The worldwide shortage of large off-the-road tires is already severe and will get worse before it gets better, OTR tire manufacturers and dealers agree.
``There's no less supply-every OTR tire plant in the world is running 24 hours a day,'' said Manny Cicero, vice president of OTR sales for Bridgestone/Firestone (BFS). ``It's all a function of exploding demand.''
Demand for OTR tires increased more than 20 percent in 2004 from 2003, according to Todd Ramsey, director of marketing for Michelin Earthmover at Michelin North America Inc. ``This demand is unprecedented in the history of the industry and was unanticipated by the industry,'' he said.
Goodyear also found demand for its OTR tires so great in 2004 that a shortage ensued, according to a Goodyear spokesman. ``From our standpoint, it was a result of increased demand, domestically and overseas,'' he said.
OTR manufacturers aren't even taking new orders now, dealers across the U.S. reported.
``We're on allocation with everybody,'' said Terry Sparks, president of Sparks Commercial Tire Co. in Findlay, Ohio. ``We have people calling us from all over, but unfortunately we can't help them. We're OK right now, but in 45 days I don't know what we're going to do if we don't get more tires.''
The shortage is starting to hurt mining, construction and other companies right down to the lowest-level employees. ``If a mining company has to park a piece of equipment because it can't find tires for that equipment, that takes the operator off the job right there,'' noted Edward L. Johnson, sales and regional manager for Hudson Co., an OTR tire dealer in Hazard, Ky.
The reasons why
Otraco International Pty. Ltd., an international provider of OTR tire management services based in Burswood, Western Australia, issued a report on the OTR tire shortage back in June 2004. The reason for the shortfall, Otraco said, was simple: a tremendous increase in demand for minerals-especially coal, iron ore, copper, nickel and bauxite-with no matching increase in OTR manufacturing capacity.
``The demand for these commodities has been driven largely by the surge in development in China and, to a lesser extent, Russia and India,'' the report stated.
OTR tire manufacturers and dealers unanimously agreed with Otraco's assessment. ``China is a big driver of the market, as are Russia and Indonesia-indeed, pretty much all the developing countries,'' BFS's Mr. Cicero said.
In a year's time the price of copper more than doubled to $1.40 per pound from 60 cents and lead to more than 40 cents from 16, noted Bob Purcell, president of Purcell Tire & Rubber Co. in Potosi, Mo.
``You don't have to be a genius to know what happens next,'' Mr. Purcell said. ``Every marginal truck that was parked, every marginal mine that was closed, is put back into service.''
The current bull market in mining is also fueling a tremendous increase in demand for new mining trucks and equipment, according to Mr. Cicero. Companies held off buying equipment for years, waiting for the market to improve, he said.
In planning manufacturing capacity for OTR tires, tire companies pay close attention to the projections of their OEM customers. Eighteen months ago, the equipment manufacturers were predicting demand growth of 3 to 5 percent.
One company alone, Continental Tire North America Inc. (CTNA), has seen OTR demand grow 14 percent in the replacement civilian market and 33 percent in the OEM civilian market, according to Jack Fenner, Conti director of dealer sales for North America. He projected that the shortage would continue throughout 2005.
``It's a cyclical business, and the industry has not seen an increase since 1999,'' Mr. Fenner said.
That being said, CTNA is negotiating the sale of its OTR tire plant in Bryan, Ohio.
The mining industry is notoriously difficult to predict, according to Mr. Cicero. ``Nobody knows when or how big the upturn's going to be, except in retrospect,'' he said. ``Even if they'd predicted correctly, it's not that easy for a manufacturer of our size to increase our capacity that quickly.'' (BFS declined to state its annual capacity in OTR tires or that of its parent company, Bridgestone Corp., for strategic reasons.)
The upshot is that-particularly in the super-large sizes for mining applications-the shortage has become acute. For at least one type-57-inch bead diameter tires for mining trucks-the capacity at some plants is one tire per day, noted Mike Berra Sr., president of Community Tire Co. Inc. in St. Louis, Mo., which specializes in OTR retreading.
What's being done
Bridgestone, according to Mr. Cicero, is investing approximately $130 million to double annual capacity of small radial earthmover tires at its Hofu plant in Japan to 16,000 metric tons and has expedited the expansion to go onstream in mid-2006, instead of year-end 2007 as originally planned. That plant produces primarily for the Asian and European markets.
Until new capacity is available, however, the manufacturers are forced to allocate production. BFS, Mr. Cicero said, is placing its highest priorities on fulfilling its contractual obligations and pursuing its strategic goals. ``If we're contractually obligated, we have to take care of that,'' he said. ``We are trying to be loyal to the people who are loyal customers to us.''
Mr. Ramsey also pledged Michelin's loyalty to long-time customers. ``We are doing everything possible to provide all of our customers with as many quality tires as possible, as quickly as possible,'' he said.
Goodyear has only one OTR tire plant, in Topeka, Kan. This facility already is running at full capacity, but rather than increasing capacity there, ``we plan to focus on improving productivity and increasing output with what we've got,'' the Goodyear spokesman said. The tire maker also has an allocation program in effect through 2005, he added, though he declined to give details.
Unfortunately, the shortage has forced manufacturers to prioritize among customers, according to Mr. Fenner. ``With our dealers, it depends on how much of a percentage of their business our brands are,'' he said. ``If we're 10 percent of his total business, we probably don't represent enough of it to matter much to him. There are some people who buy only 10 tires a year.''
The effect on OTR dealers has been drastic.
``It's been probably an entire month since we've had any new shipments of OTR tires,'' Mr. Johnson said. ``We've sold all the new and used tires we had.''
The dealers and customers in the best shape are those who saw the shortage coming and stockpiled as many tires as they could.
``Supplies are tight, but we jumped on the bandwagon six months ago to stockpile tires and to urge our customers to stockpile,'' said John Huffman, manager of the Raben Tire Co. store in Blytheville, Ark., which supplies OTR tires to steel mills close by. ``My customers were my biggest asset-they were very understanding and very willing to work with us.''
Those customers who didn't stockpile, however, are getting a crash course in the utility of retreading. If there is any group that is finding the OTR shortage a boon, it's the retreaders. For those companies that both sell and retread OTR tires, the retreading sides of their businesses are proving to be a blessing.
``We're retreading tires we hadn't retreaded previously,'' Mr. Purcell said. ``That business is way up. It's an absolute necessity now, and our customers are finding it's also a lot cheaper to retread their used casings-about 50 percent of the price of new tires.''
Community Tire's OTR retreading business is up 20 percent, and Mr. Berra expects it to increase even more. ``The alternative to parking the truck is to retread the tires,'' he said. ``People who used to run their tires to destruction are now pulling them off while they're still retreadable.''
Dealers without in-house retreading capability said they're sending customers' casings out for retreading. Mr. Johnson said he gets his retreads at BR Retreading in Glasgow, Ky. Mr. Sparks said he deals with several retreaders, which he declined to name.