As the end of 2015 approaches, it's once again time to stop and look back over the year and review just what happened in the tire industry in 2015.
So for a moment let's block out those Christmas carols playing everywhere you go, shoppers merrily grabbing all the bargains they can find and Jack Frost biting at your nose. Step back, Jack.
Was it a good year for the commercial tire sector? What events happened that affected your business? How did your customers in the trucking industry fare?
For the answers to these questions, the first thing we always want to look at is the economy, since the trucking industry lives and dies by what the economic ticker shows—and therefore so does the commercial tire industry.
The New Year got off to a rather dismal start with the Gross Domestic Product (GDP) shrinking at a 0.7-percent annualized rate compared with a growth rate of 2.2 percent in the last quarter of 2014.
This was caused primarily by bad winter weather, a strong dollar that caused exports to slump, labor disputes at West Coast ports, and weakness in the energy industry. However, the second quarter more than made up for it. In the spring the economy surged to a 3.9-percent growth rate so that by the middle of the year it averaged a 2.3 percent pace.
But over the first half of the year manufacturers built up inventories, which put a drag on growth. GDP rose at a 2.1 percent annualized rate in the third quarter and continued its very slow growth path. These inventories are expected to be worked off over the next few months.
American consumers are the primary drivers of economic growth. House-hold consumption, which accounts for almost 70 percent of the economy, grew 3 percent annualized in the third quarter.
Fueling consumer confidence is that incomes are picking up; wages and salaries rose. After-tax total personal incomes, adjusted for inflation, climbed 3.8 percent in the third quarter from the same time in 2014.
The unemployment rate, which started the year off at 5.6 percent, dropped to 5.0 percent in November. This is down from its peak of 10 percent in October 2009 during the crush of the “Great Recession,” and a seven-year low. (The Federal Reserve considers a base unemployment rate of 5 to 5.2 percent as “full employment” in the economy and will likely increase the interest rate in December as a result.)
In addition, higher home prices made folks more confident while low gasoline prices have put more money in people's pockets. These factors helped push the savings rate up to 5.2 percent from 5 percent in the second quarter. This is great news for retailers who now know that customers have plenty of cash to spend for the holidays and can take advantage of low interest rates and store discounts.
Does this affect trucking? You bet! Trucks haul goods that will be purchased in stores and shipped from online retailers and, as you know, online sales have continued to grow. Amazon.com Inc. has reported it will hire 100,000 temporary workers for the holiday season—25 percent more than last year—while FedEx said it will hire about 55,000 and UPS will bring on around 95,000 temporary workers to help Santa deliver the goodies.
As a result of these factors, the U.S. economy is currently the world's strongest producer and should end the year with approximately a 2.5-percent growth rate.
This translates into a relatively good year for fleets tonnage-wise. While 2014 was a banner year for freight, 2015 actually was a relatively flat year overall, with alternating increases and declines in tonnage from month to month. Fleets described the freight market as “not as strong as the robust freight markets during the same periods of 2014” and even called it “soft.”
Still, by October tonnage was up 3.3 percent for the year over last year's same period. In that month, however—due to high inventories that resulted from shippers' fears that there could be a capacity crunch similar to their experiences in 2014—tonnage actually declined at a time it should be increasing in preparation for the holiday shopping season.
For most of the year freight rates continued to enjoy strong growth. However, in the third quarter this growth began to slow as freight demand waned and capacity loosened. Because of the tonnage windfall in 2014, many carriers added lots of new trucks to not only replace older equipment but to expand capacity as well.
As a result, the phrase “excess capacity” started popping up by mid-year.
By September freight rates rose just 3 to 4 percent above the same month last year, when rates were 5- to 6-percent higher than the year before. So while fleets made money in 2015, they didn't make as much as they made in 2014, although fleet failures remained low primarily due to increases in freight rates, favorable capacity conditions and the low cost of diesel fuel.
On Jan. 19, the price of diesel fuel dropped below the $3 per gallon level to $2.933 for the first time since September 2010. It continued to decline over the course of the year; by the beginning of December, the fuel's cost had dropped to $2.421. At the same time in 2014, diesel averaged $3.605 per gallon.
What's caused this plummet in fuel prices are the new techniques that have been developed in the U.S. to unlock oil and gas from shale formations. The nation reversed decades of decline to pump a record 9.6 million barrels of oil in June, which contributed to a crude oil price slump of almost 60 percent since June 2014 and turned global energy markets on their heads.
This also shrank the U.S. trade gap since the country's purchase of foreign fuel declined in its drive toward energy independence.
The price of diesel helped and hurt fleets depending on whether you look at the revenue or expense side of their income statements. Most contractual rate agreements with shippers include a fuel surcharge that fluctuates with changing prices. So as the cost of diesel drops, so do a trucker's expenses and revenue.
Truckload carriers typically run 10- to 15-percent empty, for which they do not collect fuel surcharge revenue. The lower price of diesel reduced this cost. However, for the more fuel-efficient carriers, lower diesel prices actually worked against them since they are made more than whole from their fuel surcharge programs that usually calculate the surcharge using a more normalized 6.5 mpg rather than the 8 mpg they actually may be consuming.
While the price of diesel fuel dropped, so did fuel surcharges, which pulled in much less revenue than they did a year ago. For marginal fleets banking on this revenue stream, the lower fuel prices created a temporary cash flow issue.
The driver shortage also continued to plague the industry and actually worsened in 2015, reaching 48,000 by year-end, which is 10,000 more than in 2014. The two main causes of this shortage are industry growth and retiring baby boomers who are giving up their truck cab seats for recliners. Most fleets implemented driver wage increases to attract and retain drivers, and that did help some as the driver turnover rate dropped from 96 percent to 84 percent in June.
Average pay for long-haul truckers jumped 17 percent since year-end 2013 to a record average of $57,000 in 2015, according to the National Transportation Institute. This surge comes at a time when U.S. employment costs overall are up just 2 percent and average weekly earnings are rising only 2.2 percent. However, the American Trucking Associations estimates that 89,000 drivers will need to be hired each year for the next 10 years to keep up with industry demand.
While the trucking industry and the rest of the world were dealing with significant change, Congress continued to blow hot air, posture and practice partisan politics.
The result is that the six-year Highway Bill that expired in 2009 had to have 36 funding extensions passed since then to ensure that the road-building Highway Trust Fund account would continue to provide states with assistance with their infrastructure projects.
The tragic victim of this dysfunction and inaction is the nation's interstate highway system, which requires at least $17 billion in annual investment to sustain current levels of maintenance, and more than $33 billion per year to improve system conditions.
Finally on Dec. 4 Congress passed the Fixing America's Surface Transportation (FAST) Act—a $305 billion, five-year transportation infrastructure bill. This legislation also calls for a review of the Compliance, Safety, Accountability (CSA) scoring program to ensure it provides the most reliable analysis possible and establishes a pilot program for current or former members of the military who are under 21 with truck driving experience, to operate trucks across state lines. These young drivers are prohibited from transporting passengers or hazardous materials and “special configurations.”
2015 was probably the last great year for Class 8 truck sales, as the market reached its cyclical peak. Throughout most of the year sales of new Class 8 trucks and trailers were very strong. This was due to a good economy, strong carrier profits, an aged truck fleet, pent-up demand among small and medium-size fleets and the higher fuel economy of new models.
However, October and November sales dropped off from 2014 due to slowing freight and lower freight rates, which caused some fleets to take a wait-and-see position on spending. However, final sales numbers should still peak this year for Class 8 trucks in North America at 325,000 to 330,000 units, up from 295,000 units in 2014. Total trailer builds should top 302,400 units this year compared with 265,300 units in 2014. All told, 2015 was a good year for both truck fleets and equipment manufacturers.
How was it for the commercial tire industry? By all accounts, I'd say that it was better than expected.
The North American market remained quite healthy and robust. At the beginning of the year, the Rubber Manufacturers Association (RMA) projected that 5.6 million truck tires would be shipped to OE truck and trailer manufacturers.
However, in December the trade group raised its estimate 11 percent to 6.2 million units. On the replacement side, the original forecast was for 17.7 million units to be shipped, but that was increased in December by 2 percent to 18 million units. These numbers exceed 2014 shipments by 9.1 percent for OE tires and 3 percent for replacement tires.
Tire manufacturers were faced with relatively stable or decreasing raw materials costs. Natural rubber prices remained relatively stable and well below the rates of recent years. Benefitting the tire industry, oil continued to drop throughout the year and remained below $50 a barrel, so for the most part, tire manufacturers' production and transportation costs were stable and even lower than in 2014.
So profits should be greater.
Strong demand from the OE side kept product availability tight, preventing massive decreases in truck tire prices, which have come down a bit from their peak in 2012.
With these positive results, the major tire makers made a lot of strategic moves this year. Nashville, Tenn.-based Bridgestone Americas refreshed the Dayton brand with a new line of commercial truck tires. The new line consists of eight new Dayton patterns and includes three SmartWay-verified tires. The company also celebrated 25 years of producing tires at its Warren County, Tenn., plant, which cranks out 9,000 truck and bus tires daily.
Continental the Americas L.L.C. expanded its TrukFix emergency road service for commercial tire national account customers to include light mechanical and towing in addition to previously offered emergency tire services. Continental truck tires also were selected by Navistar Inc. as standard equipment for all of its vehicles for the next five years.
Goodyear opened six Commercial Tire & Service Centers (CTS), expanding the network to 194 outlets in 33 states, and began offering the CTS program to independent dealers in Canada, integrating them into one unified program across North America.
Michelin North America Inc. announced it will suspend operations at its earthmover plant in Starr, S.C., at year-end due to market conditions. The company also began ramping up its tagging program and adopted testing technology to confirm that every tag is functioning properly before being permanently embedded into the sidewall of a truck or bus tire during the manufacturing process. It also released a hosted RFID-based solution for monitoring tire pressure.
In October Yokohama Tire Corp. cut the ribbon on its $300 million truck and bus radial tire plant in West Point, Miss. When fully operational, it will employ nearly 500 people and produce 1 million TBR tires annually.
As the Mississippi plant comes online, the company will wind down its partnership in its GTY Tire Co. joint venture at Continental Tire's plant in Mt. Vernon, Ill. Yokohama also announced that its complete line of commercial truck tires can be equipped on any new Freightliner truck since they are now an option in Freightliner's Data Book.
Some offshore tire producers also made some strategic moves this year. Weihei, China-based Triangle Tire USA selected Franklin, Tenn., for its North American headquarters and hired industry veteran and former Alliance Tire Group executive Manny Cicero as its CEO. Triangle Tire is the 14th largest tire maker in the world and produces over 700 kinds of radial tires, including radial truck tires and OTR tires.
Falken Tire Corp., a Sumitomo Rubber Industries Ltd. brand, also set its sights on the medium truck tire market, forming a dedicated commercial division and expanding its commercial truck tire sales team.
From a new product standpoint, the hits just kept coming this year. Numerous new commercial truck and bus tires were introduced to the market by Continental and its General Tire brand, Cooper Tire & Rubber Co., Giti Tire (USA), Goodyear and Toyo Tire USA Corp.
In the truck tire retread market, retread suppliers continued to grow their networks.
Continental expanded the distribution of its ContiTread retread product line by acquiring Hill Tire, which has five locations in Georgia and Alabama and two retread plants. It also opened a commercial tire and retread facility in Taylor, Mich., and partnered with CMC Tire Inc. to open a commercial tire retread facility in Las Vegas.
Inter City Retreading Inc. in Elizabeth, N.J., also joined the ContiLifeCycle dealership network. The company also set a new record of 1 million retreads produced at its ContiLifeCycle facility located in Morelia in the Mexican state of Michoacan.
Not to be forgotten is the expansion of the Marangoni family of independent dealers. J&R Tire in Fairburn, Ga., is now offering Marangoni's RingTread as well as Unitread precure treads to the greater Atlanta area as is Jackson, Fla.-based Tire Service L.L.C., which now distributes Ma-rangoni retreads in the northern Florida and southern Georgia areas, while Quality Tire & Service in Munford, Tenn., supplies retreads in the greater Memphis area.
To support this growth in production, parent Marangoni S.p.A. disclosed that it will be devoting resources to designing and developing new tread patterns and customized compounds for wide-base truck tires.
New retread products were also rolled out by several companies. Michelin's Oliver Rubber Co. subsidiary introduced the Oliver PD Drive, SmartWay-verified, open shoulder retread for line-haul and regional applications. Bridgestone launched a Bandag TR4.1 trailer tread.
Michelin released its SmartWay-verified Michelin X Multi Energy D Pre-Mold retread for regional and super-regional applications. And Goodyear added to its precure product line the G682 RSD Fuel Max retread, designed for drive applications.
On the regulatory front, passenger tire registration was the big target of Washington legislators. In addition to funding transportation infrastructure, the FAST Act requires tire sellers to register tires to help boost registration rates so tire manufacturers can contact consumers directly in case of a recall.
It also created a consumer-friendly online tire recall search tool and set minimum tire performance standards for fuel efficiency and wet traction for passenger tires.
The Tire Industry Association (TIA) had much to celebrate this year, reaching the 8,000 member mark—the highest in its history. And it has trained 100,000 tire technicians since the inception of its training programs in 1997, when it led off with the Commercial Tire Service (CTS) training program.
Since then TIA has added training programs for automotive, earthmover, farm and industrial tire service—and no doubt prevented many injuries and saved many lives.
Here's hoping you had a profitable 2015 and the New Year holds many positives for you.
Peggy can be reached via e-mail at [email protected]
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