Truck tires are essential to getting from point A to point B. Literally where the rubber meets the road, truck tires are also a major contributor to maintenance costs.
Understanding what is happening now, and what’s predicted for the future, can not only help manage these costs but keep truck fleets rolling down the road.
The Truck Tire Industry Today
When looking at the current state of the commercial truck tire market, one phrase came up again and again: the commercial truck market remains strong.
“OEM manufacturers have been pushing builds back into 2019. In addition, tire replacement has been supported by the high demand of freight,” according to Dan Funkhouser, VP of commercial sales for Yokohama Tire.
Not only is the market strong right now, but it is also the strongest it has ever been.
“The tire market has even improved from the highest replacement market volume ever, in terms of shipments, seen in 2017. The industry has made great strides in the past decade in terms of volume. OE and replacement markets alike this year are performing very well,” said Helmut Keller, Continental’s head of product for Commercial Vehicle Tires the Americas.
The robust U.S. economy is one major factor impacting the market.
“High OEM and replacement demand for quality Tier 1 and Tier 2 products, combined with pricing and uncertainty due to current tariff concerns, will continue to yield tight supply for the remainder of 2018,” said Ken Everhart, regional director, TBR sales for Hankook Tire.
Additional benefits of the strong economy are creating a situation where companies are renewing and expanding their fleets.
“This expansion is resulting in a high demand in each class. Tier 1 and 2 tire manufacturers are tasked with balancing both OE and replacement markets. Furthermore, consumers are not being scared away by rising fuel prices, and pickup trucks and SUVs continue to drive U.S. car sales in the light-duty arena,” Everhart added.
In addition, the commercial truck tire market in North America remains very competitive.
“Much of this is being driven by the growing economy and increased demand for shipped goods. Sales of commercial OE tires are up significantly year-over-year, and we are seeing strong demand in the replacement tire market, too. Large national fleets are showing a bias for digital solutions that will help lower their total cost of tire ownership and give them a competitive edge. This contrasts with smaller fleets, many of which are making transactional tire purchases. Increased adoption of ultra-low-cost import tires continues to grow, squeezing margins and putting pressure on retread sales,” said Eric Higgs, president, truck, bus and retread tires, Bridgestone Americas Tire Operations.
The OE side of the business is absolutely booming, according to Karen Schwartz, B2B marketing director – on road for Michelin North America.
“Many factors are contributing to this, including governmental regulations, overall economic conditions, and the driver shortage,” Schwartz said.
Growth Seen in All Truck Classes
The current market strength isn’t just impacting one segment, all tire segments are experiencing it at some level.
“The current growth in OE truck orders and shipments are mainly in the Class 8 section. Light- and medium-duty shipments are growing but at a much more muted pace. This is generally the case in the industry, but with Class 8 orders currently going through a boom, there is a large disparity in the growth figures,” explained Schwartz of Michelin.
Looking at light-duty tires, increase in speed is the trend.
“At the OE level, light-duty vehicles are moving to higher-speed rated tires with greater carrying capacity, which will limit the number of replacement providers,” said Walt Weller, senior vice president of Double Coin Tires.
Medium- and heavy-duty trucks continue to be influenced by fuel-economy initiatives.
“No matter what the cost of diesel fuel, it is still the second-highest operating cost for fleets, behind labor. Tires are third and an important contributor to fuel economy,” Weller added.
The steady growth in the medium-duty market has been the trend for the past few years.
“Class 5 and Class 6 have seen a very steady growth for several years and there is no sign of that slowing. There has also been increased interest in the Class 4 segment for more urban deliveries,” said Funkhouser of Yokohama Tire.
The market continues to remain strong for the medium-truck tire market for both the OE and replacement markets.
“New truck orders have been booming this year, which impacts the replacement market as more tires are allocated to OE. High freight demand has improved the rates for our fleet customers, so business has been great this year,” said Mike Graber, director of commercial tire sales for Toyo Tire USA.
The heavy-duty, Class 8 segment continues to grow, with a robust economy driving the need for increased movement of goods.
“In addition to seeing increased OE sales, the industry will likely see increased national account program tire activity. Another trend to watch will be the strengthening of e-commerce. As e-commerce continues to gain popularity with consumers, medium-duty demand would be expected to increase with final-mile delivery becoming more prevalent increasing miles driven in this segment,” said Gary Schroeder, executive director, global truck and bus tire business for Cooper Tire & Rubber.
Another trend impacting light- and heavy-duty tires lies with the use of larger, “Euro” vans.
“The biggest trend we see is the emergence of ‘Euro’ vans, which falls into the light-truck category. E-commerce has created a strong market for these types of trucks for home deliveries. Related to this, we are seeing a trend toward shorter hauls for traditional Class 7 through Class 8 trucks due to more distribution centers in place to support online commerce,” Graber added.
The Truck Tire Market Tomorrow
The forecast is for the market to retain its strength, which means steady truck tire prices for fleets.
“We see the truck tire trend remaining strong for 2019, as long as the economics in the marketplace remain in a growth mode. There are many factors that could derail this, one such factor would be trade disputes. Slowing at the ports and railyards could change the entire makeup of the industry,” said Funkhouser of Yokohama Tire.
High demand is also forecast by Everhart of Hankook Tire.
“With a strong economy forecast into 2019, and the potential for increased infrastructure spending, we see demand remaining strong for next year in both OE and replacement. In addition, increased oil prices could result in a renewed interest in fuel-efficient tire technology,” Everhart said.
More of the same is what Weller of Double Coin Tires sees for 2019.
“We expect the OE market to continue to be strong for Class 8 vehicles. We heard some manufacturers have already booked most of their 2019 production. This is driven by the focus on more fuel-efficient vehicles by fleets as well as more modern trucks with more amenities to attract and retain drivers, which continues to be a major emphasis/issue for fleets. The U.S. economy is forecast to do well while the global economy is expected to slow. If there is another tax decrease aimed at the middle class the tire market could become even more robust,” Weller explained.
Schroeder of Cooper Tire & Rubber Co. is bullish on the 2019 commercial truck tire market — both OE and replacement.
“Based on economic growth trends, we anticipate overall industry growth to continue, with long-haul application seeing the most near-term gains. Regional or pickup and delivery applications could see more long-term stable growth, with the popularity of e-commerce and final mile delivery to consumers increasing across the industry,” Schroeder said.
And, looking through 2019, there isn’t tremendous concern that anything will turn in the short term.
“This has also given businesses the confidence to invest in their own futures,” said Schwartz of Michelin. “But, one of the adverse effects of a low unemployment rate has been the difficulty to find drivers in the industry. Some fleets are using their new vehicle purchases as an incentive for driver hiring and retention.”
There are factors coming down the pipeline beyond 2019 that are anticipated to impact the truck tire market.
“Trends such as platooning and autonomous vehicles will challenge tire manufacturers in the longer-term to accelerate their efforts to innovate smart tire solutions that can become part of a connected vehicle ecosystem,” said Higgs of Bridgestone Americas.
As noted, tires are constantly experiencing wear-and-tear, and are a top maintenance cost.
“Fleet owners often tell us tire life and retreadability are the most important things to them. These are related to reducing their overall operating costs. While fuel prices have been relatively stable, we realize this is another variable cost that significantly impacts the profitability of our fleet customers,” said Graber of Toyo Tire USA.
Also, as of Jan. 1, 2019, a 25% tariff will impact truck tires imported from China.
“This appears to be causing many dealers to pre-buy and accumulate large stocks of Chinese truck tires before the price increase. Overall, next year this could lead to a slight increase in premium tire purchases and tires manufactured here in the U.S. or imported from countries other than China,” said Keller of Continental.
The OE market has a cycle. When OE orders lighten up, they tend to do so quickly, and dramatically, Schwartz said.
“The tariff on Chinese imports is still new enough that there is uncertainty on how it will affect the market. If the 25% tariff is significant enough for non-domestic tire production to choose to ship elsewhere, then the growth in the market will have to come from other sources,” she added.
There are many potential game changers in the trucking market that could affect tires and tire manufacturing, as well as tire distribution.
“Some of these game changes include autonomous vehicles to the Amazon effect, with Amazon becoming a player in the transportation industry. Whether or not they become trends is still debatable, but they bear watching closely,” Weller added.
Not everyone sees the same future growth and market strength, though.
“The market has been growing rapidly since 2015, and despite record-breaking replacement volume in 2018, analysts expect the replacement truck tire market will see volumes slow down next year. Volumes are anticipated to be slightly higher than 2016 and 2017, but without the high year-over-year growth we’ve seen lately. Three years in a row of record-breaking volumes is probably not sustainable,” Keller said.
But, while the market is forecast to remain favorable, it may not be able to maintain this momentum.
“We expect the commercial truck tire market to remain favorable next year, although growth likely will not be at the levels we have seen this year. We anticipate the replacement market will see additional growth. Meeting the needs of the broad fleet and OE customers through differentiated, high-quality service will continue to be a competitive advantage that makes the difference,” Higgs said.