Highway and Street Construction
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Industry Overview
In the US, about 10,000 companies provide highway and street construction services, with combined annual revenues of about $70 billion. Large companies include APAC and divisions of large construction companies like Bechtel and Kiewit. The industry is fragmented: although a few companies have a large regional or national presence, 70 percent of the market is held by companies with fewer than 250 employees. A typical company has $5 million of annual revenue and fewer than 50 employees.
Competitive Landscape
Demand is largely driven by the availability of government roadbuilding funds. The profitability of individual companies depends on operating efficiencies and the ability to correctly estimate costs. Big companies have the resources and engineering skills necessary for large construction jobs. Small companies can compete effectively by bidding for smaller projects or by working as subcontractors on large projects. The work is capital-intensive: annual revenue per employee is about $200,000.
This is largely a local business with few economies of scale or technical complexities to encourage consolidation. Most contracts are fairly small and local marketing is important in acquiring them.
Products, Operations & Technology
Nationally, road construction work consists 55 percent of new construction, 30 percent of alterations or reconstruction, and 15 percent of maintenance and repair. The US has about 1.5 million miles of unpaved roads, and 2.5 million miles of paved roads. New street and highway construction can involve complicated engineering, and skilled operations like earthmoving, grading, and bridge, curb, sidewalk, and water drainage system construction. The typical small construction company does light new construction work and concentrates mainly on reconstruction and maintenance. Engineering design work is important for new construction.
Streets and highways consist of several different layers of materials, earth and various grades of gravel on the bottom. Paved roads have cement or asphalt (95 percent) on the top. The typical street or highway has a gravel base and several layers of asphalt. (An asphalt street is officially called a "bituminous roadway.") A heavily used highway, like the Baltimore Beltway, has three layers of asphalt: a 12-inch coarse layer; a 3-inch intermediate layer; and a 2-inch top layer. Concrete roadways are usually poured to a standard thickness of 9 inches.
Asphalt is a mixture of sand, gravel, or rock, asphalt cement, and various additives. Sand and gravel (called "aggregate") make up 90 percent of the asphalt. Asphalt cement (AC - sometimes called bituminous cement) is the black substance left over when crude oil is distilled into gasoline and other liquid products. Asphalt is made up as "hot mix asphalt" (HMA) in a special mixing facility where the paving aggregates are dried and heated, and then mixed with melted asphalt cement. The HMA is transferred to silos for short-term storage and delivered by truck to the worksite. Some construction companies operate their own HMA facilities, but most buy their asphalt from independent operators.
Most construction jobs specify the type and amount of aggregate and asphalt cement to be used. (The federal system for specifying asphalt quality is called Superpave.) At the worksite, HMA is loaded into a paving machine that actually lays down the surface. Rollers then smooth and compact the surface as the HMA cools. Construction materials account for about a third of project costs.
Reconstruction of asphalt roads involves grinding off the top layer and replacing it. The ground up old pavement, called reclaimed asphalt pavement (RAP), can be added to HMA to form new asphalt, usually for the coarse bottom layers, where it may constitute as much as 30 percent of the asphalt. Nationally, 80 percent of RAP is recycled; the rest is used as landfill.
Construction companies usually own some core pieces of heavy equipment (trucks, backhoes, paving machines, and rollers) and lease other pieces as needed, depending on the type of work. Many companies also do other kinds of construction work such as driveways, parking lots, sidewalks, foundations, concrete and masonry work, to efficiently use their assets and skills.