Time to Buy or Upgrade an Asphalt Plant for Better ROI?
6 Tips to Figuring Out If an Asphalt-Plant Purchase Is Right for You.
As a paving contractor, you know the impact of hot-mix asphalt costs on your business’ ROI, and those costs are far more reaching than just material costs. If you get your hot mix from an outside source, you understand the labor costs, traveling to get the hot mix, waiting in long and time-consuming lines for the asphalt to be loaded (especially during peak season), delivering the asphalt to the job site, the crew’s time waiting for delivery, and the expense of operating trucks.
If these costs were eliminated, how much would that reduce the cost of your asphalt and potentially improve your bottom line? The answer is different for every operation. In some cases, it drops the price enough to easily justify purchasing your own asphalt plant. But how do you know if this is a good purchase decision for your business?
Determining if your paving business would benefit from owning an asphalt plant—or from buying a larger plant and components—may seem overwhelming. Breaking the task into smaller chunks by evaluating each of several factors, one at a time, can make the task much more manageable and lead to an informed decision. This article will explore the six key factors for evaluation to help with your decision-making process.
- Market size
- Location
- Long-term expenses
- Plant features
- ROI expectations
- Understanding when to upsize
Market Size
Assessing the size of your market should be the first place to start in determining whether it is advantageous for your business to own its own hot-mix asphalt plant. As important as all six factors (market size, location, long-term expenses, features, ROI expectations, and understanding when to upsize) are to decision making, if the findings from this evaluation do not yield sufficient market potential, it may not be worth your while to consider a plant purchase unless market size changes.
Put yourself to task to uncover the following:
- Determine your business’ total annual asphalt usage and the attendant cost to your business
- Consider how many additional jobs your business could accommodate annually without the wait time buying asphalt from outside sources
- Assess the potential for asphalt sales to competitive paving companies (and not just making hot mix for your own contracts)
- Check the availability of aggregates in your area, ensuring that there are nearby aggregate sources available to fulfill your production needs through peak paving months
- Determine if there are large asphalt producers already in your marketing area who may consume the bulk of available aggregates supplies and could impair your ability to obtain adequate aggregate to manufacture your own asphalt
- Determine the number and size of paving companies that already work in the area
- Determine the number of contracts that are awarded each year
- Analyze what percentage of bids a new asphalt plant would be able to supply annually and, in the future, as well as your company’s ability to seal the deal from your bids
Location
Location is a broad term, pertaining to several factors, from how your locale impacts permitting, to transport of an asphalt plant, to the appropriate plant type you should consider for your operation.
Permitting rules and fees vary greatly from one locality to another and are different state by state, as well. Where one state may list exact permit fees for various activities, another will calculate fees based on asphalt production quantity, diesel generator kilowatt hours, and gallons of diesel fuel burned. Acquiring a permit can take six to 12 months, so plan ahead and start the process early.
According to the Environmental Protection Agency (EPA), asphalt production facilities have not been on the list of industries considered to be major sources of hazardous air pollution since 2002. However, in some areas, environmental regulations may still affect your ability to obtain a permit, depending on the specific plant design for which you are applying. Modern hot-mix asphalt plants burn much cleaner than older ones, but it’s always best to check with your locality for which plant designs could pose permitting concerns.
Look into any transport restrictions that may apply to your area. As a new producer, you’ll need to establish trucking provisions to transport material from the plant to the jobsite if you haven’t already established that.
One final factor that will impact the location of your plant is the type of plant you will eventually purchase. Plants may be portable or relocatable. Portable plants are the best choice in areas where jobs are a considerable distance apart, a market has minimal growth and small population density, and where workloads shift from one area to another due to seasonal factors.
Typically, it is easier to get a permit for a portable plant location than for a relocatable unit. Portable permits may be granted for one main location, and then, depending upon the state, subsequent temporary permits for operating locations will be easier to obtain or may not even be required.
To avoid any surprises down the road, explore any restrictions and permitting fees early in the process. Taking the time to research location and related factors will help you choose the plant best suited for your area or areas of operation.
Long-term Expenses
With asphalt plant prices ranging from $500,000 to $4 million, an asphalt plant is a serious investment for any company, small or large. Beyond plant cost, it is also important to look at how much your total start-up investment will be, such as labor and mix components cost. This will help you calculate how much you will need to charge per ton to turn a profit, if you are selling to competitive pavers, and how much you will save on your own material costs, using asphalt you produce instead of purchasing from an outside source.
As you compare plant prices and determine what is included with each model, also consider the plant’s operating costs and production capacities. A plant may cost less initially, but if it isn’t fuel-efficient or doesn’t produce enough tons per hour for efficient operation, it will cost more over the course of its lifetime.
A first-time buyer will often make the mistake of letting the price of the plant dictate the decision and end up purchasing a plant that isn’t the ideal size. Once a company has control of its own asphalt supply, it will be able to sell hot mix and lay down considerably more material. Purchasing a plant that is too small will not be able to effectively support the demand.
Purchasing a bigger plant won’t necessarily be the right decision either. A plant with a capacity that greatly exceeds demand is wasteful and unprofitable. While price is certainly a large factor in choosing a plant, stay focused on what type of plant makes the most sense for the current market situation and future potential.
Features
A variety of asphalt plant features can greatly impact your bottom line, so it is important to know the characteristics that can help guarantee a better ROI as you are researching plant models. Modern plants burn much cleaner, and newer components provide superior emissions control and dust handling.
Plants with counterflow technology, like the ADM EX Series, will maximize fuel efficiency while minimizing hydrocarbon pollution. Clean-burning plants will also extend the life of the baghouse, and the efficiency of counterflow technology will result in increased production.
A plant with an isolated mixing zone, such as the ADM MileMaker Series, will allow more mix flexibility, a benefit that will pay off in the long run. By using this type of plant, additives and RAP can be introduced into the drum mixer while remaining isolated from the drying and combustion zones.
Easy calibration of a plant is another important feature, both when purchasing a plant for the first time or expanding to a larger plant. This will lower the risk of drifting out of spec, which in turn gives producers confidence in the product they are producing while helping to guarantee customer satisfaction. Easy calibration is especially important when producing mix for Superpave jobs.
ROI Expectations
Market size, location, long-term expenses, and features all affect the ROI you might get from a new asphalt plant, but just how fast might you expect to see return? ROI scenarios vary from one extreme to the other. While some asphalt producers will produce enough to cover the plant cost within a year, it may take other producers several years.
Remember, moving your paving company into asphalt production will give you greater efficiency by controlling your own asphalt supply and material cost. Add in the fact that your company is now producing a product to sell, and the ROI typically will occur quickly. Every plant will be different, but the majority of new asphalt plants will realize a return in just a few years.
Most contractors who are able to consistently produce around 50,000 tons per year, or even less for some, will find that the benefits will quickly outweigh the costs. A number of money-saving factors contribute to a relatively fast ROI. We’ve already discussed labor savings and truck expense, but here are some other money-saving factors.
- Contractors are able to lay more asphalt and complete more projects, faster.
- Less transport time contributes to increased efficiency. Rather than having to commute to a competitor’s plant, a contractor with a portable plant can place it where it’s most convenient for their operation.
- Shorter hauls also mean fewer trucks to get a sufficient amount of asphalt to crews.
The combination of these factors usually results in at least 50-percent better truck utilization for a paving contractor who enters the production market.
Understanding When to Upsize
If you’re already in the asphalt production business, you may be considering a newer, larger capacity plant. Just as you did before buying your first plant, consider your market size, location, long-term expenses, and plant features when examining the costs and potential savings of buying a new plant.
A more efficient, larger capacity plant will not only allow your company to take on more projects, but bigger projects, as well. Plus, a newer plant will reduce maintenance costs and emissions while offering a better mix consistency.
If you’re a plant owner looking to upgrade components, it’s worthwhile to consider newer, high-quality parts. Improved components such as baghouses will help you reduce emissions. Recycle systems allow cost-efficient RAP to be used in the hot mix. Better quality storage tanks in modern plants offer a more economical way to store and monitor pricey liquid asphalt cement, while newer storage silos provide a way to keep freshly mixed asphalt at an ideal, constant temperature until it is ready to be discharged.
The benefits to owning and operating an asphalt plant are measurable, and clearly show how much productivity can increase and costs can decrease for an improved bottom line. If you have made the decision to purchase an asphalt plant and produce your own asphalt, and aren’t sure what asphalt plant is right for your operation, the experts at ADM Asphalt Drum Mixers can offer expert advice and customized solutions to help improve your ROI.