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January 03, 2000 01:00 AM

Demand for fleet services to continue

Peggy Fisher
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    What will conditions be like as we forge into a new century, and how difficult will it be for the trucking and commercial truck tire industries to conduct business in the year 2000? Today's economic forecast for the trucking industry is hot and mostly sunny with an occasional cloud. Winds will be gusty out of the Washington, D.C., area and the barometer is holding steady.

    Economically speaking, in 2000 there is still going to be plenty of freight, there will still be a shortage of drivers, regulations coming out of Washington are a concern and the price of fuel will probably not change too much.

    Now let's take a closer look.

    Competition for drivers

    After posting a growth rate of around 7 percent for the previous two years, the economy finally cooled a little in the fall of 1999 to a growth rate of approximately 4 percent. However, record levels of freight were still hauled across the nation's highways and economists are predicting that it will start accelerating again in early 2000.

    The Asian and European economies are also improving, which will result in more exports from the U.S. This means manufacturing here will increase and both shipments of raw materials and finished goods will get a boost. Fleets will be sweating again to keep up with the demands of shippers.

    The slowing economy resulted in a slight reduction in truck orders in the fourth quarter of 1999, but it was still a whopper of a year for truck sales. For the year, Class 6-8 truck sales should come in at about 425,500 units, up approximately 20 percent from 1998.

    For 2000, economists are predicting only a 5-percent drop in truck sales. This is due to readily available financing and interest rates that should hold relatively steady as well as fleet efforts to spec more electronics in addition to comforts and features to attract and please drivers.

    While competition among fleets for freight has eased due to its overabundance, competition for drivers is fierce.

    The No. 1 lure for drivers is pay—and wages among truckload carriers are rising at an annual rate of 3.8 percent, according to the National Survey of Driver Wages. However, wages for owner-operators have not kept pace with pay raises for company drivers.

    Now truckload fleets also are looking at picking up more of their owner-operator's costs such as tolls, license plates, permits, and road taxes for instance. Fleets with company drivers also are improving their recognition programs, driver lounges, and opening communications to retain and attract good drivers.

    One big, constant concern is the cost of fuel, which has pinched margins this past year. It has gone steadily up but is still about 50 cents a gallon below the record levels set in 1997.

    Fuel prices may ease slightly in 2000, but nobody is predicting they'll go as low as in early 1999, when the average per-gallon price was around 90 cents. It is expected diesel fuel prices will hover in the $1.20s area for most of the year.

    Volatile competition

    As far as the hot air that blows out of Washington goes, the year 2000 promises to be full of it. Major safety legislation and regulations concerning truck drivers' hours of service will be rewritten, opening the border to Mexico promises to be a political jalapeno, and regulations on vehicle components will be considered that will affect trucking far after the turn of the millennium.

    Add to that the national election and we could have a tropical depression waiting to blow into a full-fledged hurricane.

    Naturally, the conditions in the trucking industry are going to affect the truck tire industry. The forecast here will be hot and sunny, areas of high pressure with plenty of isolated thunderstorms that could have serious impact on the entire industry. Economically speaking, in 2000 there will continue to be strong demand from fleets for replacement tires and retreads.

    Dealers can expect pressure from new-tire as well as retread tire companies to participate in corporate programs designed to acquire more fleet business. And competition between tire makers and also retread material/equipment suppliers promises to be volatile and will have great impact on the tire industry for years to come.

    With the economy still remaining strong in 2000, fleets are going to be plying the highways and burning up tread rubber to almost the same degree they did last year. With new truck sales expected to be off a bit and additional capacity coming on line from tire manufacturers, back-order situations for replacement tires will be resolved.

    Original equipment tire sales are expected to drop 10 percent but replacement sales should increase 4.5 percent. The only negative here is that tire prices may soften due to the availability of tire products.

    With the Asian economy improving, fewer imports from overseas will arrive on our shores, which should help domestic tire sales. However, with the Big 3 tire suppliers producing tires to meet their replacement tire demands, second-tier suppliers may have a tougher time competing since they've enjoyed sales forfeited by tier-one suppliers that couldn't supply enough tires in the replacement market.

    Retreading to stay strong

    Retreading should be strong due to all those new OE tires purchased in 1998 and 1999 that are wearing out and almost ready for makeovers. According to the International Tire and Rubber Association, truck tire retreading this year is expected to increase 2 percent over 1999.

    While business is good for truckers, they are still getting pressure from shippers to provide value-added services. In the same light, fleets continue to look to tire manufacturers and dealers to provide similar services to them.

    The result is a proliferation of corporate programs designed to bind the fleet closer to the tire supplier such as Goodyear's "Truckwise" program, Michelin North America's "TEAM" program and Bandag Inc.'s Tire Management Solutions etc. Dealers can expect to feel increased pressure to participate in providing these value-added fleet services as competition heats up again between the tire titans.

    Pledging allegiance

    Also, allegiances will be further tested in 2000. Dealers may well be forced to shrink the number of tire brands they sell and make tough choices between new tire and retread suppliers as manufacturers attempt to align themselves with the strongest dealer in each region.

    Dealers who are satisfied with the status quo may fall by the wayside if they do not grow their businesses and merge their commercial goals with that of their major tire or retread supplier. However, for many dealers/retreaders, changing suppliers will be a long-awaited answer to their prayers in markets where they had no viable product alternatives before.

    A high-profile battle being fought now between Michelin and Bandag in the courts promises to not only be stormy but also could potentially affect the shape of the retreading industry long into the new millennium.

    This court fight—over allegations by Bandag that Michelin tried to "injure and cripple" its business—will test the manner in which dealers are bound to their retread suppliers and the freedom they have in running their own businesses.

    Since the size of these two competitors—and their dealer networks—is so large, the impact of any decision coming out of this altercation will have great impact on the entire retread industry in years to come. This is one storm we need to watch carefully.

    Overall, 2000 promises to be a profitable year with plenty of challenges. I'd advise you to wear your sunglasses, put on an extra coat of antiperspirant, and carry an umbrella, just in case.

    Letter
    to the
    Editor

    Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Tire Business would love to hear from you. Email your letter to Editor Don Detore at [email protected].

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