Coal Mining Services

SIC 1241

Companies in this industry

Industry report:

This category covers establishments primarily engaged in performing coal mining services for others on a contract or fee basis. Establishments that have complete responsibility for operating mines for others on a contract or fee basis are classified according to the product mined, rather than as mining services.

Industry Snapshot

The companies classified in this category are a small but growing part of the overall coal industry. According to the most recent data from a 2010 industry report from Dun and Bradstreet, the industry included 788 firms that employed 21,621 workers. Construction and extraction workers accounted for about half these employees, who earned an average annual salary of $48,730. Coal mining services operations were concentrated in Kentucky, Pennsylvania, and West Virginia, which had 19 percent, 14 percent, and 13 percent of firms, respectively.

The total number of coal mines in operation in 2009 was 1,450, operated by about 86,000 workers each day, according to the U.S. Department of Energy, Energy Information Administration. Generally, the number of coal mines and the number of miners has been declining in the United States for decades. In 1923, there were 9,331 mines and 704,793 coal mines; the number fell to 7,940 mines and 141,646 miners by 1963. In 2006, the number of mines dropped below 2,000 to 1,906; miners numbered 83,462. The industry reached a two decade low of 1,316 mines and 71,023 miners in 2003 before climbing slightly upward in the latter part of the 2000s. Although demand was down at the end of the 2000s due to a sluggish economy, between increased electricity demand and continued increases in U.S. coal exports, the outlook for the coal industry was encouraging for the coal mining services companies.

Organization and Structure

The increase of mining services as an industry in its own right largely reflected cost-cutting measures on the part of the coal mining industry. Establishments often cut costs by increasing the use of nonunion workers to perform many of the tasks previously performed by union workers. Contract mining services also grew due to the fact that many larger coal interests simply diversified their operations or got out of certain aspects of coal mining.

With specific services contracted out, firms can avoid a large commitment of capital investment and small entrepreneurs have seen a profitable opening. Thus, faced with erratic demand conditions, the industry has seen an increase in flexible conditions of production, including just-in-time methods, which create smooth production, reduce turnover times, and thereby reduce downtime. Flexible work rules involving eradication of union work rules--or at the very least, union cooperation--have contributed to mine efficiency. In any case, with various degrees of contract services, the number of large independent operators continues to decline, according to some industry observers, with efficiency forcing the competition process.

Approximately 788 entities provide services to the coal industry on a contract basis. These services include removal of overburden (material overlying useful deposits); stripping the mine face, auguring or culm bank mining (refuse coal screening); drilling services, mine tunneling, test boring, and shaft sinking. Most of these establishment and multi-establishment firms are small; the majority have fewer than 25 employees.

The most significant revenue source in the coal mining services industry is strip mining, followed by stripping overburden, sinking mine shafts, driving mine tunnels and drilling and blasting. In terms of major area of geographic concentration, the larger companies engaged in coal mining services (with 20 or more employees) are concentrated in West Virginia, Kentucky, Pennsylvania, and Ohio. These firms accounted for approximately three-fourths of the workforce and more than half the value of shipments and receipts.

Background and Development

Coal mining services are defined more according to company organization rather than type of activity. In other words, for a given technique of extracting coal, a number of activities are undertaken, including sinking shafts, stripping, tunneling, drilling, coal recovery, transportation, and others. For any particular mine, these activities may take place under the auspices of one establishment, or some of the services may be outsourced to a contracting company for a fee. In the case where one particular establishment has complete responsibility for the operation of the mine, the activities are classified according to the product mined, whereas specific activities performed by contracting companies on a fee basis are counted as part of the coal mining services industry.

The specific types of services that may fall under coal mining services, for all types of coal--anthracite, bituminous, and lignite--include anthracite mining, auger mining services, bituminous coal mining, draining or pumping of coal, drilling, lignite mining, overburden removal of coal, sinking shafts, stripping services, and tunneling.

The Commerce Department at one point classified coal mining services according to the product mined. Thus, anthracite mining services and bituminous coal and lignite mining services were classified separately. When the number of anthracite mining service companies went to 57, however, the Commerce Department created a SIC classification for coal mining services in general.

Historical Precedents.
With its small but integral connection to the coal industry in general, the coal services industry rises and falls with coal mining. Mining services have been an integral part of the rise of coal in the United States, whether they were part of the mining companies' operations or provided through companies that contracted with the mine owners and operators. In general, the evolution of mining services connected with coal mining and the rise of separate companies providing these services relates to the changes in production techniques in the extraction of coals and the efficiency of production methods. Thus, the separation of the industry called mining services is somewhat artificial, or at the very least, a changing one.

In fact, the early techniques of coal mining were exceedingly simple--simply carrying coal from the exposed vein. Of course, these primitive methods were rapidly replaced by a more refined division of labor, and eventually by machinery, which rationalized the production processes and reduced the total labor time required per unit of coal mined.

In the early years of coal mining, primitive production methods meant individual workers owned and operated their own tools and were paid piece wages, according to the amount of coal mined. This involved the simple act of shoveling coal into a pile, then throwing it into an empty mine car--human muscle. According to historian and author Keith Dix, as late as 1948, one third of the nation's underground coal was still loaded by hand. The early miners used their own tools, paid the company blacksmith to keep them sharp, and worked the mines and railroad track owned by the company. They also bought their own blasting powder, lamp oil, and other supplies, and even purchased their means of subsistence from company stores. Thus, the early miner was an independent craftsperson combining a high level of knowledge and skill.

While increases in productivity came fast and furious in coal mining, the labor process in mining coal, during any period, involved essentially five tasks: sinking a shaft for an underground mine, penetrating a slope, or uncovering a surface vein; undercutting the coal vein face; drilling the face; blasting the coal; and shoveling the broken coal into cars.

Mechanization to reduce costs, and to overcome the resistance of an increasingly militant mine workers union, proceeded quickly. First, undercutting machines developed, and eventually, the mechanization of hauling, drilling, and cleaning followed. The result was higher capital equipment requirement per worker, vast improvements in labor productivity, and a decline in labor requirements. Impediments in transportation to markets were overcome by agreements with the developing railroad industry near the turn of the century.

The Ups and Downs of the Coal Industry.
While precise records of coal mining services as an industry were not kept by the government until the late 1960s, coal mining services have undoubtedly been a part of coal mining from the time of its inception. The railroads provided the impetus for the coal boom during the first two decades of this century, but when the railroads switched to the oil burning diesel engine, coal lost a major customer. This, accompanied by the switch of home heating to oil and gas, deflated the coal industry in the post-World War II period. Following the protracted boom immediately following World War II, by 1961, coal output declined to 1939 levels.

In the early 1960s, mechanization (which reduced unit costs), the decline in general transportation costs, and the surge in demand for electricity brought the industry to life. The rise in electricity demand between 1962 and 1966 produced a boom in the coal industry of over 26 percent. Smaller, more efficient, continuous mining companies also increased the intensity of labor, further reducing costs. The surge in demand from electrical utilities, which comprised over 50 percent of coal industry sales, led to two of the most dynamic decades in U.S. coal history in the 1960s and 1970s. This dynamic led to concentration and consolidation of industry capital and to the rise of small contracting companies.

The number of mining service establishments more than doubled from 191 in 1972 to 422 in 1982. The massive rise in productivity allowed for relatively high wages in the industry and exports boomed, with foreign customers seeking low-cost, high-quality U.S. coal. The markets for steel (coal's second largest customer) also came to life in the postwar boom. Nuclear power was a small, but growing, government-subsidized industry at this time.

Although the 1970s witnessed a slowdown in coal productivity, this trend reversed in the 1980s. After an austerity campaign, the introduction of continuous mining techniques and further advances in mechanization of cutting, drilling, and loading, the 1980s witnessed a resurgence in productivity growth and a reduction in necessary workers. This shakeout in the industry also led to a decline in the proportion of union mines. In the non-union shop, mine operators implemented work rule changes allowing flexible work teams, cross-training, and fewer and longer shifts. In addition to the relative hardship of laborers, industry leaders faced a highly uncertain and sluggish demand in an industry where many firms struggled to finance the large scale capital investment that was required to compete.

The U.S. coal industry was still strong in the early years of the first decade of the 2000s, second only to China in terms of coal production, but growth was sluggish and prices continued to fall. Between 1994 and 2002, U.S. coal production hovered between 1.0 and 1.1 billion short tons. Electric utilities remained by far the largest consumers of coal, and demand from this sector was expected to remain steady well into the future. More than half the electricity used in the United States is generated by coal.

The industry was marked by consolidation as smaller, less efficient mines closed and some large non-mining corporations that had acquired coal mines during the seventies sold them and withdrew. Large mining companies expanded by acquiring these existing operations more often than by opening new mines. Between 1998 and 2002, the number of U.S. mines in operation declined from 1,828 to 1,426. Production shifted west where economies of scale could be brought to bear on operating costs, and where large deposits of the low-sulfur coals desired by the utilities were located. Surface mines, most of which were located in western states, accounted for 66 percent of U.S. production in the early years of the first decade of the 2000s. Wyoming, the leading state in terms of coal production, mined 373 million short tons of coal in the United States, accounting for 34 percent of coal production in 2002.

The U.S. coal industry continued to sustain production levels throughout the mid-years of the first decade of the 2000s, from 1.13 million short tons in 2005 to 1.16 million short tons in 2006 and 1.14 million short tons in 2007, with surface mines responsible for 69 percent of total production or 793.6 million short tons in 2007. The total number of U.S. mines in operation remained relatively steady throughout the middle of the decade as well, with 1,379 in 2004 and 1,374 in 2007. Nearly 93 percent of all coal consumed in the United States was in the electrical power sector in 2007. Two of the three other coal-consuming sectors, other industrial and coking coal, had declines in the consumption totals. The mid-decade outlook for the U.S. coal industry was good due to increasing electricity demand and continued growth in U.S. coal exports. In fact, exported coal reached 59.1 million tons compared to 49.6 million tons in 2006, an increase of 19.2 percent.

According to industry statistics, there were an estimated 874 establishments engaged in performing coal mining services for others on a contract or fee basis valued at $3.2 billion in 2007, with industry-wide employment of 21,335 miners. Coal mining services was the largest industry sector with 706 companies, or nearly 81 percent in market share, bolstering $2.7 billion in revenues. Other significant sectors included 22 bituminous coal mining service companies (contract basis) employing 1,102 miners generating $87.8 million; 16 lignite mining service companies not elsewhere classified with 297 miners who contributed $85.1 million to the industry's bottom line; 15 bituminous mining service companies not elsewhere classified with 803 miners and revenues of $70.6 million; and 23 coal mining exploration and test boring service companies employing 214 miners with revenues of $62.1 million.

States with the highest concentration of mines were Kentucky, with 182 companies; West Virginia, with 138 companies; and Pennsylvania, with 111 companies. Collectively, these states accounted for $2 billion of the industry total.

Current Conditions

Although the number of coal mines and coal miners contracted significantly between the 1920s and 2010s, the production level and value of the coal industry itself continued to grow. Between 1985 and the end of the 2000s, the number of coal miners was cut nearly in two (from 169,281 to 86,000) and the number of mines fell even more--from 3,355 in 1985 to 1,485 in 2009. However, over the same period, production increased from 884 million tons to 1.07 billion tons in 2009. Price per ton is dependent on economic conditions and, thus, has varied. During the late half of the 2000s, the coal industry experienced higher production values as prices rose. In 2002, total production value was $19.7 billion. Values trended upward, reaching a high of $36.6 billion in 2008 before falling off to $32.5 billion in 2009.

Coal consumption was down in 2009 by 120 million tons (10.7 percent) from the previous year. The decline was primarily due to a lack of economic activity. Because about 94 percent of coal is used to power the electricity industry, the lower demand for electricity, in turn, affected the demand for coal. Nonetheless, the outlook for coal was positive in the early 2010s as demand was expected to return as the economy improved slowly.

However, the coal industry faced challenges on several fronts. First, environmental concerns plagued the industry as the United States continuously looked for better and cleaner ways to fuel the nation. In addition to the use of coal itself, the mining of coal caused environmental concerns, such as the ecological effects of strip mining. Second, coal mining came under increasing attack for its hazardous working conditions. On April 5, 2010, a massive explosion occurred at 1,000 feet underground at the Upper Big Branch coal mine in West Virginia. The blast killed 29 workers, making it the deadliest mining disaster in the United States since 1970. The mine, owned by Massey Energy, had a long record of safety violations prior to the explosion. Despite the negative attention and environmental concerns, the coal industry's strongest selling point, given the United States' voracious appetite for energy, was that it was an inexpensive fuel source.

Industry Leaders

According to the U.S. Department of Energy, Energy Information Administration's 2009 Coal Annual Report, the top coal-producing companies in the United States in 2008 were Peabody Energy Corporation (200.8 million tons; 17.1 percent of production), Rio Tinto Energy America (140.8 million tons; 12 percent), and Arch Coal (134.0 million tons; 11.4 percent). Peabody Energy Corporation is owned by TXU Energy, a Texas-based utilities company that supplies electricity and related services to over two million Texas residents. Rio Tinto America is owned by parent company Rio Tinto, a world leader in mining exploration and production, headquartered in London. St. Louis-based Arch Coal had 11 mines in six states at the beginning of the 2010s. The company reported revenues of $2.58 billion in 2009.

America and the World

U.S. coal exports totaled 59.0 million tons of coal in 2009, down from 81.5 million tons in 2008 but level with the 59.1 million tons exported in 2007. As in the past, Europe was the strongest export market for U.S. coal, accounting for approximately 53 percent of all U.S. coal shipped. The Netherlands accepted about 2.9 million tons of all U.S. coal exports in 2009.

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