Columbia University Libraries Digital Collections: The Real Estate Record

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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.)