result is Provision and Mainten-ance of Wagons. A 5 per cent rate implies a iz per cent increase in this costalone; a 6 per cent rate a i 7 per cent increase; a io per cent rate a 40 per centincrease. Second in importance is Track and Signalling. A per cent rateimplies an 8 per cent increase; a 6 per cent rate an ii per cent increase; aio per cent rate a z8 per cent increase. The effect of varying the rate ofinterest has much less importance for other items and there are some TerminalFacilities, Documentationwhere it has no effect.

The effect of varying the interest rate does not vary significantly withloadability or between merchandise and mineral traffic.

This is also true of the Cost Per Wagon-Mile. Again the separate figuresfor Direct and Indirect Costs are firmer than the overall figure. A 5 per centrate of interest implies a 5 per cent increase; a 6 per cent rate an 8 per centincrease; a io per cent rate a 19 per cent increase. The chief factor is Trackand Signalling in relation to Trunk Haulage. Although the percentage effectis greater on the item Provision and Maintenance of Wagons, Track andSignalling has more weight. The interest element in Marshalling and TrunkHaulage is of little significance.

It will be seen that the higher the rate of interest chosen, Cost Per Wagon-Mile tends to rise in relation to Standing Cost.

Depreciation Periods. The effect of using a more realistic depreciationperiod for wagons than that used by the Commission has been attempted.No attempt has been made to calculate the effect of choosing a differentperiod for other assets. The most interesting possibility would have beenlocomotives but this has not been done because of complications arising fromthe partial replacement of steam by diesel and electric locomotives.

The average period for the depreciation of wagons was found by deductionto be 42.75 years for merchandise and 43.75 for mineral wagons (cf. 6305).Increasing probability of obsolescence and growing competition suggest itwould be wiser to depreciate over a shorter period. I have chosen zo yearswhich has been suggested by Meyer, Peck, Stenason and Zwick for freightwagons on American railways.1 The effect has been calculated in combinationwith a per cent, 6 per cent and io per cent rate of interest.

The effect on Standing Costs of raising interest rates and choos.itg a20 year depreciation period is shewn in Bz for both merchandise and mineraltraffic. If the interest rate is per cent, the increase in cost over a 3 per centrate is lO percent; if the interest rate is 6 per cent, the increase is 13 per cent;and if it is io per cent, the increase is 20 per cent. The increase in the cost ofproviding and maintaining wagons is, naturally, very marked; 5 per centinterest rate: 41 per cent increase in costs; 6 per cent interest rate: 47 per centincrease in costs; io per cent interest rate: 69 per cent increase in costs. The

1 Economics of Competition in thr Transportation Industries, Harvard (1939), p. 60.

SOME NOTES ON RAILWAY COSTS AND COSTING 85

TABLE B2Cost Per Wagon-Mile at different rates of interest.

Cost at 3per cent = loo

Effect on Costs of Merchandise and Mineral Traffic of Varying the Depreciation Period forWagons

Merchandise Standing Costs

Provision and Maintenance of Wagon:

Cost at 3 per cent, 42.75 years= 100.Merchandise Transit Wagonload

of 8-10 tons

5% 6% 10%

42.75 years ... ... 112 117 14020 years ... ... 141 147 169

Total Direct Standing Costs:42.75 years ... ... ... 104 106 11320 years ... ... ... 111 114 121

Total Standing Costs (Direct and Indirect):42.75 years ... ... ... 105 107 11620 years ... 110 113 120

Costs per wagon-mileProvision and Maintenance of Wagon:

42.75 years ... ... 112 117 14020 years ... ... 141 147 169

Total Direct Cost per Wagon-Mile:42.75 years ... ... ... 102 103 10720 years ... ... ... ... 105 108 112

Total Cost per Wagon-Mile (Direct and Indirect)42.75 years ... ... ... ... 105 108 11920 years 106 109 120

Mineral Mineral Transit Wagonload of8-10 tons

Standing Costs ... 5% 6% 10%

Provision and Maintenance of Wagon:43.75 years ... 109 113 13120 years ... 134 138 155

Total Direct Standing Costs43.75 years 102 104 11020 years ... ... ... 106 107 114

Total Standing Costs (Direct and Indirect):43.75 years ... ... ... 104 106 11420 years ... 106 107 117

Costs per Wagon-MileProvision and Maintenance of Wagon

43.75 years ... ... 109 113 13120 years ... ... 139 138 155

Total direct Cost per Wagon-Mile:43.75 years ... ... 102 103 10720 years ... ... ... ... 104 105 110

Total Direct Cost per Wagon-Mile (direct and indirect):43.75 years ... ... ... ... ... 108 110 12220years ... ... ... ... ... 109 111 123

Direct:Provision and Maintenance of Wagon 112 117 140Marshalling loo 100 101Trunk Haulage 100 101 103

Total ... ... 102 103 107Indirect:

Track and Signalling related to Trunk Haulage 108 111 128

Total ... ... 105 108 119

86 THE BULLETIN

effect on Cost Per Wagon-Mile is rather less. With a 5 per cent rate of interestand a o year depreciation period, costs increase 6 per ce.nt; with a 6 per centrate, 9 per cent, and with a io per cent rate, zo per cent.

The effect of shortening the depreciation period is less on mineral thanon merchandise traffic because of the higher repair costs of mineral wagons.It will be noticed also that the effect of shortening the depreciation period formerchandise traffic, unlike that of increasing the interest rate only, is todecrease the ratio of Cost Per Wagon-Mile to Standing Cost. The reverse,however, still obtains for mineral traffic.

Tentatively, one might deduce that the effect of choosing a more realisticinterest rate and depreciation period would have had, and would have, aconsiderable effect on British Railways' costs especially when it is rememberedthat a large proportion of the assets have no interest imputed to them andthat there are other assets, most probably, which ought to have shorter livesimputed to them, besides wagons. Perhaps the most significant pair of figuresare those of a 6 per cent rate of interest with a 20 year depreciation periodwhich many might agree are sensible figures. If these were adopted, TotalStanding Costs would go upfor merchandise traffic by 13 per cent andfor mineral traffic by 7 per cent: Cost Per Wagon-Mile would go up formerchandise trafic by 9 per cent and for mineral traffic by xi per cent.

SECTION V. DIRECT AND INDIRECT COSTS

In the course of the hearing the Commission made it clear that it usedthis distinction in two distinct and unconnected senses (pp. 213-6). Thefirst was the accounting use by which Direct Costs were those which appearin the Commission's Accounts as the working expenses of the railways; andIndirect Costs were the proportion of the Commission's Central Chargeswhich the railways were intended to pay if able. The latter included allinterest charges; all provision for replacement of assets over and abovedepreciation at historical cost; central administration expenses; expenses ofmanagement of British Transport stock; and the expenses of the TransportConsultative Committees and Transport Tribunal inter alia. The secondwas the costing use of the two terms which differed from the accounting usein that most interest charges and all replacement provisions were allocated tocost categories; and that all Track and Signalling Costs except those attribut-able to Terminal Stations and Marshalling Yards were removed from DirectCosts where they were placed for accounting purposes and placed among theindirect Costs. On this second definition Indirect Costs comprised all Trackand Signalling Costs with the exceptions mentioned above and GeneralAdministration costs (section VII infra).'

We are not further concerned with the accounting distinction. The

1 Another source of confusion was that Indirect Costs and Central Charges were the samething for the railways to the accountant whereas Central Charges were part of IndirectCosts to the T.C.S.

SOME NOTES ON RAILWAY COSTS AND COSTING 87

T.C.S. justified the costing distinction as follows. It was 'a theoreticaldefinition; direct costs cover all those items, the cost of which, taking asufficiently large volume of traffic and a sufficiently long-term view, may beexpected to vary with changes in the volume of traffic: indirect costs coveritems, which, in general, do not so vary'(8z6). This is not unambiguous-it was given as verbal evidencebut it seems to suggest a distinction betweenfixed and variable factors. Direct costs are those of factors of which theuse, and therefore the cost, is variable in some run shorter than the longest.Indirect costs are those of factors of which the supply and the cost cannotbe expected to vary if the railway line or service is kept running at all.

But then the T.C.S. appeared to have confused this distinction with onebetween joint and allocable costs. For example, the T.C.S. refused, despitepersistent pressure, to admit that it made sense to compute an 'average'or 'normal' cost of Track and Signalling, as has already been mentioned.It was argued that it was 'economic nonsense' since in effect indirect costswere joint costs and could not be imputed to any 'particular transaction'.When it was suggested that the fact that the freight traffic bore all the track,signalling and general administrative expenses in respect of C lines used bypassenger traffic, implied cross-subsidisation by freight of passenger traffic,Mr. Tait replied 'On these particular services it has to bear the whole ofthe costs, but it would be in no better position if the passenger serviceswere withdrawn' (12649). The theory is that direct costs are to be im-puted to particular transactions, indirect costs are not. The latter are to berecouped 'commercially 'by the principle of what the traffic will bear.

The logic of this, as advanced by the railways' representatives, wasimpeccable. All that was at fault was the actual distinction drawn. What theCommission call indirect costs are not the only joint costs. They happen tobe the bulk of those j oint to passenger and freight traffic; but if we take thewagonload as the unit of out-put, as the T.C.S. does, the only direct costsallocable to the wagonloadare some unspecified proportion of Fuel,Water, and Lubricants, which is proportional to the weight and number ofwagonloads hauled, shunted and marshalled; some documentation costs;Loss and damage in Transit; and, paradoxically, something which appearsin Indirect Coststhe wear on the track attributable to a wagonload of givenloadability. In as much as indirect costs are defined to mean costs whichcannot be allocated to particular wagonloads, almost all costs are indirectand are apt for probabilistic accounting.

The following is an approximate calculation of the actual proportion oftrue joint or Indirect Costs. We assume that the only Direct Costs are: aquarter of the cost of Documentation on the assumption that three-quarteris labour costs; Loss and Damage in Transiton the assumption that theinsurance cost here does not rise per wagonload with a fall in the number ofwagonloads; the costs of the fuel, water and lubricants used in terminalshunting, marshalling, terminal and trunk haulage which are respectivelyabout 28 per cent, 14 per cent, 38 per cent and 38 per cent of the costs under

these categorieson the false assumption that these costs are wholly propor-tionate to the number of wagons shunted, marshalled or hauled.

On this basis roughly x6 per cent of total costs as defined in Tabk Atare Direct and 84 per cent Indirect. This calculation is open to many objec-tions, but it should be nearer the truth than the distinction made by therailways which treats 44 per cent of total costs as Indirect and 6 per cent asDirect.

To return to the other interpretation of the distinction between Directand Indirect Costs made by the T.C.S., which seemed to refer to variableand fixed factors, more can be made of this since it can be related to a distinc-tion of some importance between escapable and inescapable costs. Escapablecosts are here defined as those which a firm can avoid paying over some periodof time: they are escapable in relation to that period of time. The classiccase is that of a firm which does not pay its fixed interest charges in a slump,and lets prices fall to a level at which those interest charges are not covered.The principle is that the firm's creditors are in no position to insist on pay-ment. If they did the firm would have to raise its prices and by assumptionwould have to close down. If the firm remains in business the creditors havesome possibility of recouping their losses if circumstances improve. In-escapable costs are those which have to be paid to keep the firm going:wages, most salaries, new purchases of raw material, etc. If the highestprice the firm can charge and stay in business is such that inescapable costsare not covered, it might as well go out of business, temporarily at least.)

This distinction is obviously of some importance for the railways.Table C shows the effect of trying to distinguish between various categories

88 THE BULLETIN

TABLE CCosts of Varying Degrees of Escapability

Current Repairs RenewalsInputs and Main- at Replace-

tenance ment Cost

Interestat 3%

Provision and Maintenance of Wagons 57 26 17Provision of Sheets and Ropes 100Terminal Shunting ... ... ... 67 23 7 3Terminal Accommodation ... ...Documentation ... ... ... ...

91loo

9

Terminal Haulage ... ... ... ... 72 24 2 2Track and Signalling related to Terminal

Haulage ... ... ... ... ... 53 34 12Loss and Damage in Transit 100

Total Standing Costs 54 19 21 6

Provision and Maintenance of Wagon 57 26 17Marshalling ... ... ... ... ... 70 22 5 3Trunk Haulage... ... ... ... ... 72 24 2 1Track and Signalling related to Trunk

Haulage ... ... ... ... ... 53 34. 12Loss and Damage in Transit ... ... 100

Total costs per Wagon-Mile 62 9 21 8

SOME NOTES ON RAILWAY COSTS AND COSTING 89

of escapable and inescapable cost. The allocation of the various subheadsunder each cost category given in evidence to the Transport Tribunal is tosome extent arbitrary. It is, I think, the best allocation that informationavailable and common sense will allow. I have not attempted to fit GeneralAdministration into the scheme because the information was insufficient.The calculations are only made in respect of Merchandise Traffic in wagon-loads of from 8 to io tons loadabiity.

The first three degrees of escapability require little comment. (i) are thetruly inescapable costs which must be paid if the railways (or some part ofthem) are to be kept running at all. It will be seen that these account for54 per cent of Standing Costs and 6z per cent of Costs per Wagon-Mile.(z) The general principle here is to exclude those costs which could, roughlyspeaking, be avoided for a period of perhaps one year before the railways (ora branch line) were not longer safe to operate. For example a proportion ofrepairs on wagons, locomotives, etc. could be escaped; they would be usedwithout being repaired until no longer usable, these items account for 19per cent of Standing Costs and 9 per cent of Costs Per Wagon-Mile. () Thethird group are costs which can be escaped over some longer period of time,Certain items of equipment can be used and repaired, if revenue justifies this,until they are worn outno provision being made for their replacementbecause revenue and expectations do not justify it. These account for ziper cent of Standing Costs and zi per cent of Costs Per Wagon-Mile.

(1.) The fourth category is different in kind from the other three. Onlyinterest is included in it. The reason for giving interest charges a categoryon their own is as follows. These interest charges as we have seen are relatedto the amount which is required theoretically as the contribution of BritishRailways to the Central Charges of the Commission. It can be argued thatsome interest charges should appear in category (i). Assets should not berenewed unless expected revenue is enough to cover interest costs as well asthe cost of purchase and depreciation. But the difficulty about includingactual amounts set aside for interest payment is that this begs the questionof how much should be set aside as interest charges. It might be argued thata rate higher than 3 per cent should be usede.g. per cent, 6 per cent orxo per cent. If this is so, the total of costs in category (3) should be increasedto allow for coverage of the chosen interest-cost. As a consequence category() would be a higher proportion of Total Costs. If it were the case that theright rate of interest were that indicated by the interest charges of category(g.) then we could combine the two categories and forget about the matter.But, as we know, the interest is only charged on a certain proportion of assetswhile the interest-rate we would want to use would be set against all assets.Furthermore the interest-rate we would want to use when judging whatproportion of break-even costs it was escaping would almost certainly behigher than 3 per cent. If we knew what interest rate the government requiredthe railways to use, it would be simple to recalculate category (3) though itwould still refer only to a proportion of assets. But we do not and therefore

90 THE BULLETIN

I have decided not to include any interest component in category (3). For-mally, to say that the costs of the railways were comprised by categories(i) to (3) only would be equivalent to the proposition that the railways mayinvest their depreciation funds at a zero rate of interest. The level of revenuewhich would justify the maintenance and renewal of the railways at thelevel of the efficiency they at present possess would be that which wouldbring in 94 per cent of Standing Costs and 92 per cent of Costs Per Wagon-Mile plus the amount needed to cover interest payments at the chosen interest-rate. One would expect that this would sum to more than ioo per cent ofthe costs represented in this Table C.

SECTION VI: THE LABOUR CONTENT OF RAILWAY COSTS

The British Transport Commission granted its employees a 7 per centwage increase on January 23rd, 1956, before the Transport Tribunal hadfinished considering the Charges Scheme. The Commission thereforeprepared a revised version of the original table it had presented showing thebreakdown of costs for 'adverse but not extremely adverse conditions'. Itdiffered from the original only in that it allowed for the increase in wage costs(p. 715). From those two tables we can deduce the labour content of costsfor each of the main categories. This is done in Table D. It is important tonote that this is the labour content of costs at the adverse level. To generalisethese as the average labour content of railway costs we would have to assumethat labour costs are the same proportion of average costs as they are of costsat the adverse level. Unfortunately no information was given which wouldenable us to check the plausibility of the assumption.

TABLE DStanding Cost per Wagon Labour Cost as percentage Costs

Not Variable with Load: %Provision and Maintenance of Wagon ... 24Provision of sheets and ropes ... 23Terminal shunting ... ... ... ... 72Terminal Accommodation and Facilities 89Documentation ... 99

Variable with Load:Terminal Haulage ... ... ... ... ... 58Track and Signalling related to Terminal Haulage 67

Total Standing Labour Cost per Wagon as Percentage Total StandingCosts ... ... ... ... ... ... ... ... 57

Cost per Wagon-Mile:Not Variable with Load:

Provision and Maintenance of WagonMarshalling ... ... ...

Variable with Load:Trunk HaulageTrack and Signalling

Total Labour Cost per Wagon-Mile as percentage Total Cost rer Mile...

2883

5967

64

SOME NOTES ON RAILWAY COSTS AND COSTING 9'SECTION VII: COSTING PROCEDURE

In this section I describe the methods which the T.C.S. use to calculatethe figures for the various cost categories shown in Table A.

Provision and Maintenance of Wagons is the sum of three items: interest,provision for renewals and provision for repairs. Interest was calculated at3 per cent on half the replacement value of a wagon, the assumption beingthat there is continuous replacement of the assets (981). The figure of 3per cent was chosen because it summed to an amount broadly equivalent tothe contribution to its Central Charges required by the B.T.C. from thissource (8zo). It was therefore something like a weighted average of theinterest rates which obtained during the lifetime of wagons then in use,weighted by the number of wagons bought at each interest rate. Provisionfor renewal was calculated on a stright-line replacement cost basis at mid-1955 prices. By deduction from the period over which depreciation wascalculated, the average useful life of a wagon was approximately 43 years(6305). Repairs were treated, rather surprisingly, as a function of time andnot at all of use. 'At first sight', Mr. Tait said, 'it might seem that we mightattribute some part of the cost of repairs to the wagon on a mileage basis,but we looked at it, and our judgment is that since that part of the cost ofrepairs which can be related to mileage is small and cannot be readily identi-fied, we have in fact treated the whole repair costs as a time cost. The reasonfor that is that the cost is to a very considerable extent occasioned by wear,but it is more related to weathering while the wagon stands unloaded orempty and to the damage that occurs during the loading and unloading andin transit, particularly in marshalling and shunting yards (967). The maindifficulty would seem to be that they had not got far with any attempt ata probabilistic explanation of the causes of wagon damage; or with anyattempt to relate damage to the carriage of different kinds of commodity.A priori, it would seem likely that, as the number of marshallings, is a functionof distance, damage depends in part on distance; and also that damage inloading and unloading might be expected to vary considerably betweencommodities. The annual repair cost per wagon was found by estimatingthe average repair costs of merchandise and mineral wagons respectively overtheir life cycles and relating this to the number of merchandise and mineralwagons and the total annual cost of wagon repair (973). This had to be doneby estimation because there were no records of the amounts actually spenton repairing individual wagons or different categories of wagon.

Costs are then divided into two partsa standing cost per wagon-journeyirrespective of its mileage and a second part varying with distancein theway illustrated in Table Ei.'

1 The average annual cost per wagon in stock was adjusted to get an average annualcost per wagon available because on average nearly 10 per cent of wagons are out of use atay one time undergoing repairs or maintenance. This is divided by the average number ofjourneys made by each available wagon to get average cost per wagon-journey. This costis divided into two. Part is treated as a standing costcost per wagon-journeybecauseit is argued that time spent in terminals and empty does not vary with the distance travelled.Therefore in our mercbandise example (Bi) the average cost per wagon-journey is divided

Average turn-round time (days)

Terminal Shunting (A, line 2) 5 strictly speaking shunting at thestations of origin and destination; the figure of cost used includes in factthe cost of all track and signalling at terminal stations, a part of which shouldproperly be charged against, e.g., the accommodation of stationary wagons,loading and unloading, and carriage of passenger and goods trains throughthe stations or depot' (i 126-9). All shuntings at any given stations weretreated as homogeneous even though it was known that the cost probablydiffered according as wagons were loaded or empty and also probably dependedupon the number of wagons to a train, the direction in which the train isgoing and the type of goods carried (1143). Very little is known about this.by 12 to get the cost per wagon-day and then multiplied by 9.7 (the days of Terminal plusEmpty time), to get the figure for standing cost per wagon-journey (Table A. line 1).Loaded journey time does vary with the distance travelled, and this proportion of averagecost per wagon-journey is converted to a cost per wagon-mile (A, line 12) on the assumptionthat a merchandise wagon travels on average 48 miles a day and that a mineral wagon,which normally spends 50 per cent more time in marshalling yards, travels on average 48miles in a day and a half. Strangely enough, loaded journey time is not treated as a cost perwagon-mile because the further the distance the longer the time spent on the move. Thisis less important than time spent in marshalling yards. The' main reason is because of theproportionately greater time spent in marshalling yards as the transit distance increases'(1010). The average number of days spent loaded at terminals, on the journey and empty isbased on routine returns made by the operating staff. Terminal time is defined as the timeduring which a wagon is being loaded and unloaded. It therefore would follow that it takes,an average, more than two days to load and two days to unload the average wagon. Loadedjourney time begins as soon as loading is complete and includes all time spent thereafterat the terminal station, marshalling yards and at the receiving terminal station beforeunloading begins (1009). Later Mr. Tait retracted 48 miles as the average daily mileage ofa merchandise wagon and substituted 30 miles on further evidence which had becomeavailable, but he did not judge it necessary to change the figures given in A, line 12 (12908).

It follows that true Track and Signalling costs are somewhat higher than is shewn inTables Al and A2-by perhaps up to 5 per cent and 7 per cent for merchandise and mineraltramc respectively.

92 THE BULLETIN

TABLE ElProvision and Maintenanee Wagons of 10 lo 13 ions

MerchandiseAverage annual cost per wagon in stock wagons

Mineralwagons

1. Interest ... ... .. £ 6.5 £ 6.72. Provision for renewals ... £10.1 £10.23. Repairs ... ... ¿22.0 £33.0

4. Total ... ... £38.6 ¿49.9

5. Average number of wagons available per 100 wagons instock ... ... ... ... ... ... ... 92.7 93.7

6. Average annual cost per wagon available (line 5 x ... £41.7 ¿53.37. Average number of loaded journeys per wagon available

per annum ... ... ... ... ... ... ... 25.7 35.08. Average cost per wagon-journey (line 6±line 7) ... ... 32s. 5d. 30s. 5d.

9. Terminal time ... ... ... 4.6 4.010. Loaded journey time ... ... 2.3 2.011. Empty time ... ... ... ... 5.1 2.8

12. Total ... 12.0 8.8

13. Cost per wagon-day available (line 8 ±line 12) ... ... 2s. 8d. 3s. 6d.14. Standing cost per wagon-journey (line 13 x (line 9+line 11)) 25s. bd. 23s. lOd.15. Average daily mileage per wagon ... ... ... ... 48 miles 32 miles16 Cost per wagon-mile (line 13-i-line 15) ... ... ... .67d. 1.31d.

SOME NOTES ON hAlLWAY COSTS AND COSTING 93

The chief heads of expenditure on Terminal Shunting are: the wages ofshunting staff; engine power; and track and signalling.'

As was mentioned in the last section there were two principal sources ofinformation for this category of costs. The first was a detailed study oversix years, 1949-55 of z8 stations (5480) selected on the advice of regionalofficers as representative of a ' normal range of costs' excluding exceptionallyhigh costs (ç); for which information was collected at the stations byspecialist officials of the T.C.S. (6i). The second was a special analysisof 2,000 goods stations2 in a week, July 2nd-9th, 1955 (5504), said, thoughoccurring in the holiday season, to be a normal week. Statistics of the timeand staff costs of the operations of documentation, shunting, loading andunloading, etc. were collected (5505). Total shunting costs were assumedin each case to be a constant multiple of the staff cost incurred in shunting(1157). Division of the total shunting costs so obtained by the traffic receivedand forwarded, measured in terms of wagons, gave an average cost per wagonfor each station.3

The figure in Table A, line 2, represents a typical cost selected by intuitionfrom the range of shunting costs revealed by the sources. It would seem thatan allowance is made for an average ratio of 6o unloaded wagons shunted tolop loaded (viz. 1292). The costs of shunting loaded and unloaded wagonswas averaged over the loaded wagons to reach the final figure.

Terminal Accommodation and Facilities (A, line 3), is the sum of threecomponents. Terminal Accommodation is the cost of maintaining roads,tracks, loading banks and buildings in so far as they are used for forwardingand receiving freight traffic at terminal stations and depots (847). The methodof attribution was not explained. It would seem to have been assumed thatbuildings are maintained but never replaced or improved. Local Overheadsare the salaries of stationmasters, goods agents and clerks, engaged on paybills,statistical returns, sickness records, and general correspondence dutiesexcluding documentation of forwarded and received freight; and also thecost of stationery and stores, etc. (x 191). The costs of office accommodationwere not included. General Yard Wages, the third component, comprisedpayments for wagon numbering and labelling, identification and checkingof traffic and such things as the sheeting of wagons, and the scotching,roping, trimming and securing of loads and the sweeping and cleaning ofwagons and yards (1195).4

1 In the case of a particular station for which this breakdown of costs was disclosed bythe T.C.S. shunting staff cost £28 a week, engine power £193, track and signalling, £39 antistores 1.

There are in all 6000 goods stations, but the 4000 not covered deal with both passengerand freight traffic, the 2000 with freight only (1166).

No evidence was adduced that ratio of staff to total costs was in fact constant at the 28stations specially investigated. Indeed, it was stated that larger stations tended to have ahigher proportion of staff costs because of the need to keep them open 24 hours a day (1138).

The T.CS. was also able to breakdown the total cost in another way: the costs of shedtrafficfacilities and accommodation for loading and unloading sundries traffic (1171)yard traffictraffic dealt with in wagonloads in the open at a siding or loading bunk (1172);and private siding traffic-sundries and wagonloads handled at private sidings (1173). Onlyyard traffic was judged relevant to the Charges Scheme and vas considered in reaching thefigure in Table .1.

07

94 THE BULLETIN

It was assumed that the cost of terminal facilities and accommodationwas the same for all wagons handled at a given station, though it was recog-nised that the cost varied considerably (847,854).

The sources from which the figures were derived were the same as forTerminal Shunting. The T.C.S. was not satisfied with the special surveyof z8 stations because of the wide range of costs discovered. This informationwas used for the first component, Terminal Accommodation, as it was arguedthat the unreliability of the figures mattered less because of the smallnessof the amount (is. 3d. in 13s.) (x 174); and because the week's special returnsdid not give this information (6549). It was intended that the July 2nd-9th,1955, survey should apply to all 6,000 stations handling goods for this purpose,but, by the time the Tribunal began to sit, only advance data from an un-specified proportion of the whole was available. Stations were asked toreport hours worked by, and wages paid to, a long list of labour of differentgrades engaged in loading and unloading shed traffic; on the volume of privatesidings traffic; and on the volume of yard traffic by classes of merchandise,minerals, coal and livestock. A cost per wagon handled was derived fromthis data for each station (i 190).

The chief problem in working out the cost was that of allocating costsbetween passenger and freight traffic. Not surprisingly, the T.C.S. foundthat, if it proceeded by trying to sum passenger and freight costs separately,they summed to less than the total figure found by taking them combined(6zo). The final figure given in Table A was an underestimate in the opinionof the T.C.S., since it omitted elements of joint costs, being based solely onthe costs attributable to freight traffic. The figure inserted in Table A wasfound by taking a 'normal' figure for Terminal Accommodation from the28 stations survey, and 'normal' figures for Local Overheads and GeneralYard Wages from the 6,000 station return, raising them by 7 per cent to geta figure which was regarded as more rcpresentative of 'normal' conditionsthan those originally chosen; and then doubling it to allow for terminal costsat both ends.

Provision of Sheets and Ropes (A, line 4). This cost was found by dividingthe annual cost of providing sheets by the number of sheets forwarded withwagons in 1954 (an average cost per sheet forwarded of 6s. 8d. in 1955prices). Some wagonloads are double-sheeted. However the assumptionwas made that on average one sheet is provided for each wagon-journey.'This cost also covers the cost of chains, ropes, trestles and other packing aidswhich, averaged over all wagon-journeys, account for the other Is. in Table A,line 4. This cost varied considerably from wagon to wagon but it was notpossible to take account of variations (iio6), except that it was assumed thatmineral wagons were not sheeted. No interest is charged on the workingcapital locked up in this way. The data used were based on regular returnsmade by the operating staff.

1 This is the B.T.C.'s figure in their figure Exhibit AWTIA, p. 454, but in evidence itwas stated that' approximately one shcet is ptovided for every two open wagons forwarded'(1099). The discrepancy was not explained.

SOM1 NOIES ON RAILWA' cosrs AND COSTING 95

Documentation costs (A, line ) are only the costs of documenting theforwarding and receiving of freight traffic (1216). Excluded from the figuresused are all costs of office accommodation (but not office equipment), whichare treated as costs debited to the region and are accounted for as GeneralAdministration (Table A), lines io and i6); and also that part of the docu-mentation of mineral traffic which is done at a headquarters mineral office(1236). The source of the data used was the July znd-'9th survey of the 6,000goods stations. Considerable variation was found between consignments atthe same station and between stations (6891); which was ignored in theaverage figure used. The cost of documentation for forwarding is normallyconsiderably higher than the cost of documentation at the receiving station(1223-5).

Track and Signalling related to Terminal and to Trunk haulage (A, lines 7and 13). These two cost categories can be explained together. Track andSignalling under these two heads refers only to running lines. Track andSignalling of marshalling yards, terminal station yards, motive power depots,etc. were costed under those heads even though through-trains used the track.The Terminal Haulage cost is a cost per wagon-journey relating to runningbetween the originating terminal station and the first marshalling yard, andthe last marshalling yard and terminal station of destination (1466). TheT.C.S. decided that this was not a function of distance but of time and wouldbe best treated as a standing cost. The Trunk Haulage cost is treated on acost per wagon-mile basis and refers to running between the first and last'marshalling yard. The same lines are frequently used for both Trunk andTerminal Haulage. This is therefore not a distinction between lines.

The components of Track and Signalling cost were the same for bothuses. Interest is on money invested in such items of track and signalling thathave to be renewed; defined as rails, sleepers and ballast only (1495). Nointerest is included for bridges, cuttings, tunnels, embankments, the drainagesystem and 'other adjuncts necessary to maintain the permanent way'(1468),although it was admitted that, by the criterion of need for renewal,a great number of bridges and tunnels especially should be costed for interest(1469). The rate used was 3 per cent. The second component was Renewalsat replacement cost of those items which 'require periodical renewal'(1466). No provision is made for the renewal of the 'formation', that is,the carthworks on which the track is laid, but some provision is made for therenewal of everything else through Equalisation Accounts. The third com-ponent, Maintenance and Minor Repairs of track and of signalling equipmentexcluded major repairs which were treated as Renewals. Lastly there werethe Operating Costs of the Signalling System which included signalmen'swages, crossing-keeper's wages and the cost of the power used for mechanicaland electrical operation of signals (1466).

Tracks and their signalling are classified A, B, C and D. (There are alsotwo lower categories for exceptionally unimportant lines.) The classificationof a line is determined by engineers in relation to traffic density and the

BCJ)

THE BULLETIN

TAULE E2Track and Signalling

TABLE E3Track and Signalling

£4,6003,7003,2002,500

Category Cost per Route-Mile er Annum

maximum permissible train speed. A and B carry most passenger trains andare allowed to carry express passenger trains. C and D are primarily freighttracks though C tracks carry some slow passenger trains. Once it has beendecided what class a track is, the appropriate level of expenditure and main-tenance to keep it up to the engineering standard required is determinedautomatically. 'The standards are laid down in relation to the class ofequipment which has to be provided when the line is renewed and themanning which is required for the day-to-day maintenance' (1472).

Table Ez shows the breakdown of the cost per track-mile of a 'represen-tative ' but' not necessarily average' C class route of double-track. Table E3shows costs per route-mile per annum for what were said to be representativetracks of each class.

The sources used were records of the Engineering Department which gavethe classification of all sections of track.1 The principle governing the lengthof a section is that there should not be much difference in the sensity oftraffic over it. The standard of maintenance, etc. was, as we have seen,determined by engineers, irrespective of economic considerations except inso far as these were reflected in traffic density. rFhe average cost per track-mile for C and Dalso taken from engineering recordswas multiplied bythe number of track miles in each section (1520). The second source ofinformation was a survey by officers of the T.C.S. who examined the' physicalconditions 'of each section of line, taking into account ' whether there was ex-tensive signalling or whether the line had passing loops, or was part-single,

Between 40() and 300 sections of C and I) track were selected as sections where thecosts o,iId be attributed cittireiv to freight traffic (120x5). The longest section was 149¡itiles

Average Annual cost per track-mile

Track Signalling Total

L L £

1. Interest 185 12 1972. Renewals 308 27 3353. Maintenance 505 27 5324. Earthworks 204 - 2045. Operation - 322 322

6. Total 1,202 388 1,590

SOME NOTES ON IAILWAY COSTS ANL COSTING 97

part-double and so on, (12683). (There is no indication that they madeany allowance for differences in cost because of differences in wear of railsdue to curvature and gradient; or differences in expenditure on bridges,earthworks, etc. because of terrain.) The cost per track-mile was adjustedfor each section to allow for these 'physical conditions' (i 52 r). This wasdone for 8o per cent of C and D mileage, the remainder omitted being 'verysmall sections and short stretches'(5693). This 8o per cent was approxi-mately 30 per cent of the total route mileage of the railway system carryingabout I5 per cent of total freight train miles (5693). At that time no com-parable figures existed for the more important A and B tracks carrying mostof the other 84 per cent of freight train-miles and virtually all passengertraffic. This is another reason why one might suppose that detailed researchinto Track and Signalling costs would be profitable (Section III above).

C and D tracks were selected because of the difficulty of allocating trackand signalling costs between freight and passenger traffic on A and B routes.It was argued that none of the passenger traffic on C and D tracksalmostall on Cearned enough to make any contribution to the costs of Trackand Signalling on those routes (1513). Therefore these costs could be fairlyaveraged over freight traffic. As the T.C.S.'s first purpose was to get outadverse levels of cost and C and D tracks tended to have lower traffic densitieswith the exception of some coal routesand therefore higher costs pertrack-mile, the T.C.S. were content to cost C and D routes only for thispurpose. The validity of the assumption that C and D routes were high costroutes does in part depend on the validity of using the same average costper track-mile per annum for all track in each class, adjusted for 'physicalconditions' only.

The reason they would not give figures for 'normal' level Track andSignalling was thateven had they had the necessary datathey would havehad to face the joint cost problem; and, as they rightly said, the provision ofa cost figure in such circumstances would have been 'economic nonsense'(6406). They admitted that they had not entirely avoided the joint costproblem for C and D tracks, since some of these ran alongside A and B tracksand shared signalling (5 692-700). They could not give the proportion ofsuch C and D tracks but admitted that it would be common for a goods trainto run over sorne.

The method of deriving the figures in Table A was as follows. Costswere allocated between Trunk and Terminal Haulage proportional to GrossTon Miles travelled by each type of haulage. Gross Ton Miles travelledwere ascertained by a special week's analysis of Guards' Journals (12692).The method of reaching the final figure for line 13 of Table A, Track andSignalling related to Trunk Haulage, is illustrated in Table E4 (p. 37)' The

'The total cost of track and signalling for the Cand D tracks in question was divided bythe number of route-miles. The average cost per route-mile obtained was divided by theaverage density of traffic per route-mile measured in Gross Ton Miles (1523) (The use ofGross Ton Miles was not related to wear of the track although it was realised that weight is amajor factor in track wear (12666). lt was simply a measure of density of traffic.) Of the

7 *

Proportion of empty to loaded Wagon-Miles on Trunk HaulageNumber of Equivalent Empty Wagon-trips per loaded wagon-tripCost of track and signalling for loadedand empty wagon haulage per loadedWagon-Mile (line 4xline 6)

method of calculating Track and Signalling Costs related to TerminalHaulage is shown in E 5'

Terminal Haulage (A, line 8), is haulage between the originating stationand the first marshalling yard at one end; and between the last marshallingyard and the station of destination at the other. A distinction was drawnbetween terminal and trunk haulage. Terminal haulage had more in commonwith marshalling and terminal shunting (952). It is 'slow and expensiveworking with frequent stops over a comparatively short distance and witha relatively poor loading in terms of the number of wagons hauled' (1243).There are two types of terminal haulage: the trip-train and the pick-up. Thefirst usually delivers and collects wagons direct from a terminal station to a mar-shalling yard. It is more like trunk haulage than the pick-up train which, servinga number of stations detaching and attaching wagons on route (861), is more

various costs per gross ton mile reached by this process one was selected as 'adverse,24 per cent of traffic being estimated to travel at a higher cost than this. This accounts forthe figure of O.6d. in Ed, line 1. The next step was to convert this ton-mile figure into awagon-mile figure. Thirty equivalent empty wagons was taken as an adverse load. Thisway of putting it involves a curious railway notation of some antiquity: which is otherwiseused to determine the number of wagons a locomotive is permitted to pull and has beenslightly modified by the T.C.S. for costing purposes (1263-4). One wagonload of 8-10 tonsloadability is said to be equal to two empty wagons; one of 4-8 tons loadahility equal to1* empty wagons; one of under 4 tons equal to 1 empty wagons. The notationimplies that it was assumed that the Trunk average Haulage train taken to representadverse conditions, pulled the equivalent of 30 empty wagons; 330 tons was taken asthe representative weight of a trunk haul train. From these was deduced the cost perequivalent empty wagon-mile (line 4). 'Ihe ratio of empty to total wagon-miles travelledis one in four for merchandise traffic and three in seven for mineral traffic. This is themeaning of line 5 Line 6 is the number of equivalent empty wagon-trips per loaded wagon-trip making allowance for loadability and empty mileage. Line 4 multiplied by line 6 givesus the costs of track and signalling per loaded wagon-mile which appear in Table A, line 13.

1The same average cost of Track and Signalling per Gross Ton Mile was used. Line2 is the estimated wejght of a pick-up train. Line 3 isa mileage figure taken as fairly repre-sentative of the distance a pick-up train might have to go in adverse circumstances. Thisprocedure was adopted because of the hypothesis that the cost of terminal haulage shouldnot be related to distance (see Terminal Haulage infra). The rest of the table is self-explan-atory.

Merchandise Wagons Mineral Wagons

8-10tons

4-8tons

Under4 tons

8-10tons

4-8tons

331%

21

154d.

331%

1

12.Sd.

31%1

9.7d.

75%

21

18.2d.

75%

2

15.6d.

98 THE IWLL1TIN

TnLE E4Mehod of Calculating Track and Signalling Costs, related fo Trunk Haulage

Average Cost of Track and Signalling per Gross ton-mile of merchandise orminerals carried ... ... ... ... ... ... ... ... 0.6d.Average gross weight of a trunk haul train ... ... ... ... 330 tonsAverage train loading measured in equivalent empty wagons ... 30Cost per equivalent empty wagon-mile (line 1 x(line 2-i-line 3)) ... 6.6d.

soME NOTES ON RAILWAY COSTS AND COSTING

Tanr.x E5Track and Signalling Costs Related to Terminal Haulage

Track and Signalling cost per Gross Ton Mile adopted...Weight of Terminal Trip Train (Engine and Brake Van 120 tons+15average throughout equivalent empty wagons at 7 tons tare= 1105tons. 1202+105=225) ... ... ... ...Terminal Train trip distance (15 miles out and home)Total gross ton miles attributable to terminal trips (line 2 x line 3)...Cost of track and signalling per terminal train trip (line 1 x line 4)Number of equivalent empty wagons dealt with on tripCost of track and signalling per equivalent empty wagons

99

like marshalling and, not surprisingly, is the more expensive operation (5540).It would seem that the T.C.S.'s sample included examples of both

The T.C.S. argued that terminal haulage should be treated as a standingcost and should be averaged over the number of wagons hauled except inas much as there were differences in loadability as shown in Table A. Thecase for this was first that the actual route of a pick-up train and even of atrip-train was unpredictable depending upon the points of origin or destina-tion of the wagons conveyed (1249). If the working were what is called ' outand home 'circularit would be wrong to attribute the cost of the lastpart of the journey made by the train to the few wagons remaining on thatlast stretch. The cost should be averaged over all wagons. The argumentis not unexceptionable. If we can assume that the route must be the samewhatever the points at which wagons are detached and attached then the totalcosts of the trip are joint to all wagons: except insofar as a proportion of fuelor any costs can be attributed to the number of wagons being pulled at atime. But if the route were to change according to the stations at which wagonswere to be attached or detached, then any increase in costs due to increasein mileage is rightly attributable to the wagons responsible for the increasein milcage. The T.C.S. met this point however by arguing that the differencein cost between 'four' and 'eight' miles terminal haulage was negligible(i); but in assessing the worth of this argument it is worth mentioningthat the range of terminal mileage in their sample was not 4 to 8 miles, but

to 70 miles (1258). It might be the case that the additional cost attributableto additional mileage is 'negligible' but one would want more evidence thanthe T.C.S. provided. The conclusion the T.C.S. drew from their argumentwas, however, that it was more realistic to make terminal haulage a standingcost, than a cost per wagon-mile.

The sample on which costing was based was small: studies of 153 terminal

Merchandise and Mineral Wagons

8-10 4-8 Undertons tons 4 Ions

Ratio of empty trips to loaded-wagon trips 331% 3i% 331%Loaded and empty wagon-trips expressed in equiva-

lent empty notation ... ... 3 2 2+Total cost per loaded wagon journey: twice (line 7 x

line 9) to allow for one terminal haulage trip at eachend of transit 67s. 6d. 58s. 6d. 48s. 2d.

0.6d.

225 tons30 miles6,750 ton mile

£16.17.630 wagonsIls. 3d.

ZOO 'l'liE BULLIlTIN

TABLE E6Terminal Haulage

1 Average Cost per train-mile of terminal haulage ... ... 8s. lid.Average mileage of terminal haulage per train-trip ... 30 milesAverage cost per train of terminal haulage (line 1 x line 2)... ... ... 267s. 6d.Average number of wagons in each terminal haulage train measured as'equivalent empty wagons' ... ... ... ... ... ... 56

Cost per 'equivalent empty ' wagon journey ... ... 4s. 9d.

Merchandise and Minerul Wagons

8-10 d-8 Underions ions 4 ions

Number of equivalent empty wagon-trips per loadedwagon-trip ... ... ... ... ... ... 3 2 24.Total cost per loaded wagon trip (line 5 x line 6) ... 14s. 3d. 12s. 5d. lOs. 2d.At both ends (line 7 twice) ... ... ... ... 28s. 6d. 24s. bd. 20s. 4d.

haulage operations (ç) which were selected as representative of the rangeof terminal haulage operations. The main components of the cost were:provision and maintenance of locomotive and brake-van; the wages of thetrain crew; fuel, water and lubricants. The T.C.S. were able to cost theseseparately from their sample (see Trunk Haulage infra).

The method of reaching the figures shown in Table A for this categoryis made more difficult to understand for those who are not railwaymen by theuse of the equivalent empty notation again (see Track and Signalling suprafor explanation). It is illustrated on Table E6.'

Loss and Damage in Transit (lines 9 and 15), was added as a percentageto standing costs and to cost per wagon-mile. It would seem that the T.C.S.could have broken down this cost for some different kinds of traffic. It wassaid to be a cost more related to tons per consignment than to wagon-loads(ióoo); and that 'already some studies have been undertaken which tell usthe cost range per ton of various commodities' (7112). As one would expectthe value of claims was related to the value of goods and what was called their'damageability' (1605). It was treated in this simple average percentagebasis only because of the relative insignificance of the cost category. 2 per centwas chosen as the average percentage on general merchandise (i6ox). Asclaims on mineral traffic were small, per cent was chosen as a token figure-'perhaps the lowest figure to which we could go for the purpose' (1607).

General Administration (A, lines so and r6) was intended as the residualcategory. It included the administrative costs of Traffic Departments up toDistrict level and general administrative costs up to Headquarters andRegional levels; office accommodation at station level; all superannuation andpensions; unspecified miscellaneous items small in total; and a small interestcontribution to the Commission's central charges which in 5955 was £2.4

1 The average mileage per terminal-trip given by the sample of 153 trains was 30 miles(5550). the average cost per terminal train-mile was 8e. lid. The average terminal trainpulls the equivalent of 56 empty wagons. Thus the cost per 'equivalent empty' wagon-journey is 4s. 9d. lt is assumed that une empty wagon is conveyed for every loaded wagon.(1292). Line 7 shows the effect of taking loadability and empty mileage into account. Limie

is twice line 7 because terminal haulage normally occurs at both ends of a journey.

SOME NOTES ON RAILWAY COSTS AND COSTING 101

million out of a total contribution by British Railways to the Commissionunder this head of £40 million. The rest of the £40 million WUs 4lloc.&teUunder other cost categories to specified classes of assets. 5 per cent wascharged on both Standing Costs and Costs per Wagon-Mile for GeneralAdministration.

Marshalling costs (A, line si), were treated as a function of distance andtherefore as a cost per wagon-mile. It was assumed that on average onemarshalling occurs every 30 miles, a figure which was found by dividing thetotal number of miles travelled by the total number of marshallings (12749).There are several reasons why this averaging was likely to ignore importantdifferences in marshalling costs. The distribution of the smaller yardsespecially was' haphazard ' ('3x9). 'There was no pattern to be distinguishedto enable us to convert this into a rate per mile which we wanted to do tosimplify the scale '(12748). Evidence was given that there would be less than30 miles between yards on certain routes.

The range of costs which was discovered from the sample was said toconceal some averaging since it was assumed that the cost of a marshallingwas the same for all wagons at any given yard; whereas in some cases morethan one sorting is necessary to transfer a wagon (835, 13x4-5) and in othersno sorting is necessary, as a wagon can go through on the same train becausethe train only puts in to be re-engined or to have its wagons examined (866).It was a limitation of the data at the time that whether five operations or onewere involved for a particular wagon at a particular marshalling yard, costingcould not make a distinction (1346, 5355-7).

The chief components of Marshalling costs were Salaries and Wages ofShunting Staff; Engine Power Costs; Track and Signalling, and Buildings;and Stores, Lighting and other small items.'

The sources of the data were firstly special studies of x6 'representative'yards. From these studies the relative importance of the cost components inthis category given in the last paragraph were established (1361). Secondly,regular statistical returns were received from 322 yards out of a total of 900(some unspecified proportion of which are only doubtfully ranked as mar-shalling yards) (1372). The 322 handled 75 per cent of the marshallings.The difficulty about these regular returns was that they referred to 'wagonsdetached' and not to 'wagons marshalled'. Apparently some marshallingoperations do not involve detachment, others more than one detachment(1369). These returns also gave the average cost per wagon detachéd for everyone of the 322 yards which is on average 83 per cent of average cost mar-shalled.2 A third source of data was a special study of some large marshallingyards by the T.C.S. to find out time spent by general merchandise and mineraltraffic in yards (6o). This was found to be one day on average in eachyard for a merchandise wagon and one and a half days for a mineral wagon

1 To give some idea of their relative importance in an example quoted (in ExhibitAWT8, p 104). these amounted to £236; £595; £294 and £5 respectively.

This was presumably established from the detailed study of the 16 yards (7250).

102 THE BULLETIN

TABLE ElBeandown of Trunk Haulage Costs of a Train with above Average Costs

Provision and Maintenance of Locomotive:InterestRenewals

Repairs ... ...Stabling and Servicing of LocomotiveEngine Crew's WagesFuel, Water, LubricantsGuard's Wages ...Provision and Maintenance of Brake Van

Total .,. ... ...Train Journey Distance: 53 miles in the example chosen

Cost per Cost perfrain ti'ain ,nile

£ £ s.d.

.304

.480.784 3

5.538 2 14.005 1 62.985 1 29.007 3 51.382 6.198 1

23.899 9 0

(5621.-3). No investigation was made to break down the average time spentin marshalling yards by wagonloads of different commodities, except for thedistinction between merchandise and mineral traffic (66_7).'

Trunk Haulage costs (A, line 14) relate to haulage between first and lastmarshalling yards (870) and were calculated on a cost per wagon-mile basis.It was argued there was no justification for a tapering charge falling withdistance because of the frequency of marshalling yards which meant thatmarshalling costs of trunk haulage do not fall with distance

The chief components of this cost were Provision and Maintenance ofLocomotives which was sub-divided into Interest, Replacement and Repaircosts; Stabling and Servicing of Locomotive; Engine Crew's Wages; Fuel,Water and Lubricants; Guard's Wages; and Provision and Maintenance ofBrake Van. Provision and Maintenance of Locomotive and Brake Van weretreated similarly to Provision and Maintenance of Wagons (supra) withpresumably the same rate of interest: 3 per cent (1412). Stabling and Servic-ing the Engine covers all depot costs except major repairs and includes boilerwashing and lighting upeverything which has to be done before and afteran engine starts its working day (I.z3). In practice Engine Crew's Wagesvary considerably with ability to use the crew during the working day (1425).Fuel is the major item, as one would expect, of Fuel, Water and Lubricants(1426).2

The sources of the data were firstly a survey which had been made ofsample of izo trunk haul freight trains which were selected as a ' representa-tive' sample (1432). These were used to work out the cost per train-mile of

'The cost figure given in Table A, line 11, was calculated by the following method. Anaverage cost of 3s. 6d. was assumed per marshalling (12736) which was multiplied by 160per cent for general merchandise and 200 percent for mineral traffic to allow for the marshal-ling of empties (1381. 6). These totals were divided by 30the average number of milesper marshalling: (e.g. 3s. 6d. x 160% ±30=2.24d. per wagon-mile). The figure given hereis 2.24d. per wagon-mile. The Table A figure is 2.20d. The dierence may be due torounding.

Table E7 is an example of such a breakdown of costs for a relatively high-poweredlocomotive with costs above average for locomotives as a whole,

SOME NOTES ON RAILWAY COSTS AND COSTING 103

TABLE ESMethod of Calculalion Trunk Haulage Costs

Average cost per train-mile ... ... ... ... ... ... ... 8s. Od.Average tram loading measured in equivalent empty wagons ... ... 50Cost per equivalent empty wagon-mile (line 1 line 2 to nearest 1-10thof a penny) ... ... ... ... ... ... ... ... ... 2.00d.

Load:

4. Proportion of empty to loaded Wagon-miles on Trunk Haulage

5 Number of equivalent empty wagon-trips per loaded wagon-trip

6 Cost of haulage for loaded and emptyMile (line 3 x line 5)

each component in the category (7263-4). Secondly, a test of loadings on therailways was made for a week (ii). Apparently there was some difficultyin interpreting the results from two regions because of differences in the'equivalent empty' formula used so that the majority of the 'sample' forthis test in fact came from the London Midland and the North EasternRegions (7262). These figures were used to get a range of figures for thewagons drawn by locomotives, measured in the equivalent empty notation.These were used to convert a trunk haulage cost per train-mile into a cost perwagon-mile. Table E8 illustrates the method by which the figures insertedin Table A were reached.1

'The average or normal cost figure per train-mile is selected from the range available.Thee equivalent empty ' notation is used to allow for the effect of loadability and the numberof empty wagons conveyed for each loaded wagon (see Track and Signalling supra). Returnsindicated that one empty wagon was hauled for every three loaded merchandise wagons andtwo empties for every five loaded mineral wagons. Expressing the effect of loadability andempty mileage in equivalent empty notation, this is multiplied by the cost per equivalentempty' wagon-mile to yield the figures in Table A. The T.C.S. refused to give the normalcost version of the table on which E8 is based pleading 'good commercial reasons why weshould not go too far into the detail of this table' (12916). E8 is therefore partly inference:see Notes to Tables at end of this article.

NOTES ON TABLESA. Sources: Exhibits AWT 1 (p. 100), AWT lA (p. 454). Italicised figures are adverse;

other figures are normal.Al and A2: Source: AWT 1 (p. 100). The assumption is made that the relative import..

aitce of cost categories for the adverse levels of cost on which this table is based is a reason-able approximation for all levels of cost. The figures of 130 miles average length of mer-chandise haul and 66 miles average length of mineral haul are taken from the B.T.C.Annual Repon and Accounts, vol. 2, pp. 268, 9 (1960).

Bi: Sources: Exhibits AWT 1 (p. 100) and AWT la (p. 454). (1) Separate figures arenot given for merchandise wagons of different loadability and for mineral wagons becausethe differences are insignificant. (2) The calculation for direct costs is based on average ornormal cost figures and that for indirect costs on adverse cost figures as there are no averagecost figures for indirect costs. Strictly the two sets of figures are incomparable and thetotal of direct and indirect standing costs only makes sense if it can be assumed that in-direct costs are the same proportion of costs at both average and adverse levels. Al-though there is no reason to believe this is wildly wrong, it must be remembered thatthe figures given for direct and indirect standing costs separately are firmer than when

Merchandise Wagons Mineral Wagons

8-10 4-8 Under 8-10 4-8tons tons 4 tons tons tons

29% 29% 29% 66% 66%

2.29 1.89 1.43 2.66 2.26

4.59d. 3.78d. 2.84d. 5.32d. 4.52

104 THE BULLETIN

combined. (3) The figures given for Terminal Shunting are based on certain heroic sim-phfymg assumptions: (i) The breakdown of costs given for a particular station forTerminal Shuntmg (1133) is taken as typical in its proportions for all terminal shunting.(ii) The breakown of costs in E7 for train haulage costs is taken as typical in its proportionsfor the Engine Power component in Terminal Shunting except in so far as some elements areirrelevant. (iii) The breakdown of costs for Track and Signalling in E2 is taken as typicalin its proportions for the Track and Signalling element in this cost. (4) Simplifying assump-tions are made for Terminal Haulage. The breakdown of costs for brake-vans into Interest,Renewals and Repairs is assumed to be proportional to that for wagons. (A wagon is here afiction got by weighing the components in the costs of provision and maintenance of mer-chandise and mineral wagons respectively by the total of loaded journeys travelled perannum by the two types of wagon; and taking the mean. (5) It is assumed that the break-down of costs given inE2 is typical in its proportions for all Track and Signalling. (6) Vary-ing the interest-rate has no effect on the costs of Terminal Accommodation and Facilities;Documentation and on Loss and Damage in Transit; and an insignificant effect in GeneralAdministrative costs. These are therefore omitted from the Table. (7) The same simplifyingassumptions are made for Marshalling as for Terminal Shunting. (8) and for Trunk Haulageas for Terminal Haulage.

B2: Sources: as for Bi. (1) Cost at 3 per cent with 42.75 year depreciation period= 100(merchandise)ditto with 43.75 year depreciation period for mineral traffic. (2) This Tableis based on Bi and is subject to the same simplifying assumptions.

Sources: as for Bi and B2 (1) The following assumptions made for Bi and B2 holdfor this table also: Di: (2), (3), (4), (5), (7) and (8); B2 (1). (2) It is assumed that tht break-down of costs for Terminal Accommodation and Facilities shown in Section IV is typical ofall Terminal Accommodation and Facilities. (3) The items judged to tall in each class ofcapability in each category are: PMW (2) Repairs, (3) Renewals, (4) Interest; TS (1) Shunt-ing Staff, Stabling and Servicing Locomotives, Engine Crew's Wages, Fuel, Lubricants andWater, Operation of the Signalling System, (2) Repairs to Locomotives, Maintenance ofTrack, (3) Locomotive and Track Renewals, (4) Interest; TAF (1) Local Overheads, GeneralYard Wages, (3) Accommodation. Terminal H.: (1) as for Terminal Shunting with additionsof Guard's Wages, (2) Locomotive and Brake Van Repairs, (3) Locomotive and Brake VanRenewals, (4) Interest; T and S related to Terminal H: (1) Maintenance, Operating Costs ofSignalling System, (3) Renewals, Earthworks, (1) Interest; Marshalling: as for TerminalShunting; Trunk Haulage as for Terminal Haulage; Track and Signalling for Trunk Haulageas for Track and Signalling related to Terminal Haulage.

Sources: Exhibits AWT 1 (p. 1004) and AWT 1 (revised) (p. 735).El: Sources Exhibit AWT 2 (p. 101), paras. 5323-8.E2: Source: Exhibit AWT 12 (p. 105). Lines 1, 2, 3 refer to rails, ballast and sleepers

only (1495, 1484-6). 'Earthworks' refer to the major repair and maintenance of all otheritems including those which are not obviously' earthworks ':e.g. bridges, viaducts, tunnels,etc. (1481).

Source: Exhibit AWT 12 (p. 105).Source: Exhibit AWT 15 (p. 106).Source: Exhibits AWT 14 (p. 127) and AWT 13A (p. 144).Sources: Exhibit AWT 7 (p. 103), paras. 1263-4, 5550-2, 5562. Table A, line 8 and

E6, line 8, do not agree. E6, line 8, is based on figures given in the text of the Proceedings(5550-2, 5562). One way of lifting the figures in this table to the A level would be byimputing an average cost per train-mile of 9s. 2d.

Source: Exhibit AWT 10 (p. 104).Sources: Exhibits AWT 11 (p. 105) and A.WT lA (p 454), paras. 1454. 1439. Itali-

cised figures in the table are inferred. The average cost per train-mile was not given, but therange of costs was from 7s. to 9s. 6d. Neither was the average train loading given, but itmust lie within the range, 20 to 70 wagons. We were told that the figure used to work outthe cost per equivalent empty wagon-mile lie near the mean of the two ranges (7259).The figures Ss. 6d. and 50 satisfy these requirements and have been used to compile thisTable. There is a difficulty. Although making these assumptions gets us the correct fig-ures for all other columns in line 6, the figure for Mineral Wagons of from 8 to 10 tons load-ability is not the same as that given in Table A. I cannot explain the discrepancy. No set ofassumptions, tenable on the available evidence, seems to produce the correct (Table A)figures for all columns.