Managing the Complexities of the Red-Hot Truck Tire Market
'I’ve Never Seen Demand That Strong,' Says Weller
Walt Weller, recently retired senior vice president of CMA LLC/Double Coin, has more than four decades of commercial truck tire experience. He says he’s never seen a stronger truck tire market than the current one.
But getting tires to the right customers - at the right times - has become incredibly complex. Weller breaks down what’s happening - and what commercial tire dealers can do to make it easier on themselves - here.
MTD: Last year, the truck tire market rebounded in a huge way. According to the U.S Tire Manufacturers Association, nearly 23 million units were shipped at the replacement level, a 19.3% increase over 2020 levels. And then on the original equipment side, nearly six million units were shipped last year, a 25% leap over prior-year numbers. As we move through the second half of 2022, is that momentum continuing?
Weller: The momentum is definitely continuing. So far in 2022, the commercial business is tracking at about an 8% increase over 2021 in the replacement market and about double that in OE.
I’ve been doing this for four decades and I’ve never seen demand that strong and I’ve never seen back-to-back demand, so far, this strong. Usually, you get a year like that and then the next year you’re in flat or negative territory, but that is not the case at the moment.
MTD: What do you attribute the momentum to?
Weller: I think there was some pent-up demand going back to 2020, although there was some growth in the replacement market in 2020 - not very much, about 1% - but it did grow. In 2019, OE was forecasted to be down. I think a lot of fleets just stopped ordering equipment.
But when 2021 hit, a couple of things happened. The domestic manufacturers had cut back production significantly in the beginning of the year due to COVID-19 issues. A lot of that had to do with reworking the workflow in plants. And when they finally came back, the demand was just off the charts. And we’re still seeing that today.
And that’s been compounded a lot by the issue of overseas freight. Ocean freight despite that fact (freight rates have) gone up by five-fold since 2019 - is still coming. Customers are paying that in the form of price increases. So unless the Fed pushes interest rates up to the point where the economy hits the brakes, I think we’re in for another strong year. So far, it’s been very strong.
MTD: What are some of the biggest challenges facing truck tire manufacturers right now?
Weller: In spite of record demand, manufacturing units are actually down around three points versus last year. In order to keep up, (manufacturers) have had to import more from other markets. Domestic importers make up a large percentage of the amount of tires that are coming into the U.S. market right now.
But there are additional complexities in the ocean freight issue. It’s not just getting containers into port and on their way. The ocean freight companies have changed a lot of the rules. In order to get vessel space, you have to commit to a certain number of containers every month at much higher prices, and that much higher price - while it used to include delivery from the port to the customer - now that price ends at the port and folks like us have to take on the financial burden of moving those containers from the port to the customer. All of that’s brand new.
Other challenges continue to be visibility of containers. After containers got put on a ship, we used to get reports on where they were (and) when they were going to be in port. All of that stopped in 2021. So we would get about three days’ notice before the containers were scheduled to hit port and then sometimes - a lot of times, I would say - there were delays and we might have been two weeks waiting for those containers to actually hit, which really extended the lead times. A customer who ordered a container that would arrive in 60 days in 2019 is looking at anywhere from 120 to 150 days right now.
MTD: Do you foresee that turning around anytime soon?
Weller: It depends on what your definition of soon is. I think it’s going to last through this year and probably into the first quarter of 2023. I don’t see it ending before that. Now again, if the Fed does something different with interest rates and takes a more aggressive strategy with interest rate hikes, that could change. But right now, I don’t see it.
MTD: All of these favors you described must make forecasting incredibly
difficult - whether you’re a manufacturer or a truck tire dealer.
Weller: It’s very, very challenging. You have much longer lead times that you have to take into consideration when doing a forecast. You (might) have 20 containers at the port that may all be going to one customer instead of being spaced out.
We are now seeing large quantities of containers showing up all at once that are going to the same customers. For the customer, it creates manpower issues. They have to have people who can receive those shipments, unload them and put them into inventory and sometimes those tires, from a product flow point of view, are putting (customers) in an over-inventory situation. And on some other SKUs, because they haven’t received them when they were expecting them, (dealers) are in a negative product flow situation.
MTD: What are some actions your company is taking to help dealers mitigate these factors and maybe forecast more accurately?
Weller: We’re doing the best we can. When we receive info, (we are) sharing that with the customers. We’ve also set up a system whereby when we have multiple containers show up … instead of having them ship to the customer all at once, we’re taking them in and doing what I would call a modi ed cross-dock operation. We can then manage how many containers go to the customer and schedule it so maybe they‘re arriving two or three a day for five days or seven days, depending on how many containers we’re talking about. In addition to all of these things, CMA is adding capacity at our plant in Thailand.
MTD: What’s your advice to truck tire dealers? What should they prepare for as these factors continue to play out?
Weller: My advice is to continue doing probably what most of them are doing right now. They need to be diligent. If they’re not getting answers, they need to be asking questions about where containers are and what’s likely to happen. And talking about lead times, I think they need to plan on 120-day to 150-day lead times on containers right now