Cold Milling Machines Are Popular

By John Hood, Product Manager, Milling & Paving BOMAG Americas, Inc. | September 28, 2010

Given America's progressively aging infrastructure, cold milling machines are being used more and more on today's paving projects. Whether it's a city street that's been overlaid once too often, under-road utilities that are well beyond their 30-year life spans or pavements that have simply failed, the cold milling machine has become a vital tool for removing asphalt layers, performing utility maintenance cuts and tearing out roadways to repair weak foundations. In fact, it's this combination of multiple capabilities and an infrastructure that isn't getting any younger that has contributed to a major boom for mill sales in the past five years.

Yet, despite the growing demand for milling on today's jobs, only 20 percent of paving contractors in the U.S. currently own and operate their own cold milling machines. That leaves 80 percent that choose to subcontract this work to others.

Why the milling gap? Though few successful paving contractors would question the importance of these services in the industry today, there seems to be wide concern as to whether the investment, effort and worry associated with venturing into this facet of the business is really worth it. Therefore, most choose to pay someone else to do the work rather than incur the expense of purchasing, operating, transporting, and maintaining their own equipment. But while most of these contractors think they're saving money and hassle by subcontracting instead of owning, in reality many are actually leaving money on the table. Though their concerns are understandable, when looked at more closely and objectively, it's clear that purchasing a cold milling machine presents more "opportunities" than "obstacles."

By far, the biggest objection that most paving contractors have when considering the acquisition of a milling machine is the initial purchase price. Without a doubt, at $300,000 or more, the price is high. Take this concern a step further and understand that the biggest equipment investment for many paving contractors up to this point may have been $100,000 for their bread-and-butter machine, the paver. Now they're being asked to spend three times as much to invest in a piece of equipment that addresses a need outside of their primary paving function.

It's little wonder that few contractors get past this obstacle. Successful contractors understand that there is no reward without risk, but for many this feels like they're really sticking their necks out. Therefore, most choose to let someone else take the risk and they hire a subcontractor to do the milling. What these contractors fail to see is the relatively quick return on investment that can be experienced with a milling machine.

When objectively looking at the initial purchase price of a mill, contractors should first consider the amount they typically spend on subcontractors over a 12-month span. On average, subbing a mill costs between $3,500 and $5,000 per day, with the former being a very conservative estimate. Depending on the paving contractor's size of operation and scope of jobs, they may be subbing a machine anywhere from twice per month to twice per week. And at a minimum of $3,500 per day for these services, that's at least $84,000 spent annually.

Now think about what it would take to finance a cold milling machine. With smaller contractors, typically it makes the most sense that they finance over a five-year (60 month) period of time. At today's terms, a $300,000 machine financed over 60 months would come to about a $5,800 monthly payment — or $69,600 annually. Looking back to that $84,000 spent annually on a subcontractor compared with the annual payment to purchase the equipment, that's $14,400 of potential profits that they are simply giving away to another contractor.

Of course, given the current demand for milling, most contractors are engaging these services much more than twice per month. Therefore, the potential profits that they can add to their own operation are quite compelling. But the key to remember is that even if a contractor on average is using the mill less than twice per month, it would still be enough to realize a positive return on investment while putting a little extra money in his pocket.

For those who make it beyond the initial objection of price, the next most likely sticking point is the perception of hassle. Though they may see the potential for extra profits, many contractors don't want to deal with the investment of time and energy to add something new and different to their repertoire. Regardless of their business acumen and success, contractors can be creatures of habit and many choose to do what they "know," and let milling be someone else's "problem." Therefore, they simply take the fixed cost of a subcontractor and build it into their bids. This may simplify their operation, but what contractors are missing with this point of view is a great opportunity to grow their business.

When it comes down to brass tacks, the goal of any successful business is to grow and, in turn, achieve monetary gain. This can be done in one of two ways — expand the geographical service area or offer more services. Though both are viable options, the former involves extra overhead in transport costs and man-hours to travel farther. On the other hand, the purchase of a milling machine may be a large capital investment, but it's one that could immediately and exponentially grow a contractor's business in their current area of operation.

As mentioned earlier, not only would purchasing their own milling machine allow contractors to keep many of the profits they're currently passing on to subcontractors, but it would also immediately allow them to bid on work they've never before been able to consider. By becoming "all-in-one" contractors, they are a more attractive choice when project bids are being reviewed because they can do everything needed for that job.

Furthermore, owning a cold milling machine allots a contractor a certain amount of extra flexibility when bidding jobs. For the contractor who is using a subcontractor to do the milling, there is a fixed, unbending cost associated with that service. But for those with their own machine, there's a greater ability to lower a bid because they don't have to contend with as many fixed costs. The potential result of this flexibility is a leg-up on the competition during the bid process.

Even with these obvious benefits, some may still see owning and operating a milling machine as a "hassle." But when it comes to production efficiency, the true "hassle" may be experienced by not owning a milling machine. When utilizing a subcontractor, the prime contractor is dependent on someone else to arrive on schedule and do the job in a timely fashion. And because milling is nearly always the first step in the project, the overall productivity and efficiency of the prime contractor's operation is effectively riding on the subcontractor.

For instance, consider a mill and fill application. With such jobs, specifications require that the contractor cannot leave an open trench. Therefore, the paver must follow right behind the mill, and all of the work must be completed in that same day. Obviously, in a case like this, the subcontractor's schedule is crucial. And if the subcontractor is late or tied up elsewhere, all the prime contractor can do is wait and imagine the time and money being wasted.

The fact is that milling contractors are currently loaded with work. This stands to reason since so few contractors own machines, whereas so many jobs require them. The point is that most milling contractors have more work than they can handle, meaning that the paving contractor cannot always assume a subcontractor will be available for a particular job schedule. For the paving contractor that doesn't own a milling machine, there will be instances where he might not be able to confidently bid jobs because he can't guarantee a milling machine will be available. It's this inability to control one's own destiny that drives most to evaluate purchasing their own machine.

Lastly, beyond the ability to bid jobs with confidence and maximize efficiency, there's another obvious business-growing benefit to owning a milling machine — and that's becoming a subcontractor for others. Creating demand for such a service is definitely not an issue and it only continues to grow. Additionally, it eliminates any concerns a smaller contractor may have over poor utilization and reduces the amount of time the machine is sitting unproductive and unprofitable.

And it's worth repeating that most contractors are spending at least $84,000 annually to subcontract out their milling work. Being able to save $84,000 in subcontracting costs, while generating another $84,000 by subcontracting the machine out a couple of times per month to other contractors, results in $168,000 added to the bottom line — not a bad turnaround for what was once an expense at best.

After realizing the potential profits, increased efficiencies and additional job opportunities associated with owning a milling machine, it's likely the idea of adding one to an operation will become much more palatable. Still, there are a couple of common objections that steer some contractors away from ownership. One of these is the concern about what to do with the material once it's milled.

For many contractors, one of the added benefits of employing a subcontractor is that they will take care of the removal and transport of the asphalt millings. But this is far from a favor. Subcontractors know the value of recycled asphalt. It's a fantastic base material that can either be stockpiled or sold back to asphalt producers for use in their re-mix blends. Additionally, asphalt is a petroleum product, which only continues to rise in value given today's oil prices. Therefore, a subcontractor is only too willing to take care of its removal.

This is yet another good reason for contractors to do their own milling. Not only do they increase profits and efficiency by doing the work themselves, they also can realize another profit center through the potential sales of asphalt millings. Otherwise, it's a base material that one can stockpile for future jobs. And best of all, it's free.

Beyond the extra profits that can be realized by offering their own milling services and reclaiming the spoils of recycled asphalt, one major question still remains for prospective contractors: Who's going to operate the mill?

With any new, unfamiliar piece of equipment, a contractor will naturally be wary about the learning curve involved with effectively operating the machine. Time is already at a premium, so how does one find the extra resources to learn a new piece of equipment? Furthermore, it's a bit frightening to invest $300,000 in a machine and turn it over to an inexperienced operator. Fortunately, from both a conceptual and operational standpoint, today's milling machines are very easy to understand and control.

Looking at the paving process in its simplest terms, the basic concept is that asphalt is transferred out of a dump truck into the paver's hopper, which is then placed down in front of the screed and laid at a defined depth. The milling process is just the opposite. Rather than taking material out of a truck and laying it at a particular depth, one instead mills out a specific depth of material and places it in a truck for removal.

Of course, there's much more to operating equipment than just understanding the concept, but with today's more computerized machines and simplified controls, learning how to use a milling machine is quite easy. In some ways, operating a mill is much like a video game. With a basic joystick control for common operations, one needs to simply type into the machine's computer how much material to remove. If the job calls for taking 2 inches out, the operator simply types in "-2" and the machine does the rest. All the operator has to worry about is steering straight.

But what about that operator? Regardless of contractor size, the idea of increased labor costs scares everyone. No one wants to add labor if they can help it. So, back to the original question: Who's going to operate the mill?

The fact is that most paving contractors, even small ones, already have a person on staff acting as the equipment transport driver. And though this person's primary responsibility is to simply transport equipment to and from job sites with a trailer, the dirty little secret is that anyone with equipment experience can quickly learn how to operate a milling machine — especially someone like the transport driver. This is a person many smaller paving contractors use for an operator when adding milling services. Not only does it save on labor costs, but it also takes a person who's normally part of an operation's cost center and turns him into a contributor to the profit center, because he's now doing production work.

Obviously, there are many compelling reasons for getting into the milling business and, conversely, there is a growing trend of contractors answering the call, yet demand continues to outpace supply. Fortunately, as more and more contractors gain comfort with the process and realize the potential profits, it's only natural that milling will eventually become a common component of most paving operations. But until now, this trend has been slow, and early adapters are reaping the benefits of being a veritable milling monopoly. The irony is that with all of the objections paving contractors have when faced with the prospect of buying a mill, there is usually only one that they have after purchasing one: "Why didn't I do this sooner?"