ROCHESTER HILLS, Mich. (Dec. 23, 2002)—Well, the weather is getting colder, there's snow in the air and Christmas carols are playing everywhere you go.
These are sure signs that Santa will be checking his list to see just who was naughty and nice-and that the end of the year is fast upon us.
It's also a good time to check back and see how things went in 2002. There's not much you can do about it now, so if you've really screwed up this year, it's a good bet Santa will be leaving you coal in your stocking.
But it's always helpful to reflect upon things that have happened in the last 12 months in the hopes that this understanding will somehow help us improve our odds for getting on Santa's ``Nice'' list next year.
So let's take a look at what's happened in the trucking and commercial tire industries in 2002 and see how we fared.
And since the sound of Christmas carols is all around us, let's do it with a seasonal flair.
In a word: `sluggish'
There were several big events and factors that impacted the trucking industry this year. The one with the largest effect was, of course, the economy.
After a promising upturn in July, business once again turned sluggish in the second half of the year with productivity and manufacturing taking a turn for the worse, and consumer confidence waned.
The stock market took another big dive, and poor souls like me will probably be working till we're 90 years old since our portfolios shriveled considerably. (Talk about the ``Grinch Who Stole Christmas!'')
Freight volume did improve for trucking as manufacturers worked off excess supplies left over from 2001, and manufacturing picked up to keep up with demand.
But growth was inconsistent as a year-long pattern of economic growth formed that alternated quarter by quarter between 1.5 percent and 4 percent.
The West Coast ports labor dispute didn't help matters, either. Members of the International Longshore and Warehouse Union (ILWU) were locked out of 29 ports in California, Oregon and Washington by the Pacific Maritime Association for 10 days before President Bush invoked the emergency provision of the Taft-Hartley Act. Fears grew that the economy could be seriously impacted.
It is estimated that the shutdown cost the U.S. economy $1 billion a day. However, this does not include permanent business loss, which was probably an additional $150 million to $250 million daily for all West Coast ports. The bulk of the nation's imports from China and Japan comes through the ports of Long Beach, Calif., and Los Angeles.
This freight disruption sent distributors and retailers of Asian-sourced products ranging from tires to Christmas decorations scrambling for merchandise and yearning for the sounds of ``I Saw Three Ships.''
Retailers worried in September and October whether this holiday season would be as green as in past years. However, the Consumer Confidence Index rose from 79.6 in October to 84.1 in November, ending five straight months of decline just in time for the holidays.
So it looks like ``Santa Clause Is Coming to Town'' and retailers are saved from having a ``Blue Christmas.''
No turnaround for CF
Many trucking companies fared well financially, reporting record-or at least increased-earnings. However, many others were left by the wayside.
Consolidated Freightways, one of the nation's largest trucking companies, shocked the industry when it abruptly closed its doors on Labor Day, laying off 15,000 employees.
Although it had been foundering for the previous six quarters, the company was working on a turnaround plan despite severe restrictions imposed on its credit, insurance affordability and real estate values.
The final blow came when one of the firm's surety bondholders cancelled coverage related to the company's self-insurance programs for workers' compensation and vehicular casualty. Since it couldn't raise the money to bridge the surety bond gap, CF was through.
There'll be no ``Rockin' Around the Christmas Tree'' this year for many of CF's former employees.
The big squeeze
Insurance continues to be a big problem for trucking companies.
The primary reason the cost of insurance continues to rise is the decrease in the number of commercial auto insurance providers. Those that remain have raised their rates considerably even though the trucking industry has gotten safer and safer. While the rise and fall of the financial markets has played a part in rate increases, escalating liability costs also have fueled the rise.
Trucking is a favorite target in the U.S. tort liability system. More lawsuits and higher awards have resulted in higher insurance costs. Many insurance companies just won't give truckers insurance no matter how safe they are.
The decrease in trucking capacity over the last two and a half years because of bankruptcies and closings has put surviving firms in a position to command higher rates. In November, a host of trucking companies announced a wave of rate increases and surcharges.
Freight rates have actually dropped in the truckload sector and failed to keep up with the Consumer Price Index in the LTL (less-than-load) sector over the last year. Meanwhile, trucking companies have had their costs squeezed by rising insurance premiums, volatile fuel prices-which increased 13 percent between August and the end of October when they began to ease a bit-and increased costs for security.
Since 1999 there have been more than 8,400 trucking bankruptcies ranging from small, undercapitalized companies to huge industry giants like CF. However, surviving companies are cautious about adding capacity because of uncertainty about the economy and the performance of the new, lower emission engines. As a result, truck fleets are singing, ``All I Want for Christmas is my Rate Increases to Stick.''
Class 8 truck manufacturers worried this year that fleets trying to avoid buying new trucks with lower emissions mandated after Oct. 1, 2002, would pull ahead orders normally placed in late 2002 or early 2003 to early fall of this year. However, truck sales were surprisingly quite strong in October, increasing 11 percent from September and 27 percent compared with year-ago levels.
Apparently special offers provided by the engine companies guaranteeing performance and the need to purchase new trucks soothed the fears of many fleets. Also, the fact that the used-truck market has shrunk considerably and prices have firmed up on these vehicles has encouraged some fleets to order new trucks again to replace their aging equipment. Both truck and engine manufacturers have been singing ``O Come All Ye Faithful''-with some results.
A mixed tire biz
The commercial tire industry experienced a series of interesting events in spite of-as well as because of-the economy and the state of the trucking industry.
Several tire companies made notable news. Bridgestone/Firestone announced it had turned the corner after experiencing great losses resulting from its recall of 14.4 million Firestone ATX, ATX II and Wilderness AT tires in 2000. It posted first-half operating earnings of $54 million and a 12-percent jump in sales compared with an operating loss of $75 million last year.
The company's 2002 forecast calls for recurring income of $1.14 billion, which is higher than the original forecast of $1.03 billion. The sounds of ``Ding Dong Merrily on High'' can be heard throughout the firm's Nashville, Tenn., headquarters.
In contrast, Goodyear's North American Tire segment saw profits plunge to $10.1 million in the third quarter from $87 million as sales fell 11.2 percent to $1.74 billion. Tire unit volume in the segment declined 12.1 percent to 26.5 million tires. Goodyear's stock fell from a high of $76 in 1998 to single digits in September 2002. In October, Goodyear made the decision to replace Sam Gibara as CEO with Robert Keegan. Is that the sound of ``Auld Lang Syne'' in Akron as Goodyear folks reflect on better times?
Just about all the major-as well as not-so-major-tire and rubber companies announced they were raising prices prior to the Twelve Days of Christmas. Bandag Inc., Bridgestone/Firestone, Cooper Tire & Rubber Co., Goodyear, Michelin North America Inc., Kumho Tire (U.S.A.) Inc. and Yokohama Tire Corp. all announced some price increases from between 3 percent and 6 percent depending upon tire type and size. The blame is being placed primarily on rising raw material costs (especially natural rubber and rubber chemicals), but infrastructure costs associated with the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act and insurance premium increases are having their impact on prices as well.
Retreading in a nutshell
In 2002, some notable events happened in the retreading arena. With the sounds of ``God Rest Ye Merry Gentlemen'' in the background, Michelin and Bandag agreed to settle their three-year-long legal battle during which Bandag alleged that Michelin tried to eliminate it as a competitor in the retread market, and Michelin claimed Bandag held a monopoly on the retreading industry.
In the settlement that was reached in May, the companies dismissed all financial claims against each other and ended litigation that effectively tied up both of them in the U.S. retreading market and cost both millions. With this issue settled, both companies returned to fighting in the marketplace-where they had a better chance of making money-instead of the courtroom. (Obviously the only winners in this contest were likely the lawyers whose theme song is ``Santa Baby.'')
As a result of its renewed offensive to acquire more business, McGriff Industries has ended its relationship with Michelin Retread Technologies Inc. (MRTI) to become a Bandag franchisee. And Michelin claims that although the U.S. retread market is down 1.1 percent through September, its MRTI sales are up 16.4 percent vs. the same period last year. The company said it is actively expanding its MRTI network and is in negotiations with a number of potential franchisees.
On the independent retreader side of the fence, Teknor Apex Co. sold its tread rubber assets to Cooper.
You may remember that last year Cooper expanded its retreading business by purchasing Hercules Tire & Rubber Co.'s tread rubber operations. It already owns Oliver Rubber Co., which it acquired as part of its purchase in 1999 of Standard Products Co. The Hercules purchase-which allowed Cooper to pick up about 150 former Hercules customers-helped offset the loss of Treadco Inc.'s business, which went to Goodyear.
Cooper now has broadened its offerings to include both Oliver and Hercules tread rubber products in a newly named line called Mega Mile, which it is extending to former Teknor Apex dealers. While Cooper may be the ``Rudolph the Red Nose Reindeer'' of the retread market, it does have great appeal to independent tire dealers.
Finally, a merger
Another big happening in the tire industry was the merger of the International Tire & Rubber Association (ITRA) with the Tire Association of North America (TANA) to form the new Tire Industry Association (TIA).
The merger joins legions of commercial tire dealers with hordes of retail tire dealers as well as tire manufacturers and other associated tire industry suppliers. The new association is financially strong and capitalizing on the strengths each independent association brought with it. TIA also is defining a new strategy for meeting the needs of all of its members in the considerably changed tire industry of today.
It has a strategic plan that should outlive the one-year terms of its presidents and will provide continuity and an avenue for the association to meet its ambitious objectives in training, public relations and government advocacy.
On the technology side, the long-awaited market introduction of a tire tag system was made in October. Both the tire and trucking industries have been waiting for nearly 15 years for this technology, and Michelin once again proved it is the industry technology leader by introducing it first.
The eTire System includes the InTire Sensor, sidewall-mounted SensorDock, hand-held or drive-by reader and BIB TRACK software that captures tire pressure, wheel position and maintenance information. The sensors are installed with a patch that can be affixed to the innerliner in any brand of tire. Data are stored in the server and not in the sensor itself.
The system does not accommodate on-board tire monitoring but does allow immediate access and tracking of the information via the Internet, with instant updates as the sensor in each tire is read. Now Michelin's job is to sell it to the trucking industry. As to where the tire maker's marketing/advertising focus will be, perhaps it should take a cue from ``Go Tell It on the Mountain.''
So, that's our sleigh ride through the major events of 2002. We've arrived at our destination...Christmas and the end of the year. ``I'll Be Home for Christmas'' as I hope you will be-unless you're going ``Over the River and Through the Woods to Grandmother's House.'' Whatever you do, be sure to ``Have Yourself a Merry Little Christmas.''