I love this time of the year. Christmas carols are playing everywhere, stores are bustling with shoppers and Christmas lights sparkle on houses, trees and bushes.
My own house is aglow with lights that people five miles away can see as they lift their eyes to the horizon. The good news is that this year, with my new regard for ladders and safety, I got it all done without maiming or almost killing myself like I did last year. I'd say that makes for a joyous holiday and an exceptional year!
But has the year been good for the trucking and commercial truck tire industries? Well, now's a good time to take a look back, see what happened and determine if our industries have anything to celebrate, too.
The economy is always the first thing we want to look at since the trucking industry lives and dies by what it does, and therefore, it affects the commercial tire industry, too. Things started out poorly in the first quarter, hampered by bad winter weather and a sluggish start. In fact, things were so bad that the economy contracted the most since the depths of the last recession as consumer spending cooled under blankets of snow and subzero temperatures.
But with the coming of spring, the economy started to take on a life of its own. Gross Domestic Product (GDP) grew a whopping 4.6 percent in the second quarter, driven primarily by consumer spending and business investment. July, August and September followed with a 3.9-percent annualized growth rate, giving the economy its strongest six-month performance in more than a decade. (Compare this with the growth rate of 2 to 3 percent that the economy experienced over the last two years.)
Over the course of the year, consumer confidence rose to the highest level in more than seven years as stronger job growth, gains in stock portfolios and a decline in gasoline prices buoyed household confidence.
Manufacturing expanded at the fastest pace in three years as orders grew by the most in a decadesignaling the world's largest economy is rising above a global slowdown.
Service industries, which account for about 90 percent of the economy, grew too, with the best expansion rate in 10 years. And even existing home sales rose to the highest level in a year. As a result, the unemployment rate dropped to 5.8 percent in November from 6.7 percent in March, the lowest rate in six years.
What is also amazing is the trade deficit in the U.S. continues to shrink as demand from the nation's trading partners is holding up even as the global economic expansion cools. This is primarily due to the drop in oil imports as the U.S. comes closer to energy independence than it has in almost three decades and growing demand from American consumers that is making up for any letdown among foreign customers.
As a result of the growing economy, freight tonnage rebounded strongly in the second and third quarters, driven primarily by motor vehicle and parts production and housing starts. Over the summer it surged to record highs and continued through October, fueled by increases in retail sales and factory output, the two big drivers of freight.
Since the freight industry experienced the strongest year since the recession ended and capacity in the industry tightened, carriers were able to choose what freight to haul while maintaining dependable workloads and increasing margins.
Tight capacity in the truckload (TL) segment spilled freight over into the less-than-truckload (LTL) segment as shippers that had to get their goods to market shipped some things via LTL, whereas a year ago they may have waited to fill a whole truckload. As a result, across the industry both LTL and TL companies have reported there is a strong and stable business environment now.
Naturally, with the tightened capacity, freight rates have increased over the course of the year. LTL carriers raised rates twice this year to about an 8-percent increase, which is only the third time in the past 20 years that the pricing environment has been strong enough to support two increases. TL carriers' rates increased about 6 percent.
While freight tonnage and rates have risen, so has the shortage of drivers. This situation is as bad as ever and is only expected to get worse. Truckload carrier driver turnover in the second quarter climbed 11 percent to reach an annualized rate of 103 percent, and most carriers had to turn down cargo since they had no one to put in the truck's seat.
To combat this, most truckload fleets raised driver pay this yearthe first time in over five years for many companies. Driver pay has been slow to rise, with an average increase of less than 2 percent from 2007 to 2013. While many carriers have wanted to raise pay, the level of freight rates hasn't allowed them to do that.
Now that rates have improved and freight is abundant and stable, fleets' median increase for solo drivers with three years of experience was 5.6 percent this year. Meanwhile, some pay increases were as high as 19 percent for driver teams, which are hard to come by and for which there is strong shipper demand for the expedited freight they deliver.
While carrier labor costs rose this year, fuel costs took an unexpected dive. The price of diesel hit a high in mid-March at $4.02 a gallon, but after that was flat or declined the rest of the year with only three weekly upturns. By Dec. 2 the national average pump price was $3.605 a gallon27.8 cents less than a year ago and the lowest level since Feb. 21, 2011, when it was $3.573.
The drop in pump price in early December followed the previous week's plunge in oil prices to $66.15 a barrel on the New York Mercantile Exchange. The cause of the drop in crude oil is attributed to a still-growing price war that the Organization of Petroleum Exporting Countries (OPEC) is waging against North American shale-oil production companies.
The Saudis have decided to squeeze the shale producers that are using horizontal and hydraulic fracturingalso known as frackingto unlock supplies of shale oil from fields near Bakken, N.D., and Eagle Ford, Texas, as well as in other states. It's a process that is typically more expensive than pumping from conventional reservoirs. (About 4 percent of U.S. shale output needs $80 a barrel to be profitable, but most production in the Bakken formation, one of the main producers, remains commercially viable at $42 a barrel.)
While plummeting fuel prices are good news for truckers and for you and me, they have sparked the debate on how states and the federal government can protect tax revenues. As we all know the highway infrastructure in the U.S. is crumbling and in great need of not only repair but expansion. States that were considering replacing per-gallon fuel levies with sales taxesdue to the drop in fuel consumed resulting from more fuel efficient vehiclesare now wondering what to do if the price of fuel continues to drop.
In the U.S. Congress, the debate continues ad nauseam over how to fund the Highway Trust Fund.
This fund almost ran out of money in August before Congress acted to pass a short-term bill to fund it until May 2015. Everyone agrees the nation's road network is in peril. The question is how to generate the funds to maintain it.
There are four options, including one that reinstates the federal excise tax on passenger tires and retread rubber and another that does that plus increases existing non-fuel taxes by 10 percentwhich would include heavy tires. The trucking industry would prefer Congress pass legislation introduced in December to raise the federal gas tax by 15 cents a gallon and be done with it.
But who knows if anything will ever happen in the quagmire that has gripped Washington, D.C. Even President Barack Obama doubts Congress will be able to pass a long-term, comprehensive transportation measure next year.
Other notable actions coming out of Washington this year included a regulatory proposal from the Federal Motor Carrier Safety Administration (FMCSA) to require interstate commercial truck and bus companies to use Electronic Logging Devices (ELDs) in their vehicles to improve compliance with the driver hours of service standards. The rule provides the performance requirements for the devices, and carriers will have two years to adopt them. A final rule is scheduled to be published in late January.
Another big announcement came from President Obama, who ordered the Environmental Protection Agency (EPA) and the U.S. Department of Transportation (DOT) to develop rules for medium- and heavy-duty vehicle fuel efficiency by March 2016. These measures will build on the standards already in place for model years 2014-2018 and will continue to make trucks more fuel efficient and more eco-friendlybut also more expensive.
2014 also was a great year for truck and trailer manufacturers and their dealers. Sales of new trucks and trailers throughout the year were quite strong. By the end of November, Class 8 orders totaled 336,214 units, which is a 42.6-percent increase over the same period last year, while sales of Class 5-8 vehicles were 583,200 units, the strongest 12-month period of order placement since the 12 months ended December 2006.
In regard to trailers, October was an historic month as trailer manufacturers received orders for 47,810 trailers of all types, a level that shattered the previous record set in March 2006 by 225 percent. The year is on target to end with 272,000 units shipped.
There are many reasons for these spikes in vehicle sales. First off, the average age for Class 4-8 vehicles is now 14.7 years. The cost of running this old equipment is high. So pent-up demand, a strengthening economy generating a stable flow of freight, improved new equipment fuel-economy gains and rising freight rateswhich bolster fleet profitabilityall make right now a great time to buy new trucks and trailers. Fleets of all sizes feel they are at a point where they are making good money and have got the ability now to make these types of investments.
So 2014 was a good year for trucking. Through the end of the third quarter most trucking companies reported strong profit growth driven by elevated demand for freight hauling, tight capacity and strong rate increases. These factors will certainly continue through year-end.
Since the commercial tire industry relies on the trucking industry for a good part of its revenue, truck tire sales were great, too. Globally, tire sales were affected by economic uncertainty and geopolitical difficulties in other parts of the world. However, the North American commercial tire market was quite healthy and robust, with OE demand up about 12 percent and replacement truck tire sales up around 9 percent through the third quarter. Retread sales were also up noticeably.
Another good piece of news was that the price of natural rubber (NR) plummeted this year, hitting its lowest level in five years in September. In fact, some traders said NR prices were the same as they were 15 years ago after adjusting for inflation. While there may have been some softening in pricing, the demand for truck tires prevented massive price cuts.
In fact, due to the heavy OE truck and trailer build demand, spotty tire shortages were seen throughout the industry. Fleets were very disappointed since price increases were prevalent a few years ago when raw material costs including petroleum skyrocketed, but this year there was no matching reduction when tire production costs dropped.
With these positive results, the major tire makers made a lot of strategic moves this year. Bridgestone Americas announced it will be moving its corporate headquarters to a 30-story building in downtown Nashville, Tenn., and opened an $800 million radial OTR tire plan in Aiken, S.C., capable of producing tires up to 63 inches in rim diameter for mining, quarry and construction equipment.
Goodyear rechristened its Wingfoot Tire division the Commercial Tire & Service Network (CTSN) and opened the network to its independent dealers. This move had the potential of expanding the company's 180 tire sales, service, retread facilities and truck care centers to potentially 1,300 service points throughout the U.S., along with the potential to extend it into Canada as well.
Goodyear also launched its Smart Fleet program, which gives owner-operators as well as small- to mid-size fleets access to benefits that traditionally were reserved for Goodyear national account fleets. The company also signed a deal with Love's Travel Stops & Country Stores L.L.C. to sell Goodyear tires through the nationwide truck stop chain, and announced that it will begin testing of its Air Maintenance Technology (AMT) for commercial vehicles on U.S. trucking fleets in the next few months.
Michelin North America Inc. introduced Michelin Truck Care, a national network of truck mechanical service providers with dedicated fleet maintenance managers, technicians and standardized services, and opened a plant in Piedmont, S.C., dedicated to making its non-pneumatic Tweel tire/wheel hybrid for industrial uses.
Finally, in a move that shook up the telematics and tire industries, Michelin purchased the Brazilian digital fleet management and freight security company Sascar Participacoes S.A. and its affiliated companies. Sascar manages 33,000 fleets and 190,000 trucks. It's a move Michelin expects will enable it to expand its offering in the fleet management business and speed the growth of its truck tire business in Brazil.
And while still recovering from its failed attempt to merge with India's Apollo Tyres Ltd., Cooper Tire & Rubber Co. sold its 65-percent ownership in Cooper Chengshan Tire Co.which produces its Roadmaster line of truck and bus tiresto China's Chengshan Group Co. While Chengshan will provide truck tires to Cooper until mid 2018, Cooper is now focused on finding alternative sources of truck and bus radial tires.
In the truck tire retread market, retread suppliers continued to grow their networks. Continental Tire the Americas L.L.C. signed its first licensed ContiTreads retreader in Canada, Pneus et Rechapage Uni Inc.
Piedmont Truck Tires converted its Graham, N.C., retread plant to the Conti LifeCycle process from the Goodyear process.
Marangoni Tread North America added Wilson County Tire & Retreading in Lebanon, Tenn., to the network of dealers providing the Marangoni Ringtread system and began marketing a TreadWare software program designed to track tires through the retreading process to independent retreaders throughout North America.
Michelin signed Tire Town in Myrtle Beach, S.C., as its newest distributor of its Oliver Rubber brand of retreads.
There was one other regulation initiated this year that directly affects tires and retreads. That is the modification of the tire identification number (TIN) or DOT code as most of us refer to it. Because the National Highway Traffic Safety Administration (NHTSA) is running out of two-symbol codes to identify new tire plants, the agency proposed expanding the first part of the TINknown as the manufacturer identifierfrom two symbols to three for manufacturers of new tires.
It also proposed standardizing the length of the TIN to eliminate confusion that could arise from the variable length of tire identification numbers. It proposes a length of 13 symbols for new tires and seven symbols for retreaded tires. When finalized the new rules would be implemented immediately, although NHTSA is allowing a five-year period for complete compliance so that tire makers would not be forced to change molds before their lifecycle ends.
So, in summary, things were really good this year. The economy and the trucking industry got rolling again, and OE, replacement tire and retread sales were great.
Tire companies introduced plenty of new products and programs, and things in general just seemed to spring back to life. When you attended tire dealer meetings, conferences or trade shows this year, did you notice the smiles on other tire dealers' and suppliers' faces again? I'd say that makes for a joyous and exceptional year.