Chapter CLXII: Digging the Same Holes.
Chapter CLXII: Digging the Same Holes
The 1930s was one of the golden era of global cartels, the trade in commodities and products as varied as tea, steel and light bulbs were controlled by international agreements of varying degrees of integrity and legality. All else being equal a commodity as strategic as coal should have developed at least an informal producers deal if not a full blown international control council, yet this singularly failed to happen. This was not due to a lack of will, the two largest exporters (Britain and Germany) were keen on a deal in order to stabilise market share and increase export earnings respectively, while even importing nations were cautiously in favour. The example of Scandinavia explains this well, traditionally a majority British market it had been heavily contested first by the Polish and then German exporters, both of whom engaged in 'dumping', the practice of selling a product at below production costs just to make a sale. Multiple parties competing for a market normally benefits the consumer/importer and certainly it kept prices low, however no market stands alone and this is particularly true in the complex world of 'managed' trade. The British reaction was therefore not to also sell at a loss, but to threaten all involved with trade retaliation elsewhere. In the case of the Polish attempt to claim coal market share in Sweden the British Board of Trade reminded Sweden that such a change would disrupt the Anglo-Swedish balance of trade, the clear implication being that Britain would impose higher tariffs and lower quotas on Swedish exports to restore the balance. Pressure was also applied on the Polish side, a great deal of Poland's seaborne export trade depended on British shipping and even a portion of the over-land relied on British trade financing. The matter was eventually resolved with a Polish-British coal agreement restricting Polish exports outside of their 'local' markets in Central Europe but at a more sustainable price, however had any party dug their heels in things could easily of escalated. Given the regularity with which such flares up occurred it should be clear why even the importer nations could prefer dealing with a stable cartel to regularly teetering on the edge of a trade war over a few pence a tonne on the price of coal.
The impressive coal tipper loading bridge in the coal port of Born in the south Netherlands, the tipper was designed to transfer up to 800,000 tons a year of coal from railway wagons onto the coal barges of the Juliana Canal. Prior to the Great War the Netherlands had limited domestic coal production and so was a major importer, but by the late 1930s the mines of South Limburg were a significant exporter even if the country as a whole was still a net coal importer. The Juliana Canal itself was part of this effort, bypassing an unnavigable section of the Maas River it connected the new coal mines to the rest of the county's waterways, the Rhine and eventually the North Sea. This connection was important due to the economics of bulk logistics of the period; coal was incredibly cheap to ship by water, tolerably costly by rail and uneconomic for anything but local distribution by road. These logistical points were a notable factor in the various coal related discussions, much of the final 'price' of coal was transportations costs, though in many cases the imperatives of strategy and politics would trump economic concerns.
As the two largest exporters Britain and Germany had taken the lead in the cartel formation talks which begun in the aftermath of the Depression, however they soon stalled due to German complaints that British industry lacked 'group responsibility' and was not organised enough. The German coal industry had long been organised into a series of syndicates and for export purposes it was RWKS (Rheinisch-Westfälisches Kohlen-Syndikat, the Rhenish-Westphalian Coal Syndicate) that took the lead. The RWKS wanted to deal with a body that was their British equivalent, one that not only had the authority to do a deal but the power to follow through on it by managing national quotas and, if necessary, enforcing penalties. This requirement throws an interesting perspective on the UK government policy around coal in the early 1930s, the centralisation and forming of sales syndicates had very neatly re-organised the industry in a very international cartel compatible way. These re-organisation efforts took some time so the first round of detailed Anglo-German negotiations only started in late 1935, at which point they were comprehensively derailed by the outbreak of the Abyssinian War, then the Spanish Civil War and finally the Rhineland Crisis. These events were so disruptive because they undermined one of the fundamental assumptions of the cartel, that those involved had the market power to divide up regions, agree quotas and then impose them on everyone else. Prior to the Abyssinian War Britain had been exporting over 5 million tons a year of coal to Italy making it the second largest market after France. That trade had obviously stopped with the outbreak of war and under orders from Mussolini it had not resumed after the peace treaty. The Spanish Civil War not only disrupted a million ton a year market but also made any shipping through the Western Mediterranean far more complex, while the Rhineland Crisis had caused many in France and Germany to seriously re-consider the strategic risks around the cross-border Lorraine-Rhine iron-steel complex. Aside from the technical matters of penalties and adjustment mechanisms much of the cartel talks had been focused on quotas and market share, with various previous years figures being proposed as the base, the exact year normally being the one that most favoured the interests of the proposer. These arguments became irrelevant in light of the new realities, it did not matter what share of the Italian market the cartel decided to allocate to UK exporters as the practical figure would be zero. While the talks continued there was little enthusiasm for them, a limited bilateral coal deal was considered the most likely outcome and even that would have to operate within the limits set by the Standstill Agreement that controlled Anglo-German trade.
The dramatic 'revaluation' by the Gold Bloc was the catalyst that revitalised the talks, when France and Belgium effectively devalued not only did their own exports become more competitive but the francs that they paid for coal in were worth less. How much of a concern this was depend on how you valued your exports, the British concern was primarily domestic employment, so a million tons of coal could be seen as representing around 3,000 mining jobs and around 12,000 indirect jobs in the supply chain and mining towns. From this perspective as long as the export tonnage held up the reduced earnings were an annoyance but nothing more, certainly not compared to the wider economy. Another way of looking at a million tons of coal was as 1,0000 million Francs, around £13.5 million, of foreign currency that your country could earn, of course a large portion would be taken by the shippers, handling, insurance and so on, but around half would make it's way back to the exporter. Of course those were the pre-devaluation figure, after the St Leger Day massacre things changed quite dramatically. If the exporter was unlucky they had a contract fixed in Francs, in which case those 1,000 million Francs were only worth £8 million in hard currency, alternatively if the contract was tied to the 'market price' it was the importer who suddenly had to find an extra 500 francs a ton to make up the difference and many could not. Either way the exporting nation was no longer getting the same amount of hard currency it needed to pay for it's imports, which threatened yet another round of market share wars if they attempted to make up for the lower price by exporting a greater volume. Keen to avoid this outcome both sides re-engaged with the cartel negotiations with a new intensity.
The SS St Rosario of the South American Saints Line, newly launched in 1937 she was not quite as old fashioned as the SS (Steam Ship) designation would suggest; she was equipped with the White Compound Engine, in which the exhaust from the conventional four cylinder steam engine was used to power a low pressure steam turbine, a layout that dramatically increased fuel efficiency. The St Rosario worked the South Wales to South America route, carrying Welsh coal on the outward leg and bringing back grain from Brazil and the River Plate. While the devaluation of the dollar meant US coal was more competitive on price, the American government's inflexible attitude on trade deals would keep them excluded from the market and allow the British lines and traders to consolidate their position. It was not all bad for US coal exporters, with British merchants forced out of Ireland by the Coal-Cattle War American interests had been quick to seize the opportunity and a US East Coast to Ireland coal route was soon well established.
Any international cartel has to deal with politics and diplomacy, however the re-started Anglo-German cartel talks soon established that any agreement would essentially be entirely political. To the reluctance of the Foreign Office, and the delight of the German Foreign Ministry, the talks were escalated up to government level and expanded to include all the major exporters and importers. The case of Italy provides a good example of the contortions politics was forcing on the coal market, as mentioned Britain had been banned and Mussolini was unwilling to become further dependent on Germany due to ongoing tensions in Austria and the Balkans. The ongoing Spanish Civil War made transiting the Straits of Gibraltar challenging, maritime insurers were imposing 'war zone' premiums on all shipping and some were just refusing to offer coverage. These constraints resulted in the Italian market being assigned to Poland and the Netherlands, initially via France but eventually on regular convoys through the Straits under escort. Aside from the direct links a side effect of the arrangement was the forging of links between the French associated Little Entente and Italy, Italian exports and barter deals that had been used to earn Sterling to pay for Coal were diverted to France and Poland. An interesting sub-agreement meant Poland could rapidly recycle a portion of their Italian earnings into Francs, on the provision they were used to buy iron ore from French North Africa, a vital concession as Poland had typically used the hard currency from coal sales to fund iron ore purchases from Sweden. After the Franco-Italian agreement over Austria at the Amsterdam Conference this further strengthening of ties met the strategic objectives of both governments. Indeed relations improved to the point Rome began lobbying to be allowed back into the new Gold Bloc on the same terms as France, with the keen support of Paris.
Staying with the Italian agreement the Netherlands allocation would also have wider consequences. Included because Polish exports alone were insufficient and they were the only 'acceptable' nation who's exports could be re-routed, The Hague had agreed due to a combination of Italy paying a better price and pressure from everyone else. As noted previously the Netherlands were in the slightly strange looking position of exporting 6 million tons of coal a year, while at the same time importing 7.5 million tons of coal back in. The explanation was that in general it was high grade metallurgical coal (i.e. suitable for making coke and then steel) that was exported and lower grade thermal coal (i.e. fit for burning to make steam and electricity) that was imported, the cost difference between the two grades was such that this was a worthwhile endeavour. The coking coal sent to Italy had previously gone down the Rhine to Germany, often passing German mined thermal coal on it's way to the Netherlands, the diversion unbalanced this trade logistically but more importantly financially. The German solution was somewhat dramatic, they cancelled the thermal coal exports not out of pique but to manage their own domestic coal shortages. That a coal powerhouse such as Germany was experience shortages was a testimony to too things; the desperate government push to export to earn foreign exchange and the voracious appetite for coal of the German synthetic fuel industry; by late 1937 the various coal-to-oil plants were using 6.5 million tons a year and that was predicted to at least quadruple in the following few years as more capacity came online. Cutting exports to Holland 'balanced' the lost Dutch coking coal, at the cost of problems elsewhere we shall look at later, but in the immediate term left both Germany and the Netherlands short on coal. These 'new' quotas were allocated to the UK, in tonnage terms at least replacing the lost Italian markets but again forcing a re-orientation of trade links, in this case British trade was diverted away from Italy and towards it's two new partners who now had a need to earn extra Sterling.
The final system was something of a mixed bag as far as the British government was concerned. In terms of it's notional purpose it was a tentative success, UK mines had come out with generous quotas and many were looking forward to dealing with the perceived to be fair and reliable Dutch rather than fighting to get payment out of Mussolini's Italy. The success was qualified because the system was complex and political, while it had broad support (or grudging acceptance) any shift in the diplomatic balance of power could cause it to collapse again. On the diplomatic front the Foreign Office was trying to be hopeful about the vague fluttering of Anglo-French co-operation around Spain, the Royal Navy and Marine Nationale were to jointly patrol the seas around the Straits to reassure neutrals that the route was safe for vessels just passing through as opposed to trying to deliver. The lingering Francophile faction hoped to use the necessary regular co-ordination meetings to improve communications with their opposite numbers and demonstrate to a doubtful government and nation the value of a strong relationship with France. In reality however France was increasingly looking towards Rome and not across the Channel, while London had once again been semi-unwillingly pushed into a deeper commercial relationship with Berlin, the delight of the German Foreign Ministry at this turn of events being inversely proportional to the disquiet in the Foreign Office. The only truly bright spot was the prospect of stronger trade links with the Netherlands was the, a potential source of leverage to try and get The Hague out of the Gold Bloc and into the Sterling Area and perhaps even a Far Eastern alliance. Overall however it must be said the main government reaction was one of relief along with a hope they would not be forced into discussing the coal trade for quite some time, and by this measure at least the system delivered.
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Notes:
Shorter than expected while still containing actual plot, diplomatic plot no less.
There was a coal cartel in the late 1930s, Anglo-German talks did start 1935 but never got disrupted and agreements were reached to carve up the market which somewhat got enforced. Poland was a wild card, they were less fussed about profit and more about getting some hard currency, an interesting approach to exports we shall be looking at later. German coal shortages were a thing, OTL Germany juggled domestic shortage and being an unreliable supplier from 1937 onwards depending on who was shouting louder, the coal-to-oil plants ate a huge amount of coal which only got worse.
Dutch and indeed the Germans did import and export coal at the same time, partly due to grade and partly transport costs. OTL UK coal was imported into Hamburg and the 'north German markets', about 3.5/4 million ton a year by the late 1930s, in that case because there was no cheap way to get German coal to that part of the country as it wasn't connected by canal/river to the Ruhr.
Ireland never imported US coal, here they are and it's a dodgy credit based trade as Ireland can only really export things the US doesn't want or need. But American-Irish feeling and optimism are bridging the gap for now.
I spent too much time looking at the Saints Line and their funky engines, very clever way to make coal more efficient but ultimately not as good as a diesel MV. Interesting though. Theologically I'm not sure St Rosario works, but it was the name they picked.
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