Show cost of coal from mine to consumer BY guo GEO OTIS SMITH AND C E LESHER LEMUR the price of coal is a matter of vital concern to the average citizen no less important however is the question what our coal actually costs to produce and the interest in this subject is typical of the popular interest in the large productive enterprises terp rises of the country As citizens we recognize the consumers dependence upon the producer and are taking advanced ground as to their relative rights in few industries does this dependence seem more vital or the consumers equity appear larger than in that of producing and selling coal the per capita annual expenditure for the useful metals is roughly equivalent to that for coal but few citizens purchase pig iron or bar copper whereas of the urban population only the dwellers in apartments boarding houses and hotels are spared the necessity of buying coal the consumption of coal in the united states for heating and cooking is between one and one and a half tons per capita A careful estimate for 1915 is 11 tons which happens to be identical with the figure determined for similar consumption co in great britain in 1898 this consumption is greatest in cities and in this city of chicago in 1912 it was nearly two tons of course every citizen indirectly pays for his share of the total consumption which last year amounted to 46 tons per capita again it may be that because to a larger degree the cost of metals is charged to capital outlay rather than to the operating expense of life we appreciate less keenly the unit price of these materials that are not immediately consumed with the using at any rate public opinion is more easily brought to a high temperature by considering the price of coal than by considering the price of any other product unless we except gasoline recent discussion of which has been almost explosive government ownership looking backward as well as forward one need not be an alarmist to suggest that in the whole field of productive business the coal industry seems the one most likely to be threatened with government operation the foodstuffs are produced on land owned and operated by the millions and so far as the production of the raw material for them is concerned monopoly is an unknown word but when we think of coal terms like barons and trusts instinctively come to mind for these reasons the determination of certain facts connected with coal production and the analysis of the cost elements that enter into the price of coal constitute a timely subject for discussion cus sion of united states bureau of mines paper delivered before american mining congress Cili chicago cago november 1916 in discussing costs however we do not overlook the too evident fact that at times price may far outstrip cost the price of 0 coal depends upon the balance between necessity for fuel on the one hand and ability to produce and to deliver on the other the ability to produce is in turn controlled by the labor available and the ability to deliver is dependent upon car supply increased foreign demand for ameri can coal large industrial consumption un sual weather all may have great influence on the current price of coal but none of these is to be considered a factor in the actual cost of production except so far as it causes irregularity in operating expenses and promotes a decrease in efficiency of mine labor today high prices are being received for coal by those who are able to produce and deliver more than their outstanding contracts require in other words a few traders may be able and willing to capitalize the urgent necessity of the consumer and their own ability to deliver the premiums for fuel now being paid generally by the con consumers sumers of the country and by such traders as have been caught short in their contracts is in reality not properly chargeable to cost of coal but to cost of car and labor shortage just as in the times of stress accompanying labor troubles the premium paid by their consumers is a part of the price the country pays for strikes items of cost 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 conditions each of these items includes a margin of profit which may seem either excessive or inadequate according to your point of view yet an unbiased consideration of these cost items is absolutely essential as a preliminary to the decision by the public whether we are buying coal at a fair price and if not why not As long as it is the popular v view lew that tile the price of coal is made up of one part each of mining costs and freight costs to two parts each of operators profits and railroad dividends with the cost of a certain amount of needless waste on tile the side tile the demand for investigation will continue and in so far as there is any element of truth in this view legislative action is justified even though the prescribed reform may approach the extreme of public ownership and operation of mines and railroads As the initial item of cost tile the amount charged against the marketed product as the value of the coal in the ground which for brevity may be termed the resource cost is perhaps tile the item most often over looked by the coal consumer and for this reason that phase of 0 the subject will be fully considered after the other items are treated these other items need less discussion in this paper for several reasons the item of marketing cost is one that can be brought directly under observation by the consumer it if lie he will but study the matter intelligently the transportation cost can be learned by simple inquiry and its control lies within the province of the interstate commerce commission and the details of mining cost can best be set forth by the mine operators themselves for they have now adopted the policy of free discussion discus slon of these matters which they once regarded as sacred from public view the purpose of this paper then is simply to give a summary statement of all these elements in the cost of coal and some special discussion of the resource cost in presenting the subject the senior author assumes responsibility lity for whatever may be regarded as mere inere expressions of opinion and the junior author stands behind the statements of fact mining cost 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 mining costs proper which include the large 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 separated 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 census of 1909 indicated an average of 1 a ton for bituminous coal and for anthracite but these figures are believed by some operators to be too low it is possible however to show in a general way the distribution trib ution 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 tax esless les 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 made tile the direct and indirect cost of workmans work mans compensation which may reach 5 per cent for bituminous coal the charges for labor material and general office expenses are easily understood as is also a charge for depreciation of plant and machinery but taxes and selling expenses are important items that may be overlooked by the casual observer some figures recently published show that the taxes levied in west virginia last year on coal lands and coal mine improvements that is on the industry as a whole were equivalent to nearly 3 cents per net ton of coal produced which is doubtless fully as much as tile the profit made by many of the operators in that state the cost of selling coal is nothing for the companies that use their own product including tile the steel corporation and a large number of others and is little or nothing for the producers who sell nearly all their coal to such large consumers as the railroads companies that produce coal for domestic use and the general 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 probably 5 to 10 cents a ton and for anthracite the usual charge of sales agencies is reported as 10 cents for steam sizes and 15 cents for the prepared sizes adjustment of rates the producers of coal and the transportation 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 that give to this and that producing district differentials ferenti als 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 difference in quality or in cost of mining or perhaps may be merely the survival of past practice for which no reason now exists the consumer of coal however is interested in the actual 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 the output of the count rys coal mines aggregating tons is moved to market by rail or water and second that nearly half of the bituminous coal 47 per cent in 1915 and more than two thirds of the anthracite 71 per cent in 1915 is shipped outside of the states in which it is produced add to this statement of the extent to which coal enters interstate commerce a glance at tile the distribution of centers of maximum production and maximum consumption the new york baltimore industrial zone which has a total per capita consumption of nearly ten tons and lies to miles from the tributary coal fields new england consuming about seven tons to the unit of population and lying to miles from its coal supply or the populous industrial district of which chicago is the commercial center consuming eight to nine tons per capita of coal in part hauled more than miles from the fields of west vir ginia and eastern kentucky and in part miles or less from the illinois mines with these facts in mind we must realize that the transportation cost is necessarily a large part of the count rys fuel bill value of transportation item 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 lie he buys therefore in the present general 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 the average freight charge on anthracite is higher than that on bituminous coal first because the rates are higher and second because according to the reports of the interstate commerce commission all movement considered the coal is carried a greater distance marketing cost the cost of handling the coal exclusive of freight from the time it leaves the producer until it is in the consumers fuel bin may be termed the marketing cost it can readily be seen that a large part art of the coal produced is not subject to this cost for most large users of steam coal such as the railroads and the coke manufacturers place contracts directly with the producing companies or their selling agencies and buy in the open market only when their needs exceed the deliveries under their contracts much of the coal however both anthracite and bituminous passes through the hands ol 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 shrinkage and deterioration both of which enter into the final selling price to the consumer brokers are usually satisfied to make a gross profit of perhaps 10 cents a ton but as several brokers way may make a turn over on the same car before it is unloaded this element of cost may lilay be several times that amount about half of the anthracite and around 15 per cent of tile the bituminous coal is retailed in less than carload lots and alie lie greatest number of individuals are directly concerned in tile the marketing of oc this portion regarding the profits on oil which there is the widest divergence of opinion the margin in the retail business between cost on c cars irs and 2 and price delivered is between a ton and is not more than enough to give on the average a fair profit the shrinkage and in part the deterioration are together seldom less than 1 per cent of the weight and may exceed 4 per cent and the retail dealer also must provide in his selling price for un collectable accounts advertising is a large expense in parl pan 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 coal cartage which together make up about half the marketing cost the resource cost there now remains to be considered the first major item or the resource cost which is what the operator has to pay for the coal in the ground the idle resource which he starts on its 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 payment of 27 per cent of the selling price of the coal at the breaker this percentage is therefore not only a royalty figured on the mineral resource but also a commission based on the miners wage to bring this right home to you and to me it may be said that the practical result is that if the anthracite we burn in our range this winter 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 farseeing far seeing business sense of a hardheaded hard headed citizen of philadelphia whether such a royalty is excessive or not the he fact remains that this is the tribute paid to private ownership the present average rate of royalty on anthracite is probably between 32 and 35 1 5 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 R V norris states that in the late sixties when the annual output of anthracite was wa s around 15 tons royalties were 8 to 10 cents a ton on prepared sizes but that no charge was made on the smaller sizes in the s seventies ev the rate rose at 25 cents on prepared one half that on pea and one fourth on smaller sizes by the middle eighties when the output was a third what it is now low the rate was about double that of |