More of less: OTR tire shortage could last until 2008
The on-going large OTR supply shortage presents both good and bad news. The good news: Mines and other operations that depend on OTR tires are learning how to squeeze more hours out of the tires they are currently running.
The bad news: Supply in 2006 will be worse than 2005. In fact, one OTR tire manufacturer doesn't expect a significant letup until 2008!
That's a long time to wait, say OTR tire dealers.
Mines will soon begin parking machines if they can't get replacement tires, says Al Chicago, senior vice president of Purcell Tire & Rubber Co.
"It's hand to mouth. Customers don't know what to do. They have equipment they want to buy, but where are they going to get tires?"
"We manage tires for 80 different customers," says Britt Johnson, co-owner of D&D Tire in Fernley, Nev. "It's frustrating when you're just scraping by in getting the tires you need."
"It sounds a bit cliche-ish, but this really is the perfect storm," says Shawn Rasey, executive director, North American OTR sales, Bridgestone/Firestone Off-Road Products.
"All of the material prices are up: Coal is up, copper is at record highs, gold is up near record highs, the aggregate industry is at record levels.
"We've had disasters in the Gulf Coast that required lots of mobile equipment for clean-up and reconstruction.
"And then we have two separate engagements going on in Afghanistan and Iraq where the military (is placing) additional orders. All of these things hit at the same time.
"It's not an issue of supply being cut back. I think there is probably more supply than there's ever been. But nobody anticipated growth in all of these things at the same time."
Bridgestone announced production increases at its OTR plants in Japan last year. "But everything is so specialized (in large OTR)," says Rasey. "The equipment is bigger, the molds are bigger, you have longer lead times -- it adds to the complexity."
Other tire manufacturers report they are doing what they can to put more tires in circulation.
Jack Fenner, director of NAFTA, OTR replacement sales, for Continental Tire North America Inc. (CTNA), says CTNA's OTR plant in Bryan, Ohio, is running at full throttle.
"Our plants are maximized in their production," says Tim Good, manager, global accounts, off-road tires, for Goodyear Tire & Rubber Co. Goodyear makes OTR tires in Topeka, Kan., and also in Luxembourg and Japan. (Most of the Goodyear OTR tires sold in the U.S. are produced in Topeka.)
"There's no inventory, so the stuff that's produced is put on a truck and shipped. I hate to say it, but we're almost on a 'just-in-time' basis."
In mid-December, Michelin North America Inc. announced plans to invest $85 million in its Lexington, S.C., OTR tire plant over the next five years in an effort to boost the facility's production by 50%. But every tire that will be produced in that plant during 2006 has already been sold, says a Michelin official.
Gary Nash, director of OTR tire sales for Yokohama Tire Corp., predicts that Yokohama's supply will improve by 3% this year thanks to production hikes at the parent company Yokohama Rubber Co. Ltd.'s factories in Japan.
Yokohama is adding radial OTR tire production there. "It should be up and running by the end of 2007. But it's going to be 2008 before we get back to decent supply... where (the industry) can probably supply all products.
"Whether you build a new factory or add onto an existing factory, it takes about two years to get up and running."
At least one tiremaker has streamlined the SKUs it offers in an effort to maximize production efficiencies.
Picking and choosing
Meanwhile, tiremakers say they will continue to allocate existing supply to key customers, including dealers and end users.
"We look at our customer base and determine how many tires go to each of these customers," says Good. "You try to allocate to customers who will be mindful of the situation and also are going to work toward maximizing tire life. You don't want to put tires in operations that don't care for them."
CTNA's Fenner says his company "spends a lot of time deciding who's going to get tires. Allocation is based upon what they bought from us last year. Of course, what they sold last year depended on what we let them have."
When 2005 started, limited OTR inventory still existed in the form of carry-overs from 2004, according to Good. "Some mines still had tires on-site. Now all of that is gone."
Some desperate customers are resorting to unconventional practices, reports Purcell Tire's Chicago. "For example, instead of rotating tires at a certain time, they're rotating them less and less to keep tires on the front a little bit longer."
Other end users are using "fourth tier products" to stay running, according to D&D Tire's Johnson. He likens the solution to "placing a Band Aid on a bleeding artery."
If there's a silver lining to the on-going shortage, it's that end users are more cognizant of tire maintenance practices, and more apt to employ them. "You try to educate them on air pressure, speed and loads... cutting the loads and speeds down to get the tires to last longer," says Purcell. "Preventative maintenance has come to the forefront."
D&D Tire has always put a premium on preventative maintenance, according to Johnson, who was a mining engineer in a previous career.
"We believe in what we call the 'holistic' management of tires," he says. Before a company can buy tires from D&D, it must first commit to placing personnel on the dealership's tire management team.
D&D also puts customers through a course called "Tire and Wheel Awareness 101," and offers follow-up classes in tire and wheel maintenance, best operating practices and other subjects.
"Our success rate has been huge. Our clients have cut their costs by 40% to 50% -- some more than that!"
"If you have the right training and the right personnel, you're in high demand," says Bridgestone/Firestone's Rasey.
Communication between dealers and customers is more important than ever. "It's trying to figure out how you can work together to maximize what you've got," says Good. "It goes back to making sure people are aware of the situation. It's sitting down and looking at the (end user's) operation like you've never looked at it before.
"It just can't be the operator; it has to be people in production, people in management -- everybody. It's a mindset change within the whole organization, from top to bottom."
"This has been a learning process for all of us," says Yokohama's Nash. "The manufacturers have been taught a lesson: We need to improve our productivity all the time. And I think the end user has learned that he has to pay a fair price for the product so the manufacturer can spend money to improve capacity."