It has almost become a mantra — commercial tire prices are going up because of raw material demand caused by the volatility of oil prices. While it is true that tire prices — like many costs associated with running a fleet — are going up, this is only one trend and only part of the story for the commercial tire market.
Changes in production, the use of retreads, the search for alternative raw materials, and a need for better customer service are a part of a bigger picture that is emerging for the commercial tire industry and the fleets that rely on it to keep them rolling.
Overview of the Market
Not surprisingly, as a consequence of OE purchases being up three years in a row, replacement sales were down in 2012, according to Donn Kramer, director of product marketing innovation for Goodyear Commercial Tire Systems. “In the commercial light truck tire segment, replacement shipments — industry wide — were down 3.6% in 2012 versus 2011. The total commercial truck tire replacement market was down 5.9% in 2012 versus 2011,” he said.
But, that wasn’t what was supposed to happen. According to Kramer, the commercial truck industry prediction for 2012 was to see the replacement market be up by 3.7% instead of falling by 5.9%. The original equipment (OE) market was expected to be up 16%, but saw a more modest 3.8% increase.
According to Joshua Simpson, VP of marketing for Hercules Tire, which markets and distributes its own Hercules Tires brand tires, the overall replacement market was 28-million units for 2012. For Hercules specifically, sales were down a bit from 2011, due partly to U.S. tariff restrictions on tires that are manufactured in China, but that turned around when the tariffs were lifted in September 2012.
“There was a large surge in purchasing, which has fallen off,” Simpson said, adding that there is now more inventory than demand for it.
While the conventional wisdom has it that one of the big problems for tire manufacturers is a demand of raw materials, Simpson said quite the opposite is the case. “Raw materials have stabilized for the last three quarters,” he said.
For Simpson, the big theme in today’s tire market is “value.”
“Commercial vehicle tires are designed for use on the road, and when those tires need to be replaced, there’s often sticker shock, so [fleets] ultimately look for value,” he observed.
The U.S. market presents unique challenges for tire manufacturers, according to Takayuki Hamaya, Yokohama Tire Corporation’s (YTC) executive vice president, CFO, and COO.
“The U.S. is unique compared to the Japanese and European markets. And, 50% of the consumer tires are for trucks and SUVs, which is considerably more than in any other country. The U.S. also has many requirements, such as tires with all-season capability and long mileage,” he said in comments about the commercial tire market released by the company. “The requirements in Europe are different because they drive very fast, especially in Germany.
There, they may not care as much about how long a tire would last as they would about the tire’s performance at higher speeds. Overall, in terms of tire performance and technical requirements, producing the right tire for the U.S. market is more difficult than anywhere else.”
To meet U.S. demand for tires, YTC will be increasing its production facility in the Philippines, which, by 2015, will be adding to its production capacity by 5.5 million tires annually. Hamaya noted in his remarks that strategically pricing the company’s products is “imperative.”
While Hamaya echoed Kramer’s opinion about the overall market, he did seem bullish about the company’s commercial and off-the-road divisions.
“We are doing well in both. Both have well-trained people who are also well-ingrained in their respective industries. This shows in the close relationships we have with our dealers and in the customer satisfaction we achieve,” he said. “In our OTR division, we have not been able to supply to the level of market demand, but our customers work with us because they know that what they get is a quality product. Yokohama tires perform as promised. We are putting this same commitment as we ramp up our efforts in giant OTR radial tires.”
Overall, the predictions for 2013 are more conservative, to say the least. “In 2013, we expect the total OE truck tire industry to be up 1.1% and replacement flat to 2012,” Kramer said. “However, we expect the commercial LT or urban segment to be down 3.2% for the year.”
However, Simpson agrees that the market is on a downward trough of its ongoing cycle — but he believes that “because tires are being kept longer, there’s some pent-up demand in the market, and that demand will continue to build for value tires throughout 2013.”
Meeting the Needs of Fleets
To meet the needs of fleets, Bridgestone is reviving its Dayton medium-truck tire line this year. Commercial market needs, combined with renewed interest from drivers, small fleets, and managers pushed the revival of the line, which was originally retired in 2011.
Engineered with a quality casing, Dayton medium-truck tires offer retreadability and are available for steer, drive, and trailer applications.
The Rib Radial All Position tire is designed for steer applications in long and regional haul service. The Radial Metro All Position tire is designed for steer applications in regional haul and pick-up and delivery service. The Drive Radial Deep Skid is a drive axle tire designed for high-scrub applications in long and regional haul, as well as pick-up and delivery service. Radial Highway Service tires are designed for tandem and single-axle trailer applications in long and regional haul, as well as pick-up and delivery service. Each application comes in a variety of sizes.
In addition, the company is reaching out directly to fleets with its recently launched Firestone campaign, “Those With Drive, Drive a Firestone.”
The campaign coincides with a launch of new tires featuring technological advancement that specifically address the needs of drivers and small fleet owners who seek fuel savings, long wear, and casing durability.
The new tires — FS591 steer, FD691 drive, and FT491 all-position radials — meet EPA SmartWay and California Air Resources Board (CARB) requirements for fuel efficiency. The Firestone FS820, an all-position tire designed for the rigors of on/off-highway service, features strong traction, long wear life, and responsive handling. All four Firestone tires offer excellent retreadability, according to the company.
Extending Tire Life
Using retreaded tires is one way fleets can combat the higher cost of tires.
While the retread market was down slightly in 2012, Harvey Brodsky, managing director of the Retread Tire Alliance (RTA), noted that the retread industry has still benefitted from the higher tire prices. “New tire prices are very high — but every time they go up, more retread tires are bought. You can’t drive without tires,” he said.
Retread tires can be significantly lower in price than a new tire. For instance, for a small tire that may cost $200, the same retread tire will cost $70.
Retread tires once had a poor reputation, but Brodsky said that is no longer the case. “Retreads are better than ever — adjustment rate is very low,” he said. He noted that the failure rate for retread tires about 1/2-3/4% compared to 1% for new tires.
A number of leading commercial fleets — including UPS, FedEX, DHL, and Ryder — have embraced the use of retread tires.
One of the biggest boons for the retread business has been the raw material shortage, according to Brodsky.
Finding a Substitute
While the raw material shortage has caused headaches for the industry, it may be a thing of the past if research being conducted by a consortium made up of Cooper Tire & Rubber Company, Yulex Corporation, Arizona State University (ASU), and the Agricultural Research Service of the U.S. Department of Agriculture (USDA) is successful.
The group is researching ways to develop enhanced manufacturing processes for the production of guayule solid rubber as a biomaterial for tire applications, as well as evaluating the plant’s residual biomass for biofuel applications. The consortium hopes to harness biopolymers extracted from guayule, an industrial crop and a natural source of rubber that does not compete against food or fiber crops, as a replacement for petroleum-based synthetics and tropical-based natural rubber used in the manufacturing of tires.
The research is being supported by a four-year, $6.9 million Biomass Research and Development Initiative (BRDI) grant from the USDA and the U.S. Department of Energy.
Getting the Fleet Perspective
In these cost-conscious times, price was the No. 1 concern of fleet managers, according to a recent survey of fleet managers by Work Truck magazine (Chart 5).
While the concern over rising prices lead the way, there are other challenges fleet managers are grappling with as well. “Tires over the last five years have steadily increased in cost, [but] quality is an issue I have really been struggling with in recent years as I am seeing problem in quality issues with the major manufacturers,” said Randy Koss, fleet team lead for Las Vegas-based NV Energy. “I have tires that the manufacturers are saying that can be recapped up to five years and we are having problems with cases in that age range holding up because of weather checking and case degradation.”
However, while tire prices were increasing, some fleets found that their tire spend was actually decreasing.
“Over the past two years, our tire costs have decreased,” Koss said. “We’ve been able to do this because of the use of a re-cap program, and an overall maintenance and tire program management.”
Product quality was overwhelmingly the most important (46% rated it as “extremely important and 42% rated it as “very important”) attribute fleet managers were looking for in a tire (Chart 6).
Mike Lahr, director of fleet operations for LKQ Corporation, noted that “Options on tires seem to be increasing with a huge mindset for mpg increases by the manufacturers.”
Lahr is among the fleet managers who relies on his tire vendors to help choose their specific tires (Chart 2).
“We run 5,000 trucks of various makes, models, and sizes in all the states,” Lahr explained. “Because of this we are not a tire expert and rely on our tire vendors to help with those decisions, based on our needs.”
Both because of the increase and tire prices and the increase of total fleet size, tire spend has increased. Overall, medium-duty fleets made up of 21-30% of trucks account for the largest number of commercial light duty (LT) tire purchases (Chart 1). The smallest number of tire purchases are for fleets that range from 91-100% medium-duty trucks.
Keeping a fleet rolling is a matter of keeping a close eye on the details.
“Tire management, air pressure checks, and case inspections are three valuable tools that have helped in extending life along with ensuring drivers are helping by completing their daily pre- and post-trip inspections to catch things before a tire is ruined because of leaks or damage,” Koss said. “The major challenge will be the ability to recap these tires because of concerns with casings and ensuring that this process actually pays dividends, which would be the ability for the recapped tire to be worn out before running into case age concerns on these tires.”
Lahr noted that he is “pushing the use of more recaps to be used in our fleet to save on operating costs.”
Bill DiGregory, director of fleet operations for Washington, D.C.-based International Limousine Service, Inc., observed that the mindset about tire maintenance must remain consistent no matter the size of the vehicle.
“I think that you have to apply the same thought process to small tires that you do with large vehicle tires. I have seen too many people sweat over the smallest details with the Class 7-8 vehicles, but when it comes to the smaller Class 1-6 they do not pay as close attention as they should,” he said.
Using Wide Base Tires in Medium Duty Fleets
Michelin introduced the wide base single tire in 2000, which, since that time, has become a widely accepted over-the-road option.
MICHELIN X One’s were specifically designed and engineered to deliver unprecedented levels of fuel efficiency and weight savings, according to Paul Crehan, director of product marketing, Michelin Americas Truck Tires.
This primarily has involved Class 8 vehicles used in long-haul or high-mileage applications and with fleets who are maximizing their payload.
According to Michelin, additional benefits of using a wide base tire include:
- Fewer tires to perform pressure maintenance.
- Fewer mounts and dismounts.
- Fewer tires needed in inventory.
Crehan noted that its X One tire is popular among Class 7 refuse truck operators due to their durability.
“[Medium-duty] fleets need to work with their dealer or tire representative to discuss their particular needs for size, tread, and specific application to determine if a [wide base tire] would be a strategic choice. Typically, the other classes [in medium-duty fleets] are 4x2, whereas the initial application utilizing [wide base tires] have been primarily 6x4 applications,” he said.
As these tires continue to grow in popularity, the medium-duty market will be the next area of growth, Crehan said.