The Uncertain World of Truck Tires: Expect Tighter Supplies and Higher Prices
Imports of radial truck tires from China into the U.S. have dropped 25% in the first three months of 2019, from more than 1.8 million to just shy of 1.4 million, compared to the same period a year ago.
And that follows a record end-of-the-year surge in buying in December 2018. In that single month, according to data recorded by the U.S. Census Bureau, 1.17 million truck tires were shipped from China to the U.S. — that’s 62% higher than the monthly average for all of 2018.
So what’s with the drastic ups and downs? Tariffs. The numbers correlate perfectly with the ebb and flow of the industry’s latest trade developments. On Nov. 1, 2018, the U.S. Court of International Trade ruled the International Trade Commission (ITC) would have to reconsider its 2017 decision not to impose tariffs on Chinese truck tires. The court decision was like the waving of the green flag at the start of the Indianapolis 500 — it was time to stock up on truck tires.
On Jan. 30, 2019, the ITC reversed its earlier decision. There would be tariffs on truck tires after all, and two weeks later they were effective — at the rates initially set back in 2017. The buying spree was over. Shipments have dropped to their lowest levels since mid-2017.
On top of all this is President Donald Trump’s trade war, which included an additional 10% tariff on all tires from China in July 2018. That rate has since increased to 25%.
It all adds up to uncertainty. China is the world’s largest producer of truck tires, and one key point in the argument of whether or not to impose tariffs has been that without China, the U.S. doesn’t have the capacity to build all the tires the market needs.
Modern Tire Dealer asked truck tire manufacturers whether they depend on truck tires from China to source the U.S. market. Of the 10 companies who answered the question, only three replied with a clear “no”: Goodyear Tire & Rubber Co., Continental Tire the Americas LLC and Zhongce Rubber Group Co. Ltd. (ZC Rubber).
Richard Li, marketing director of ZC Rubber, says the company shifted production to Thailand in 2015. Others have done the same, and imports of radial truck tires from Thailand increased 39.7% in the first three months of 2019.
Li says, “We forecast a shortage of supply for the truck tire segment as more than 50% of truck tire production capacity is located in China. If the supply stops, the suppliers in other countries cannot offer enough supply to the U.S. market. It will be a good chance for the retread tire vendors to expand in the market.”
Scott Rhodes, vice president of North American sales for Omni United (S) Pte. Ltd., says the company has worked to diversify its manufacturing base. Until recently Omni United was relying on Chinese plants to produce its U.S. truck tires.
“In 2007 we had started positioning our manufacturing needs across several countries in an effort to avoid these geopolitical issues. Being a global company, China still plays a very important role in our manufacturing portfolio,” Rhodes says.
Ben Johnson, director of truck and bus radial tire marketing in the U.S. and Canada for Bridgestone Americas Tire Operations LLC, says the company’s Dayton brand of truck tires is manufactured in China and sold in the U.S.
He calls the regulatory environment “fluid, and we expect this fluidity to continue throughout 2019. Accordingly, Bridgestone is activating contingency plans and leveraging our comprehensive global supply chain to meet the needs of fleet customers. We remain confident that the diversification of our supply chain will allow for continued strong service to our customer base.”
But supply is only half of the issue.
Gary Schroeder, executive director of truck and bus tire business at Cooper Tire & Rubber Co., says, “We believe there could be industry-wide shortages of TBR tires in the latter half of this year and this, in addition to tariffs, could drive pricing actions in the marketplace.”
Helmut Keller, head of brand and product management for commercial tires for Continental, points to the price increases some tire makers have implemented. “Supply and demand will dictate the outlook in the next months. As demand for TBR tires stays high, coupled with the recent tariffs and the possibility of supply constraints moving forward, we would expect there to be an upward trend with regard to pricing at least through 2019, and probably beyond.”Rob Williams, senior director of TBR sales for Hankook Tire America Corp., says he expects demand will continue to outpace supply for the rest of 2019, and into 2020.
At Tireco Inc., Mike Park, product manager of national brands, is a bit more cautious. “Medium truck tire prices will continue to rise in 2019 due to the tariff. In 2020, we may see the price stabilize but it’s dependent on the tariff.”
Li, from ZC Rubber, says there’s no question truck tire prices are going up. “It takes a long time for the transfer of production capacity from China to Southeast Asia or some other area. Furthermore after the capacity may be transferred to other areas, the production efficiency and cost will still be much higher than in China. We believe that the tire price in the U.S. market will increase continuously when the tariff is imposed on Chinese tires.”
He was the only one to indicate just how high prices might go. “In 2020, hopefully the increased capacity in Southeast Asia may supply more tires to U.S. dealers, though most of the capacity is owned by Chinese tire manufacturers. The market will find the balance but the price will be at least 10%-15% higher than before.”
Rather than only focus on the uncertainties, MTD also asked truck tire makers to talk about trends in the market, and how they’re meeting the quest for fuel efficiency.
MTD: Identify two top trends in the medium truck tire market.
Johnson, Bridgestone: It is a dynamic time in the tire industry, particularly for the commercial tire segment. Autonomous and electric vehicles are two mega trends shaping the future of mobility, and ones we anticipate will have a big impact on the commercial truck tire market across the medium-term. As the landscape evolves, fleet customers are seeking intelligent tire solutions that are integrated into the broader truck ecosystem to help them drive efficiency and optimize performance. We are working to pioneer tire solutions that meet these needs.
Keller, Continental: Tier 1 brands will defend their premium position by offering more fuel efficient tires, improving removal mileage and providing digital solutions. Continental offers three digital tire monitoring solutions for its fleets. Tier 2 brands will feel pressure to compete with Tier 3 as a result of the tariff situation.
Schroeder, Cooper: Final mile delivery, driven by expansion of e-commerce, and autonomous trucks will be trends of long term importance to the truck tire market. These changes will drive increased demand for regional or pick-up and deliver tires as well as intelligent tires that will enable fleets to improve predictive maintenance, and consequently, uptime of the vehicle.
Matthew Hanchana, sales technical service manager for Giti Tire (USA) Ltd.: With the rising costs of medium truck tires in trade disputes, a top trend companies are moving towards is retreads. Fleets that have their own casings retreaded understand the importance of buying quality tires that they can retread two to three times. Another trend I am noticing is improved technology in tires. The pressure that tire makers are being put under by original equipment manufacturers (OEMs) to help attain fuel economy is growing. The adoption of new equipment that requires effective low rolling resistance tires is in demand.
Mahesh Kavaturu, technology director of commercial tires for Goodyear: Fleets are very focused on lowering their operating costs. This is driving greater demand for enhanced miles to removal, as well as fuel-efficient tires, which we expect to continue to grow as Greenhouse Gas (GHG) Phase II regulations take effect in 2021. We are also seeing an increased focus on last-mile delivery, driven by growth in e-commerce sales and the resulting proliferation of fulfillment centers. Because of this, trucks are traveling shorter distances and are increasing the amount of urban driving, which creates greater demand for tires that can withstand dynamics like curb impact.
Williams, Hankook: One of the biggest trends we’re seeing is the continued consolidation and acquisition in the dealer market, which has introduced Hankook products to customers who hadn’t historically had the opportunity to experience the Hankook TBR lineup.
Karen Schwartz, business-to-business marketing director for on-road products at Michelin North America Inc.: With the growth of e-commerce and last mile delivery, we continue to see the yearly medium-duty ton miles increasing, and growth is accelerating. The 5 year compound annual growth rate (CAGR) for medium-duty ton mile growth is 2.7%, but the 2-year CAGR has increased more than a full percentage point to 3.8%. Additionally, we see the length of haul decreasing, with trips less than 50 miles growing at a rate of 25% year-over-year, and businesses that utilize medium duty trucks, such as e-commerce, up 15% in 2018.With the multitude of uses seen by medium duty trucks it is hard to generalize specific tire trends. Last-mile delivery has come to the forefront as well as local trades. It seems most customers are looking for a combination of these main performance attributes; robustness, long tread life and traction. Examples would be a robust casing to resist puncture and traction for utility and construction applications, or robust sidewalls to resist curbing damage and wet traction in high stop and start environments like regional and urban/last mile delivery.
Park, Tireco: Tariffs are making tires more expensive. Another trend is the increase in domestic replacement truck tire shipments. New factories are being built in the U.S. by overseas brands, and more companies are producing truck tires here. All-season drive and wide-base/super single tires are segments where we are seeing an increase in demand. More manufacturers are starting to add these lines to their product portfolio.
Dave Johnston, senior product manager of commercial tires at Toyo Tire U.S.A. Corp.: Two of the top trends in the medium truck tire market include the expansion of the medium duty class 3-6 segment. These vehicles continue to fill the need of service truck fleets and delivery vehicles. From final mile e-commerce to the energy sector trucks, 19.5-inch tires will continue to fill an ever increasing need for ease of use, reduced up front cost and increased value to the fleets and the economy. Toyo now offers seven tire options for fleets including the new M655 with 3PMS rated traction. Increased durability and longevity are derived through innovative technologies.
The other trend we’re seeing is the struggle fleets face in driver retention. This can lead to fleets using smaller vehicles that may not require as much specialized training and licensing. Getting drivers to work faster and with less up-front cost can help to ease the pressure to attract and retain drivers.
Chuck Luther, Northeast regional sales manager for Triangle Tire USA: With the proliferation of less-than-truckload (LTL) shipments and warehouse-to-door delivery of internet-purchased goods, there is serious continued development of regional and local haul tire designs; both in rib design and traction design. Tires for smaller delivery vehicles — 17.5-inch, 19.5-inch, 9R22.5 and 10R22.5 sizes— are being developed to offer more miles, better fuel economy and repeated retreadability. As consumers continue to do more internet shopping with delivery directly to their home or business, the smaller commercial tires will increase in demand and therefore be a hotly contested part of the commercial business. As these smaller sizes continue to grow in popularity, there quite possibly will be new sizes developed to accommodate the anticipated increase in the number of vehicles that will be deployed for this regional and local delivery service.
Another area of development is and will continue to be commercial tires for electric or hybrid commercial vehicles. There are various companies in the latter stages of testing and evaluating all-electric commercial vehicles. The demands of the tires on these vehicles will quite possibly differ from normal or even SmartWay-approved tires. There will be increased emphasis on roll time and therefore increased emphasis on reducing the rolling resistance of the tires. To increase the miles driven on a full battery charge, every aspect of drag needs to be looked at carefully, including the tires. The tread depth, tread compounding and casing design all play a part in reducing rolling resistance. We quite possibly will see changes in all three, as well as aspect ratios and tire sizing for these new electric commercial vehicles.
Tom Clauer, senior manager of commercial and off-the-road tire product planning at Yokohama Tire Corp.: Lower rolling resistance coefficient (RRC) is the most obvious. Fleets are employing products, devices, software, A.I., etc., to get the most out of every piece of equipment they can. Tires are one of a fleet’s top expenses, so using tires that have low RRC, longer original tread life cycles and high retreadability can add considerably to a fleet’s bottom line.
Re-configuring distribution has changed the way most fleets use and buy equipment. Last-mile delivery has brought in a whole new array of equipment, including class 4 vehicles. This means smaller diameter (16-, 17.5- and 19.5-inch) tires for commercial service applications. Urban and pick-up and delivery-type products need protection from the high-frequency starts, stops and turns. Traditionally commercial products have been either drive or steer: the market demand now is also looking for all-position and all-season products.
Li, ZC Rubber: The end users are still seeking long-mileage products with acceptable fuel efficiency, but not products with good fuel efficiency but poor mileage — especially customers involved in the regional segment. Therefore mileage will be always our focus. Another trend is about retreading, as the duties on Chinese tires will definitely bring up the new tire cost.
MTD: How are you improving fuel efficiency in your tires? Is SmartWay verification still a priority, or has efficiency evolved to a higher level?
Johnson, Bridgestone: Fuel efficiency is a key purchase consideration for fleet customers, and Bridgestone continues to bring new innovations for improved rolling resistance and corresponding fuel efficiency to market with our leading line of Bridgestone Ecopia tires. We are committed to making mobility more efficient for commercial customers and strive to deliver the best portfolio of products, technologies and services to help maximize tire performance and push beyond industry standards such as SmartWay.
Keller, Continental: For our Tier 1 products, we continually innovate and develop our compounds, manufacturing processes and tire designs to improve fuel efficiency, without diminishing other performance criteria. The major contributors to fuel efficiency are the tread compounds and patterns. SmartWay is still a priority, but Continental tires often exceed the SmartWay requirements, especially for long haul and regional applications. The key is to offer the best fuel efficiency without compromising on mileage requirements.SmartWay is still a priority for General Tire products in Tier 2. We use similar methods to develop tires for all our brands, although in order to deliver cost savings to the end user, we will usually rely on older technology and compounds for General tires versus our premium Continental brand.
Schroeder, Cooper: Improving fuel efficiency while maintaining long miles to removal is a priority for Cooper. These two factors play significant roles in reducing the total cost of ownership of a fleet’s tire program cost. Many factors go into improving the fuel efficiency of a tire including types of materials used, construction and tread pattern, to name a few. From an operating standpoint, proper inflation is also important as running tires at optimal pressures is needed to see the full benefit of SmartWay verified tires.
Hanchana, Giti: Fuel efficient commercial tires are becoming the norm and being produced in other segments for manufacturers’ product lines. With Giti’s introduction of our new SmartWay-approved long and regional haul products, we have exceeded the requirements for verification. Fleets will continue to spec products that help reduce their vehicles’ fuel consumption and lower their overall cost-per-mile.
Kavaturu, Goodyear: As a requirement for long-haul fleets, SmartWay verification is certainly a priority for us, but we are going beyond SmartWay standards in how we think about fuel efficiency. We are improving fuel efficiency by developing new low rolling resistance compounds. We also are enhancing miles to removal with new tread designs and compounds so fleets can lower their operating costs even more.
Williams, Hankook: Hankook has recently introduced its SMARTec TBR technology to increase fuel efficiency and performance in conjunction with SmartWay certifications. It is an integrated manufacturing process that combines the five main tire performance factors: safety, mileage, anti chip-cut, retreadability and traction. SmartWay certification is still an important designation for our products, and we strive to make all of our tires SmartWay certified.
Schwartz, Michelin: A 3% reduction in rolling resistance can translate into a 1% fuel savings. GHG rules and SmartWay verification also provide interesting new targets. Through tire design, it is possible to utilize technologically-advanced compounds and tire construction techniques to minimize a tire’s rolling resistance. In most cases, the depth of a tire’s tread blocks is inverse to rolling resistance. The deeper the tread blocks, the better the grip but the worse for fuel economy. Stiffer sidewalls can also reduce rolling resistance. However there are some design options available (internal components, for example) that can lower rolling resistance in areas not related to grip or other performance traits.
Michelin designs products to provide the lowest rolling resistance while improving performance. Tire engineers design stronger, more damage-resistant sidewalls using advanced rubber compounds to further guard against cuts and abrasions from the debris or curbing from an urban application. The tread also provides opportunities to increase efficiency and effectiveness. The tread rubber is designed with compounds capable of withstanding a higher degree of scrubbing that comes with frequent starts, stops and turns for longer tread life — and it also provides greater fuel savings.
Park, Tireco: We have SmartWay-verified medium truck tires. I think customers are more concerned about cost-per-mile than fuel efficiency. Mileage, even wear, along with fuel efficiency, are key selling points.
Johnston, Toyo: Toyo recognizes the challenge of creating SmartWay-verified tires that can deliver durability in the North American market. Rising to this challenge Toyo recently announced our new Nano Composite Polymer (NCP). The NCP, combined with our e-balance casing and innovative tread designs, allow us to focus not only on achieving the SmartWay verification but also providing our customers with tires that last, which saves them money and adds value to their business.
Luther, Triangle: Fuel efficiency will continue to evolve as fuel economy remains a paramount priority for commercial fleet operators. Fuel is still one of the top expenses to running a commercial fleet and even the slightest increased savings can mean substantial annual savings. Fuel efficiency can be increased by modifying tread depth, tread compound and casing design. The Triangle research and development centers focus tremendous resources on tackling this nuanced balancing act of fuel savings, overall tire mileage and traction. With the eventual onset of electric commercial vehicles, fleets will become interested in receiving as many miles possible between battery charges and the reduction of tire rolling resistance will continue be important.
Clauer, Yokohama: These are a few of the components employed in reducing RRC: compounding; new high-strength, lightweight materials; and tread and casing designs. SmartWay is still a benchmark, however we continue to push our designers, engineers and chemists to develop new methods and materials to take our products beyond those benchmarks. The power and trailer OEMs continue to push the fuel-saving envelope, as will we.
Li, ZC Rubber: SmartWay verification is more like a passport to enter the market because of the government regulation, but not the real demand from the end users. We prefer to keep the balance between the fuel efficiency and mileage. We still believe mileage, instead of fuel efficiency, brings more value to the end user. ■