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The evils outlined by Mr. Shibley constitute the prevalent fundamental abuses in the coal industry. The remedial trade practices outlined by him would no doubt solve the major mine problem. But when and how are these trade practices to become effective is the vital question with which 500,000 miners and their families and the business men of the coal regions are concerned. Bituminous coal operators have demonstrated to the satisfaction of every agency that has investigated coal that the 5,000 separate units of the coal industry can not be brought together under a voluntary cooperative plan of organized production and distribution, embracing the reforms outlined by Mr. Shibley and thereby improving the status of the industry.
Millions have been spent by operators in freight-rate wars to obtain competitive advantages through revised freigh-rate structures. Millions of capital assets are being wasted annually in futile competition, but nowhere does the record reveal that the operators have contributed money or applied constructive business thought and ability toward a solution of coal's vital, fundamental, economic problems.
To one informed of the underlying causes for the “disorderly conduct” of bituminous coal, it is utterly absurd even to entertain the thought that the time will ever come when the bituminous coal industry can establish sane business relations through corrective measures brought about of its own free application.
And here again I want to quote Mr. Shibley, to bear testimony to the extraordinary abilities of the operators to pull in opposite directions. All in all, Mr. Shibley's remarks constitute the most thorough raking over that the operators have received from an invited guest in many, many years. It certainly can be no boast of the industry that its leaders were compelled to sit and listen to a banker of the rank of Mr. Shibley tell them the fatally cumulative consequences of their own multitudinous stupidities.
Further quoting Mr. Shibley: Much can be accomplished toward betterment of conditions in the coal industry through the merger of properties lending themselves to economic groupings. The consolidation into one great corporation of the various Pocahontas coal properties which failed recently, would have demonstrated this fact in a convincing way.
But it failed as many other attempts at consolidation have failed because the attempt was made before the Pocahontas operators, in part at least, were ready for it. The necessity for such a consolidation was felt by them but they had not learned how to cooperate. The old fear of each other pervaded their thoughts. They dare not risk their properties under a management other than their own because they had not been convinced that they would prosper more as a group than as individuals.
The desire for cooperation and the thorough understanding of the fundamental principles of cooperation must be acquired before an economic consolidation of coal properties can be undertaken. It is only through cooperation and subsequent consolidation that the menace of overproduction can be minimized.
Great corporations, effectively managed, can produce and market coal so much cheaper than scattered individual operators that there is reason to believe that they can maintain the industry on an economic basis even if the individual operators decide to continue the dying financially by that lingering, but apparently fascinating disease called "selling at less than cost."
I believe we are entering upon a period in which great producing and distributing corporations will exercise a dominating influence in business.
The consuming public is intelligent and discriminating. It favors stabilization in prices and is not inclined to view with favor an industry in which
prices fluctuate violently and one which punishes them when the opportunity offers. The coal industry lends itself to consolidation. Mine operations can be readily controlled by a central organization and there can be no argument of course as to the possible economies in distribution.
But how consolidate under present conditions? When the blind lead the blind both are liable to fall in the ditch?
Mr. S. A. Taylor, one of America's foremost mining engineers was another speaker who analyzed the backwardness and inefficient management of the bituminous-coal industry before the assembled delegates to the recent Cleveland convention of the National Coal Association.
If we assume,
Said Taylorat the present time an excess capacity of 300,000,000 tons, the actual outlay of money to maintain it would be equal to $45,000,000 per year, and when to this is added the cost of capital at 6 per cent, it would make $60,000,000 per year, or for both items the sum of $105,000,000 yearly to carry this excesstonnage capacity.
According to the Standard Statistics Service coal companies that made public reports to the degree that an intelligent summary could be made for the year of 1927 showed that the per cent of gross margin saved for net income resulted in a deficit of 3.7 per cent. This means that in the year 1927 the reporting coal companies showed a combined loss of around 71/2 cents the ton on all coal sold based upon an average selling price of $2 per ton.
If this ratio of loss obtained for the entire industry, it means that an additional loss of $37,500,000 based upon 500,000,000 tons production must be added to the $105,000,000 loss detailed by Mr. Taylor. But the facts will disclose a much greater loss than this huge total of $142,000,000 which only partially tells the story. It is common knowledge that a large majority of operators have been reluctant to deal with depreciation and depletion, fearful that the staggering results would be too much for their credit rating and mental well being.
The most important losses are those resulting from spreading bankruptcies taking heavy toll in all the principal coal fields. As a matter of fact the financial structure of bituminous coal is so insecure and wobbly that no accurate annual loss can be estimated. Not only are the coal companies bankrupting themselves by selling coal below production costs, but in so doing the whole surplus capital of entire mining communities is becoming impaired, as witnessed by the closing recently of three banks within one week in eastern Kentucky, resulting from frozen assets caused by excessive loans to coal companies.
It is perhaps unnecessary to point out that local depressions of this character do not remain local. In the recent report of the Secretary of Commerce on the state of business in the fiscal year ending June 30, 1928, the slump in industrial output and employment which characterized the later months of 1927 was attributed to the Mississippi floods, the temporary curtailment of activity by a leading motor manufacturer during a change of model, and similar factors.
If passing events such as these can make such a considerable difference in the volume of business and employment, what can be expected from the permanent economic wreckage of great areas of
the country, areas which supply the fuel from which comes over two-thirds of the power employed in American industry, areas which supply the lucrative freight to the great rail carriers who serve all other industries more efficiently and cheaply because of the back log of coal revenues?
In order that the committee might fully comprehend the extent to which selling piracy is being executed by coal companies the following comparisons will reveal the picture in part:
In 1923 Kentucky produced 44,777,000 tons of coal, for which Kentucky operators received $113,735,000. In 1926 Kentucky produced 66,330,000 tons of coal, for which Kentucky operators received $110,194,000. Production increased 21,553,000 tons, or 48 per cent, while sales realization decreased $3,541,000, or 3 per cent.
Virginia in 1923 produced 11,761,000 tons of coal, for which Virginia operators received $32,460,000. In 1926 Virginia produced 14,493,000 tons of coal, for which Virginia operators received $24,827,000. Production increased 2,731,000 tons, or 23 per cent, while sales realization decreased $7,633,000, or 24 per cent.
In 1923 West Virginia produced 107,899,000 tons of coal, for which West Virginia operators received $285,934,000. In 1926 West Virginia produced 147,209,000 tons of coal, for which West Virginia operators received $270,864,000. Production increased 39,310,000 tons, or 36 per cent, while sales realization decreased $15,070,000, or 5 per cent. These figures on production and sales realization are the figures of the Geological Survey of the United States Government.
The trouble with coal operators is that they have been trying to expand markets by increasing the demand for coal over which they have no control, while not concerning themselves about the price at which they sell coal over which they should maintain control.
If there is one man in the country who should intimately know the value of the abilities of individual coal operators, as well as the collective response as regards intelligent cooperation among operators, that man is Harry L. Gandy, secretary of the National Coal Association. It might be well to inquire as to Mr. Gandy's appraisal.
The prevalent practice of selling bituminous coal at the mines below cost of production was the chief topic of discussion at the May, 1925, convention of the American Mining Congress. Mr. Gandy made this contribution:
Whenever operators acquire sufficient courage and self-control to resolve that no coal shall go out of their mines at an unremunerative price, some of the difficulties of the industry will be over.
The spine of the coal industry, recognized by its executive head as excessively weak in 1925, has evidently completely buckled, for it is a known fact that competition has reached far greater destructive levels in this year, 1928.
Mr. Gandy's conclusion is but additional proof that the United Mine Workers have accurately gauged the ability of the industry when we say that no hope of progress can be expected based upon the voluntary cooperation of operators within the industry.
Following the recess of coal hearings last May, Mr. G. J. Anderson, president of the Consolidation Coal Co., evidently concluded that he would assume the lead in launching a movement to restrict production and improve price realization. Mr. Anderson closed down five mines
and then began an advertising campaign to enlist other operators to join in the movement to curtail output. The following is the advertisement which appeared in Fairmont, W. Va., newspapers : To our fellow coal producers Who believe with us that efficient men should be retained in the industry and
inefficient mines should be eliminated from production The Consolidation Coal Co. believes that the present plight of the bituminouscoal industry will not be remedied by forcing unwanted coal upon an unwilling market. It sees no relief, either to the industry or to any producing company, by cutting prices below a level that permits a mine to remain in production with its natural overhead unabsorbed in its average realization.
The Consolidation Coal Co. believes that no present useful purpose nor any contribution to future stability is to be gained by further cutting wages below a sound economic level. Whatever may be the temporary relation of labor costs to selling prices, it holds that the primary object of both mine labor and mine management must be the most regular work time possible under a proper wage base.
Holding, as it does, these beliefs, the company is attempting to bring both its marketing and operating policies into line with what it conceives to be a constructive economic basis. To that end it is closing for an indefinite period some of the least efficient mines, and consequently must dispense with the services of a considerable number of valued and loyal employees.
The company is confident that the elimination of these mines will not only be to the advantage of the industry at this time but that the greater concentration thus enforced will yield benefits to the labor remaining and to the company as a whole.
On the other hand, it is recognized equally that there would be a loss to the industry if many of the experienced employees thus displaced through no fault of their own or by any dissatisfaction with their services, were unable to continue in bituminous coal.
The company has, therefore, taken this opportunity to give to its fellow producers a frank statement of the policy thus adopted. Further, in behalf of any former employees seeking affiliation elsewhere in the industry it wishes earnestly to bespeak all proper consideration and courtesy for their applications arising out of this action.
If the industry is to progress rapidly toward its rightful economic recovery, the Consolidation Coal Co. believes each and every producing unit must make some sacrifice to that end. We speak only for ourselves and only in the spirit of friendly cooperation. The retention of the most economic mines, and the present elimination of the least efficient, adopted voluntarily as a general program seems to offer the speediest and most effective relief for all.
THE CONSOLIDATED COAL Co. (INC.),
G. J. ANDERSON, President. 15 Broad Street, New York, N. Y.
It is a sad commentary upon the business sagacity of the industry that there exists no closer relationship between operators in a producing field that produces around 35,000,000 tons annually than that afforded by the insertion of a paid advertisement in a local newspaper. The whole aspect is far more distressing when you take into account the fact that Mr. Anderson is president of the largest American bituminous coal company, in which John D. Rockefeller, jr., owns controlling interest.
Like all other feeble efforts to get at the control of uneconomic production and distribution at the source, the lamentation of Mr. Anderson failed to win any favorable response from the operators, notwithstanding the trade journals and business newspapers commended the proposal as a fundamental step in the right direction.
As further proof that operators will not heed sound business procedure, such as Mr. Anderson suggested in his advertisement, and
have drifted to further depths of helplessness in the ruinous buyers' market, the following admonition from a bulletin issued by the National Coal Association, November 24, 1928, lays bare the cancerous nature of the practice of producing coal without markets. Quoting from the bulletin of the National Coal Association and this matter was referred to this morning very briefly by Secretary of Labor Davis when he was testifying before the committee:
Sixteen thousand four hundred and sixty-one cars of bituminous coal were shown to have been unbilled at the mines or in railroad classification yards on October 1, according to the United States Bureau of Mines' stock report, recently issued, as of that date. At 50 tons per car, the aggregate unsold tonnage on tracks October 1 was considerably over 800,000 tons.
That that coal had a demoralizing effect on the market will be admitted by all. The questions of unbilled coal and coal on open consignment have been and are of vital concern to the entire bituminous industry. Local associations should renew discussion of these questions. They should ascertain what proportion of that unsold coal on October 1 was in their respective districts, and collect figures currently. Perhaps there is no one step that would immediately have such a beneficial effect on the coal market as following the admonition: “ Produce no coal until orders are in hand therefor.”
If every bituminous operator would firmly resolve to mine no coal until sold, that action would at once cure a situation of disastrous effect on the entire industry. The operator who produces coal before it is sold doesn't deceive anybody, for purchasing agents know currently how much coal is unbilled at the mines and have information as to coal consignment. Now, all together, every bituminous operator, for the elimination of the production of unsold coal.
Exhorters have been many in the coal industry over a long period of years, and if the response to admonitions be the criterion by which the industry is to be judged, then it can be truly said that the industry displays no sign of conscience. Officials of the National Coal Association know better than to expect cooperation from operators in the matter of restricting output to meet current market requirements. It is just another one of the bulletins that are sent out, received, and wastebasketed.
The immediate future holds no promise of increased bituminouscoal consumption. Improved combustion methods and the competition of oil, gas, and electricity will take care of new uses for coal, such as would have existed in the buried past, for a long period to
Coal consumption does not depend on the price of coal to any great extent. Sales campaigns and price reductions do not and can not boost coal consumption as in other industries. Considered as a whole coal is a very minor item in the total cost of manufactured products.
Coal operators have not learned the value of the product they produce. Consequently their marketing endeavors are harum-scarum. To fill the needs of a consumer with a particular coal suited to his requirements is not the sales thought of the operator, but, on the other hand, the big idea is to slip his coal in at a reduced price, with the hope that he can thereby establish a connection which will afford him a sales opportunity if and whenever there might exist a sellers market.
In the absence of any organization among the operators a continuation of uneconomic selling methods, costly to the operators and