758





RECORD   AND   GUIDE





June 2, 1917





nearly 2 tons. Of course, every citizen
indirectly pays for his share of the total
consumption, which last year amounted
to 4.6 tons per capita.

Four general items of cost must be
considered as normally controlling the
price of coal to the consumer—resource
cost, mining cost, transportation cost
and marketing cost. Under usual con¬
ditions each of these items includes a
margin of profit which may seem either
excessive or inadequate, according to
the point of view. Yet an unbiased con¬
sideration of these cost items is abso¬
lutely essential as a preliminary to the
decision by the public whether w;e are
buying coal at a fair price, and if not
why not.

The item of cost first to be considered
represents that part of the value given
to the ton of coal by the mine operator
and the mine worker. This may be
termed mining cost, but it must include
the operator's selling costs and other
overhead expenses as well as the min¬
ing costs proper, which include the
larger expenditures for wages, supplies
and power. This cost plus the resource
cost—the royalty or depletion charge—
and the profit or loss on the sale make
up the value at the mine mouth. The
mining cost varies not only between
mines of different companies in sepa¬
rated fields, but even between adjacent
mines of the same company in the same
field. Both nature and man contribute
to such variation.

It is not practicable to assign a very
exact figure to the mining cost—the cen¬
sus of 1909 indicated an average of $1 a
ton for bituminous and $1.86 for anthra¬
cite, but these figures are believed by
some operators to be too low. It is
possible, however, to show in a general
way the distribution of this item; the
cost of mining is divided between labor,
70 to 75 per cent.; materials, 16 to 20
per cent.; general expense at mine and
office and insurance, 2 to 4 per cent.;
taxes, less than 1 per cent, to 3 per cent,
for bituminous coal, and 3 to 7 per cent.
for anthracite; selling expenses, nothing
to 5 per cent., and recently to these
items has been added the direct and in¬
direct cost of workman's compensation,
which may reach 5 per cent, for bitumi¬
nous coal.

The charges for labor, material and
general office'expenses are easily under¬
stood, as is also a charge for deprecia¬
tion of plant and machinery; but taxes
and selling expenses are important items
that may be overlooked by the casual
observer. Some figures recently pub¬
lished show that the taxes levied in West
Virgina last year on coal lands and coal¬
mine improvements—that is, on the in¬
dustry as a whole—-were equivalent to
nearly 3 cents per net ton of coal pro¬
duced, which is doubtless fully as much
as the profit made by many of the op¬
erators in that State.

The cost of selling coal is nothing for
the companies that use their own prod¬
uct, including the Steel Corporation and
a large number of others, and is little or
nothing for the producers who sell near¬
ly all their coal to such large consumers
as the railroads. Companies that pro¬
duce coal for domestic use and the gen¬
eral run of steam trade must figure on
a selling cost as high as 10 cents or
more per ton, the cost depending on the
extent of their business. The average
selling cost for bituminous coal is prob¬
ably 5 to 10 cents a ton, and for an¬
thracite the usual charge of sales agen¬
cies is reported as 10 cents a ton for
steam sizes and IS cents for the pre¬
pared sizes.

The producers of coal and the trans¬
portation companies are concerned not
so much with the actual rates charged
for carrying coal as with the adjustment
of rates between different coal fields and
between different markets. In the many
years in which our coal industry has
been developing, rate structures have
been built up to that give to this and
that producing district differentials over
other districts—"handicaps," as it were—
that may be based on comparative
lengths of haul or on the ability of the
coals to compete by reason of differ¬
ence in quality or in cost of mining or
perhap? may be merely the suryival of





past practice, for v.! ich no reason now
exists. The consuin r of coal, however,
is interested in the irtual rather than the
relative  freight rate.

To help toward a realization of the
magnitude of this transportation item,
it may be pointed out, first, that all but
14 per cent, of thi- output of the coun¬
try's coal mines, ag.i;regaling 532 million
tons, is moved to inarket by rail or wa¬
ter, and second, tliat nearly half of the
bituminous coal (47 per cent, in 1915)
and more than two-tliirds of the anthra¬
cite (71 per cent, in 1915) is shipped
outside of the State in which it is pro¬
duced.

Coal in Interstate Commerce.
.\dd to this statement of the extent to
which coal enters interstate commerce
a glance at the distribution of centers
of maximum consumption-—-the New
Y'ork-Baltimore industrial zone, which
has a total per capita consumption of
nearly 10 tons and lies 100 to 400 miles
from the tributary coal fields; New Eng¬
land, consuming about 7 tons to the unit
of population and lying 400 to 800 miles
from its coal supply; or the populous in¬
dustrial district of which Chicago is the
commercial center, consitming 8 to 9
tons per capita of coal, in part hauled
more than 400 miles from the fields of
West Virginia and eastern Kentucky
and in part 200 miles or less from the
Illinois mines. With these facts in mind
w-e must realize that the transportation
cost is necessarily a large part of the
country's fuel bill.

As has already been suggested, the
transportation rate in force from any
coal field to any market can readily be
learned by the consumer who wishes to
figure this item in the cost of the coal
he buys. Therefore, in the present gen¬
eral consideration of the subject it is
sufficient to state the average value of
this item. In the interstate traffic, both
rail and water, bituminous coal probably
pays an average freight of nearly $2 per
ton. In other words, the transportation
costs more than the product and, as
some parts of the country are just now
learning, is sometimes more difficult to
obtain. The value of coal, like the value
of so many other commodities, is a place
value.

Other Transportation Details.
Much of the coal, both anthracite and
bituminous, passes through the hands of
a wholesale dealer or jobber before it is
received by the retail dealer, who puts
it in our cellars or in the bins of a
power plant. Coal that gets a long way
from the mine may pass through many
hands before it reaches the consumer,
and it not only pays commissions all
along the line, but is subject to shrink¬
age and deterioration, both of which en¬
ter into the final selling price to the con¬
sumer. Brokers are usually satisfied to
make a gross profit of perhaps 10 cents
a ton. but as several brokers may make
a "turn over" on the same car before it
is unloaded this element of cost may be
several times that amount.

.\dvertising is a lai-ge expense —in
part carried by the retailer directly, but
all borne by the industry. The largest
single item in the cost of retailing is, of
course, that representing the labor of
handling and the local cartage, which
together make up about half the mar-
ketin.g cost. There now remains to be
considered the first major item, or the
resource cost, which is what the opera¬
tor has to pay for the coal in the ground
—the idle resource, which he starts on
his career of usefulness. This cost is
expressed as a royalty or a depletion
charge.

One of the latest leases by a large
coal-land owner provides for the pay¬
ment of 27 per cent, of the selling price
of the coal at the breaker. This per¬
centage is therefore not only a royalty
figured on the mineral resource, but also
a commission based on the miner's wage.
To bring this right home to you and to
me. it may be said that the practical re¬
sult is that if the anthracite we burn in
OUT range happens to come from that
particular property, we will pay fully $1
a ton into the treasury of the city trust
that owes its existence to the far-see-
jng business sense of a hard-headed citi¬





zen of Philadelphia. Whether such a
royalty is excessive or not, the fact re¬
mains that this is the tribute paid to
private ownership.

The present average rate of royalty
on anthracite is probably between 32 and
35 cents a ton on all sizes, which is
from 12 to 14 per cent, of the selling
value at the mine. The minimum rate
(about 10 per cent.) is found in some
old leases, and the maximum (20 to 27
per cent.) in leases made in the last five
years.

Nor is the increase in value of anthra¬
cite lands any less striking. At the be¬
ginning of the last century the great
bulk of these lands were patented by
the State of Pennsylvania for $2 to $4 an
acre; in the middle of the century the
price of the best land rose to $50. and
in 1875 even to $500. Now $3,000 an
acre has been paid for virgin coal land,
and little is on the market at that. In
considering these increases in land
values, the effect of interest and taxes
must   not  be  overlooked.

It is not the purpose of this analysis
of costs to offer any cure-all for the high
price of coal, yet some comment on the
facts presented may possess value. At
least certain lines of approach can be
pointed out as not very promising. For
example, anyone who is at all co.gnizant
of the trend in price of labor and mate¬
rial can see little hope of relief in lower
costs for these items. Furthermore, ob¬
servation of the advances made in min¬
ing methods in the last decade or two
affords slight warrant for belief in any
charge of wasteful operation. As con¬
sumers of coal we might do well to imi¬
tate the economy now enforced by the
producers in their engineering practice.
In the northern anthracite field machine
mining is extracting coal from 22 to 24-
inch beds, and throughout the anthra¬
cite region the average recovery of coal
in minin.g is 65 per cent., as against 40
per cent, only 20 years ago. Nor are
the bituminous operators any less pro-
.sressive in their conservation of the coal
they mine.

Increased safety, as a form of social
insurance which is now enforced
through the workmen's compensation
laws alone adds from 2 to 5 cents a ton
to the cost of coal.

In the item of transportation perhaps
the most promisin.g means of relief is
that of reducing the length of haul. The
recent eastward movement of the higher
grade coals, in part caused by the export
demand, may involve some increase in
the avera.ge len.gth of haul and thus in
the transportation cost of coal not ex¬
ported, but on the other hand this en¬
forced adjustment may lead some con¬
sumers to discover nearer home sources
of coal equally well suited to their pur¬
poses.

Reduction in marketing costs is a re¬
form so close to the consumer that he
should be able to find for himself what¬
ever relief is possible. Professor Mead,
of the University of Pennsylvania, is
authoritv for the statement that the de¬
livery of coal is costing dealers 50 cents
a ton more than is necessary.

There only remains, therefore, the
first item of all—the value of the coal in
the ground, or rather the return which
the land-owner is asking for this natu¬
ral resource. The fortunate holder of
coal land, whether a very human indi¬
vidual or a soulless corporation or a
large trust estate administered for
benevolence only, is likely to endeavor
to get all that the traffic will bear.

In placing a value upon the Choctaw
lands some years ago the Geological
Survey figured the aggregate royalties
at current rates as 160 million dollars,
but if that amount of ro}'alty were to
be collected through the si.x or seven
centuries reauired for mining the two
thousand million tons under this land,
the present value of the land would be
only 6y2 million dollars if purchased by
the Federal government, or only 4 mil¬
lion if purchased by the State of Okla¬
homa, and even less if the project were
financed by a corporation that would
need to issue 6 per cent, bonds. Such
is an illustration from actual experience
in coal-land valuation—the 4 or 6 million
(Continued on Page 766.)