Milling For Profit

Paving contractors discuss the benefits of ownership versus subcontracting.

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Milling machines require a substantial investment, ranging from $200,000 to more than $300,000. At first glance, this can make the services of a dedicated milling contractor attractive. But many paving contractors find that the investment in a milling machine makes more sense.

Four contractors who have first-hand experience with the benefits of milling machine ownership share their experiences, which include more control of the entire paving process, a rapid return on investment and increased revenues.

Expand horizons

Chamberlain Contractors is a 29-year-old Laurel, MD-based company that performs pavement repairs and maintenance and rehabilitation, specializing in parking lots. It has a staff of 70 employees. "We run three paving crews and a concrete crew,"says Harold Green, president and founder of the company.

Chamberlain Contractors adopted the use of milling machines early in its history. Green embraces the philosophy that you can use technology to expand your horizons and differentiate yourself from the competition. "The milling machines are one way that people can do that. We believe in them and they have made us a tremendous amount of money,"he says.

A desire to maintain complete control of its operations helped Chamberlain make the initial purchase decision. "I don't believe in working with subcontractors,"says Green. "I want to control my own environment. We do all commercial and industrial rehab work and we have a very tight time horizon. Customers give you the lot at 7 a.m. and they want it back at 7 p.m. Or you are doing the work at night -you are taking the lot down at 7:30 or 8:00 p.m. and turning it back at 8:00 or 9:00 a.m."

The ability to get the job done in this time frame is critical to success. "You are not selling a price, you are selling a service and a capability,"says Green. "We can't tell people we had a breakdown, we sent everyone home and we will be there tomorrow."

In addition to giving Chamberlain Contractors control of its business processes, the milling machines have generated significant revenue. "We have four machines and we are going to get a fifth one this year,"says Green. This includes one Wirtgen 1000, two Wirtgen 1200s and one Ingersoll-Rand Procut 2000.

The company carefully tracks the hours and the revenue generated by its milling machines. For instance, the 1986 Wirtgen has 14,000 to 15,000 hours and it has cost approximately $15,000 to $20,000 to maintain over the years. "The machine has made me $1,990,602.50 on a $133,000 machine purchase,"says Green. "So it has paid for itself almost 15 times in 20 years."The Ingersoll-Rand Procut was purchased in 1991 for $212,000. "It has done $991,000, so it has paid for itself almost five times."

Then there is the production issue. "If you can really build it into the culture of your operation, instead of doing 400 or 500 yds., you can do 3,000 yds. of asphalt repair a day,"says Green. "That means more money to the bottom line and greater levels of efficiency. It doesn't take long to pay for that machine. A $300,000 cost, in the scope of things, is not a significant amount of money if you can significantly increase the productivity of your operation."

Recycling the millings is also an advantage. "I generate a lot of material,"says Green. Even though the company does not own its own hot-mix plant, the millings are a marketable commodity. "You are paid to take it up and haul it away. You then turn around and sell it as a byproduct that you use in lieu of crushed rock. Plus, many of the asphalt plants don't want to take rubble anymore. There are just so many ways that the milling machine increases your productivity and generates a useful material that you can use back in your production processes. It is just good, solid business."

Increase productivity

Raleigh, NC-based Royals Contracting performs private patchwork, highway work and road milling. Prior to getting into the milling business, the company subcontracted all of its milling needs. But the local milling contractor had more work than it could handle.

"There was basically one person in Raleigh who had a milling machine,"recalls Rick Royals. "That person was very busy and became more busy, to the point that whenever we needed him, it was very difficult to even get scheduled. The problem grew to the point that I made a decision that we had to get a machine of our own, which we did in November of 2003."

The initial purchase price was a little intimidating. "It is basically in the $300,000 range for a 4-foot machine,"says Royals. "A local Marini rep flew me to Downingtown, PA, and I looked at one of their machines. I was impressed with the total organization."A Marini MP 1300, with a cut width of 4 feet 3 inches, was the first purchase.

This addition had a major impact on the company. The mix of projects has changed. "We went away from the concrete portion of the business. Everything went from 50/50 to about 80-percent asphalt and 20-percent concrete,"says Royals. The milling machine has also helped grow the business. Revenues jumped from $1.6 million in 2003 to $3.6 million in 2004.

Today, Royals Contracting has three milling machines in operation -another Marini MP 1300 was added to the fleet in November and an MP 2100, with a 6-foot 3-inch cut width, is on rental purchase. Despite this investment, the company has no plans to shift its focus. "We are not interested in becoming a full-service milling contractor,"says Royals.

The milling machines offer productivity that would be impossible to meet with the traditional method of repairing pavement. "If you had a shopping center with 500 tons of patchwork to be done, for me to go out there with the best crew I have, it used to take five days to do,"says Royals. "It was very labor intensive and very expensive. You saw cut and then you excavate."The addition of the milling machines made a drastic change. "Now I can go out and do 500 tons of milling and patching in two days."

The cost per hour has also been reduced. "I can mill and patch somewhere in the vicinity of $25 to $30 per ton cheaper than I could [perform the task] the old way, plus we have a much better recyclable product,"says Royals.

The milling machines also increase safety when working on secondary roads. Royals explains that when the Department of Transportation paves older 20-foot-wide secondary roads, it often wants to widen them to 24 feet. "It used to be you would go down with a motor grader and a backhoe, excavate the shoulder 2 feet and put in full-depth asphalt anywhere from 6 to 10 inches deep,"says Royals. "That was very slow and time consuming. It is very dangerous to put people out there with cars whizzing by at 55 mph."

The State of North Carolina has even spec'd milling on some projects vs. the backhoe and grader approach due to the increased efficiency. "You get so much more done in a day's time and you are eliminating a lot of equipment on the job, which are a risk to the travelling public,"says Royals.

Own the process

Lojac Enterprises, Lebanon, TN, is a paving company that has its own asphalt plants and performs grading work on select highway projects. "We do mostly government work -interstates, highways and streets,"says Tim Murphy, who runs the company's paving and milling operations.

Lojac Enterprises uses three Roadtec milling machines in its operation -an RX-60, RX-900 and RX-500. Murphy explains that owning these milling machines allows Lojac to better manage its paving operations. "Where you have to start milling big roadways and paving right behind, you need to be in charge of both ends,"says Murphy. "To me, it works a lot better if you have control of your milling."

This allows you complete control that you do not have if you subcontract the work. "If the other guy breaks down, you only partially know where he stands,"explains Murphy. By having ownership of the entire process you can take corrective actions quickly. "I can move ahead and do something to get it back moving."

Utilization on these mills is usually pretty solid from early Spring until Thanksgiving. The outlook for this year is looking promising, as well. "They have a good work load right now -it is definitely solid until July 4th,"says Murphy. While the milling machines are mainly for in-house use, the company does perform selective milling for three or four other local contractors. "We don't go all over the Southeast,"says Murphy.

Having different size milling machines also offers advantages in terms of flexibility. The Roadtec RX-60, with an 86-inch cut drum width, and the RX-900 are well suited to interstate and highway jobs. "I bought the RX-900 last spring with the option for the 12-foot 6-inch milling head or the 7-foot 2-inch milling head, which is the option we like with the RX-900,"says Murphy.

But metro streets require smaller machines. "The RX-900 is too big to be out there,"says Murphy. "The Roadtec RX500 is a good, flexible machine for a lot of smaller street paving. It does an excellent job for us where we have a lot of milling on metro streets. It is easier to get around and it isn't too big. The RX-500 can back up the RX-60 or the RX-900 and it is our primary machine on streets."

Reduce costs

Dunn Co. is a full-service asphalt company in the Decatur, IL, area that traces its history back to 1936. It entered the paving business in the late 1960s.

Prior to 1988, Dunn Co. outsourced its milling. Now everything is done in-house. "We have eight machines that are all Wirtgen,"says Jim Schwarz, vice president of marketing. They include Models W2200, W2000, W1900, W1000 and W900. "Unless you're a big company, it's pretty hard to justify owning a mill unless you do contract work for other contractors. More than half of our income from milling comes from outside sources."

There is also an economic advantage to recycling the milled material. "We try to recycle 100 percent of our milling,"says Schwarz. The material is used in Dunn Co.'s hot-mix plants. "Millings are worth a whole lot more running back in the plant than they are used as base rock or something like that. There is significant cost savings. And every day that the cost of asphalt goes up, the load of roto millings becomes more valuable. We are able to maintain better margins vs. not being able to recycle."

Having access to the milling machines has also allowed Dunn Co. to more efficiently tackle jobs that would otherwise have been performed with conventional techniques. "We will do some things with the mills that other contractors would do with an excavator,"says Schwarz. "It is faster and easier to do with a mill if you have it."

An example includes golf cart path projects. "Rather than go in with an excavator, we will go in and mill out for the new golf cart paths,"says Schwarz. "It does very little damage to the golf course, and when you are done, they are the exact width you want them. It saves from tearing them up and it is so much faster."

Patching jobs are another example. Traditionally, they require you to saw, then excavate. "If you were going to dig something out 6 inches deep, you might have 4 inches of rock and 2 inches of asphalt,"notes Schwarz. Milling is a better alternative. "We might go in there and mill 4 inches deep and put 4 inches of asphalt back in the patch. You actually have more strength with that 4-inch patch and it saves so much time. It's a single operation versus having to put rock in, then put asphalt on top of it."

So ownership of asphalt milling machines does offer advantages in terms of business control, increased productivity, recycling and versatility. All you have to do is figure out if the advantages more than offset the initial purchase cost and result in a reasonable return on investment.