Truck Tire Market: Mid-Year Report -- Tiremakers Discuss Impact of COVID-19, When Recovery Will Begin
The U.S. truck tire market looked much different at the end of last year than it does now. Through the end of 2019, 18.7 million medium truck tires had been shipped through the replacement downward trajectory, but numbers were still at respectable levels. And tonnage was increasing, albeit slightly. Then, not too long later, COVID-19 hit. And to say that things have not been the same since is an understatement.
The impact of the pandemic’s economic shock manifested in a major way in April. The American Trucking Associations’s tonnage index plunged 12.2% that month — the largest monthly tonnage decline in 26 years.
Class 8 truck orders plummeted to an unprecedented level of just 4,000 units –and nearly 75% fewer orders than what was reported during April 2019.
According to ACT Research, which tracks trucking industry trends, trailer orders dropped on a year-over-year basis by 97% in April — 99% less than even one month prior.
Replacement truck tire shipments, which were up 10% in March, began to fall in April, as well. Through the middle of May, it is estimated that 7.8 million replacement medium truck tires had been shipped in the U.S.
All of these things have had an impact on truck tire manufacturers and marketers. But to what extent?
Here’s what executives from those companies had to say as they take stock of the first half of 2020. (Their answers are listed in alphabetical order, according to last name.)
MTD: How did the COVID-19 pandemic and resulting government actions impact your commercial truck tire business in the U.S. and Canada?
Manny Cicero, CEO, Triangle Tire USA: Our commercial truck tire business was first severely impacted by the sudden imposition of countervailing duties in early-2019. The impact of COVID-19 on the overall trucking industry just worsened the situation.
Patrick Etheridge, director of sales, Prinx Chengshan Tire North America: Fortunately, we are scheduled to launch our Thailand factory in late May. The COVID-19 pandemic hasn’t really impacted us here, but we do foresee a slower roll-out than anticipated. This is mainly due to reduced demand in the current market.
Dan Funkhouser, vice president, commercial sales, Yokohama Tire Corp.: As states began to shut down in March and manufacturing plants were impacted, we worked extra-hard to ensure dealers, fleets and government facilities had product to keep their operations running. In April, there was a slowdown in purchasing as the impact of regulations were felt throughout the economy. As states are starting to reopen, there has been an uptick in business. However, there is still a cloud of uncertainty. But things appear to be headed in a positive direction.
Marshall Gillespie, manager, commercial and specialty products, Hercules Tire: In mid-March, the Hercules commercial truck tire business experienced a slight dip in sales in North America, as expected. However, we started to see sales go back to forecasted levels in April and early May.
Michael Graber, vice president of sales, Toyo Tire U.S.A. Corp.: Like most others in the commercial tire industry, we experienced an unexpected decline in sales through the initial stage of the pandemic. However, the decline was slight in our case and we saw a normalizing of volume in the second half of April. We expect a strong rebound.
Bob Klimm, Sumitomo Rubber North America (SRNA/Falken): April is when Falken started to see a downward impact on commercial tire sales. We were coming off an excellent first quarter and then we saw a noticeable reduction in our daily order volume at the beginning of April. The second half of the month was slightly better but still off our average daily order rate. Even with the minor disruption, we are optimistic about our commercial truck tire sales.
Marty Krcelic, executive vice president, TBC Corp (Sailun/Sumitomo): Our supply chain and logistics team continued to focus on supply and demand, as well as inventory levels. Current orders to our distribution centers continue to be on-schedule and products continue to flow. All factory-direct orders are being processed and shipped. And we are experiencing increased demand.
Richard Li, global marketing director, international business, Zhongce Rubber Group Co. Ltd. (Westlake): The pandemic forced the economy (to) idle and the situation reduced demand for commercial truck tires greatly. Meanwhile, no forecast shows that the economy will recover very fast, so most tire distributors have to clear their inventories.
Chris Ripani, president of truck, bus and retread tires, U.S. and Canada, Bridgestone Americas Tire Operations: There has been an overall decline across all tire categories and segments due to the global pandemic. However, our commercial tire business, and retreads in particular, have been less impacted by the COVID-19 crisis as fleet customers continue to play a critical role in keeping essential goods and services moving during this time. As many states take steps to reopen, we are optimistic that we have reached the bottom of this crisis.
Brian Sheehey, vice president, marketing, Alliance Tires Americas Inc. (Aeolus/Galaxy): Alliance experienced a mild first quarter of 2020, but April saw increased demand for (our) brands. Between warehouse inventory and containers on the water when our Alliance Tire Group manufacturing plants were briefly shut down by the COVID-19 emergency, we have been able to maintain a steady flow of truck tires to the marketplace.
Jinki Shin, sales management manager, Kumho Tire U.S.A. Corp.: The TBR business sector of Kumho has not been seriously impacted by the COVID-19 pandemic. Kumho has maintained stable sales volume in both March and April, compared to last year.
Walt Weller, senior vice president, China Manufacturers Alliance LLC (Double Coin): It definitely had an impact but not as much as on the consumer tire side. Trucking and the commercial tire business were deemed essential, so there was some business being done.
Paul Williams, executive vice president of commercial vehicle tires, Americas region, Continental Tire the Americas LLC: Continental has a large manufacturing footprint in the U.S., which helped us mitigate any impact. Our plant in Mount Vernon, Ill., is Continental’s largest truck tire plant worldwide. The plant suspended production for a short period to give us time to implement additional protective measures for our employees and in-line with demand. OE business was on hold, as many (truck manufacturers) implemented production shutdowns. The plant has already resumed production and we don’t anticipate any impacts to stock or availability this year.
Rob Williams, vice president of commercial sales, Hankook Tire America Corp.: The dealers’ main focus has been keeping their fleet customers up and running during this time. With many of our dealers’ businesses being impacted, we also felt the effects in April regarding our sales.
MTD: A number of tire manufacturers suspended production at their U.S.-based truck tire plants earlier this year due to COVID-19. Can you quantify expected shipment declines as a result of these actions?
Cicero (Triangle): We actually have not seen a dramatic decline in our truck tire business year-over-year, largely due to the negative impact in 2019 on overall volume. This year is holding steady and we do not expect further declines the remainder of the year.
Etheridge (Prinx): We cannot quantify that number. Being new to the market, we can only speculate, based on previous data. Given what information we have received, we do anticipate a slower 2020 than we forecasted, even when the market rebounds.
Funkhouser (Yokohama): The overall number of tires shipped will decrease. However, because replacement market demand and OE dropped as a result of the slowdown, we are confident that we’ll be able to meet customer demand throughout the remainder of the year.
Gillespie (Hercules): Fortunately, Hercules has not been significantly impacted by suspended production in the U.S nor have we seen a slowdown in shipments We pride ourselves on maintaining sufficient inventory due to ongoing communication and collaboration with our dealers.
Graber (Toyo): It would be difficult to speculate on the overall market decline since Toyo imports all medium truck tire products from Japan. As far as Toyo volumes, we have had no suspension of production in our medium truck tire factory in Kuwana, Japan. The factory has continued to produce at capacity, which will allow us to support the replacement tire segment as demand increases.
Klimm (SRNA): We do not expect any shipment declines due to our temporary plant shutdown. We are in excellent shape as far as our inventory. In fact, we currently have a good supply of safety stock. We feel confident that we will be able to maintain our excellent fill rates as demand increases. We have the capacity and the production time line to stay on pace with the increase in business that we expect to see.
Krcelic (TBC): Our partnerships with suppliers remain strong as we continue to support one another and programs that have been implemented for business continuity purposes. Our distribution centers remain open for shipments and we are in close communication with all team members, diligently working to maintain the flow of product and maintain service levels.
Li (Zhongce): The shipment decline is mostly due to the reduction of demand, not the suspension of production. At the moment, we expect a 10% to 20% decline of shipments in 2020, but will amend according to the latest situation.
Ripani (Bridgestone): We know that shipments will be down for the year and the overall level of recovery will be dependent upon the safe and effective reopening of businesses at the market level. Our supply chain and product pipeline remain strong and we don’t anticipate any disruption to our ability to meet fleet customers’ needs now or in the future.
Sheehey (Alliance): Due to the COVID-19 pandemic, we had to temporarily suspend production in our plants in India for a few weeks while our plant in Israel continued to operate at full capacity. Our Indian plants resumed production in late-April and we have inventory of tires across the U.S., so we do not expect any significant impact on our truck tire shipments the remainder of the year.
Shin (Kumho): At this stage, we are forecasting about a 10% to 12% decrease in the replacement market and about a 15% decrease in OE market sales.
Weller (CMA): It is hard to quantify the impact from plant shutdowns at this stage. It could be as much as 25% below prior year.
Williams (Continental): We are not anticipating any dramatic impact on truck tire shipments. The USTMA estimates that the replacement truck tire market will be down approximately 7% compared to last year and our production schedule has been in-line with demand. On the OE side, we expect a more significant decrease.
Williams (Hankook): Fortunately, we have not had a slowdown in production nor our supply chain pipeline as we are able to source products from our other plants across the globe. Our current inventory levels remain strong and we expect our supply to remain at levels to meet market demands.
MTD: When do you expect OE and replacement tire demand to bottom out and when will demand in both channels start to rebound? What are you doing to prepare for this?
Cicero (Triangle): This is impossible to predict. If the U.S. follows the same lag period as China, then demand should start picking up in late-third quarter/early-fourth quarter. But there are too many variables to give an accurate forecast. Our factories have been running at near-full capacity since mid-February. We are well-situated to supply the U.S. market.
Etheridge (Prinx): We are seeing mixed results right now in different market segments and different parts of the country. The faster people can get comfortable getting back to their routines, the faster this rebounds. I am an optimist and believe we can get back on track by mid-third quarter of this year.
Funkhouser (Yokohama): I believe we hit bottom in April and the first part of May. We’ve certainly seen positive movement since that time. As states start to reopen and people get back to work and manufacturing starts again, freight will increase. Replacement demand will follow.
Gillespie (Hercules):. While we currently do not foresee a drop in demand, we’ve adopted more frequent communication with our dealers and team for vital decisions and continue to closely collaborate on strategies for the remainder of the year.
Graber (Toyo): Since Toyo does not supply OE tires in the commercial segment, I will speak to the replacement market. We expect demand to gradually increase and return to normal levels later in the year. The timing really depends on the success of the reopening efforts of the states. Toyo has maintained regular production of all medium truck tire products and will be ready for demand when it returns.
Klimm (SRNA): We believe we hit the bottom in April and that we will start to see replacement demand increase as more cities and states open back up and more businesses restore operations. We’re optimistic that the worst is behind us.
Marty Krcelic (TBC): At TBC, we are working towards what our “new normal” looks like. We have prepared for many scenarios to ensure we have the product our customers want, when and where they want it. As stay-at-home orders are lifted, I believe all segments of the tire market will bounce back.
Li (Zhongce): We are an overseas supplier, so it takes some time for us to ship tires from Thailand to the U.S. Therefore, we will increase our inventories in the U.S. for a quick response to increasing customer demand after the pandemic. When people return to work, they will need tires immediately but distributors might not have much in stock. We may offer 24-hour delivery service.
Ripani (Bridgestone): Certainly, it is difficult to assign a time line for this recovery. This is an unprecedented situation, and as we’ve all seen, this crisis is very fluid. That said, as many states begin to take steps to reopen, we are optimistic that we have reached the bottom of this crisis and that our business — and our customers’ businesses — will begin to rebound. We anticipate recovery will happen sooner for the commercial TBR replacement segment than for the OE business as segments like last-mile delivery, long-haul and waste have remained operational.
Sheehey (Alliance): We started to see replacement tire demand rebound in mid-to-late April, once the pandemic situation and resulting government actions became clearer. We expect to see measured growth in June. Prior to the Indian government’s restrictions that temporarily suspended manufacturing, Alliance’s four North American warehouses were stocked at 125% above normal seasonal capacity, so we have been able to continue supplying our customers.
Shin (Kumho): At Kumho, we expect that replacement tire demand will bottom out in June and then will start to rebound in early July. However, the OE market will not recover until the third quarter due to high inventory levels of Class 8 trucks. Kumho is building up inventory levels in preparation for future supply.
Weller (CMA): We anticipate that OE will not start to come back until year-end. We have prepared by making sure our warehouses have ample supply so when it does come back, we are positioned to support our customers.
Williams (Continental): On the OE side, we are cautiously optimistic that April was the lowest month. We hope demand continues to rebound, growing month over month through the end of the year. However, it is important to remember that the OE market overall is expected to be down 31% year over year. On the replacement side, the market is only anticipated to be down 7% overall, so we don’t expect to see a major rebound effect.
Williams (Hankook): OE demand reduction may have a transverse relation to replacement sales after a period of time. An example would be fleets keeping trucks longer. Thus, there would still be a demand for tires on these units as older units often (inflict) more wear and tear on tires. With the uncertain future, our goal is to work with dealers to ensure we can provide product at the right place to keep fleets moving. ■
CEO POV:Cooper’s Hughes provides his take on the truck tire market
Cooper Tire & Rubber Co. President and CEO Brad Hughes provided the company’s perspective on the truck tire market during Cooper’s first quarter investor conference call.
“Overall, I think as we look at the TBR business, it’s still reasonably healthy and is an industry less affected, particularly in North America, than the light vehicle tire part of the industry so far, and it looks like it’s going to remain that way over the course of the year,” he said.
“People are using equipment, tractors and trailers right now. As we all know, those are some of the folks that are out on the front lines right now, continuing to do their jobs. And that is, to some degree, reflected in what we’re seeing in overall TBR demand.
“Clearly, OE is in a slightly different position than the replacement market,” he added. “But the replacement market, as we and others look at it, looks like it’s going to remain relatively healthy. Overall, we’re expecting still a relatively strong year for our TBR business.”