Orange barrels good sign for construction tire market

AKRON — Those orange construction barrels on roads and bridges, the bane of many a driver, are a welcome sight for the tire industry. This year, tire dealers can expect to see more barrels as federal funding kicks in for infrastructure projects around the country.

The downside is single-family housing construction is facing a slump due to increased interest rates and pricing, which in turn has boosted demand for multi-family buildings.

The construction market has managed to maintain momentum due to significant investments from the U.S government, including the Infrastructure Investments and Jobs Act and Inflation Reduction Act.

While these investments provide a much-needed boost to construction's economic outlook, inflation and supply-chain disruptions still impact the bottom line, according to the Dodge Construction Network.

"Everyone is screaming 'recession and high interest rates.' Construction is still strong in many parts of the country," Chan Phothisane, national sales director for Zhongce Rubber Group Co. Ltd., said.

"The housing market has slowed down due to high interest rates. We expect growth in industrial construction. U.S. highways, rails, bridges, airports and U.S. ports will be upgraded. The Inflation Act of 2022 has brought manufacturing back to the U.S.," he said.

Paul Hawkins, senior vice president, aftermarket at Titan Tire Corp., called it a story of two markets.

"There's a lot of road work going on; the general construction activity is pretty strong," he said. "Then, the other side of that, where we've had the wind at our back around housing construction, new housing starts are really falling off. So to the extent that you have equipment that is going to be used around the building industry, which is typically the smaller type of stuff that we don't sell, I think it might be a little bit slow.

"But the rest of the construction part, the infrastructure, the road building, all that kind of stuff, that seems to be very robust," he added.

Hawkins said that Titan construction tire sales last year fared better in the aftermarket than OE, but this year he expects OE to do well, also.

"Construction tire sales for us were strong in 2022 in both OE and replacement markets," said Bruce Besancon, vice president, marketing, Yokohama Off-Highway Tires America Inc. (YOHTA).

"I've seen estimates that the construction industry experienced growth of as much as 6.5% last year, which obviously impacted the tire business.

"I believe we'll see continued growth in construction this year. Even with rising interest rates and lower demand for commercial real estate space, we have a big federal infrastructure law driving construction and maintenance contracts across the country. I believe we'll see strong demand for both OE and replacement tires as a result," he said.

Besancon noted there is a strong demand for the 25-inch rim diameter and smaller tires.

"Most of today's infrastructure jobs are taking place between standing buildings or along existing roads, so the machinery is more modest in size. That's going to impact the size of the tires construction fleets are going to need," Besancon said.

Rob Seibert, president of off the road at Bridgestone Americas Inc., agreed.

"This is largely due to tailwinds from the infrastructure bill within this size range and the upside in the construction segment, which accounts for the majority demand in these sizes. In the end, 25-inch demand is expected to increase versus the prior year," he said.

"We encourage dealers to focus on the construction segment this year, particularly with an expected uptick in 25-inch (tire) sales," Seibert said.

"Strong industry fundamentals are expected to continue into 2023," he added,

"Industry measurements indicate growth in public construction and a recovery in private non-residential construction in the coming months. Signs point to growth in non-residential project planning, and expectations for sales, profit and staffing remain high for 2023. One of our key objectives in the coming year is to partner with our dealers to capitalize on this growth as a business."

He encouraged dealers to keep an eye on customer interest in technology and solutions that maximize efficiency.

Disruptions in the supply chain seem to be dissipating, according to the tire makers, which could help stabilize tire pricing.

"Shipping costs — both on the water and in trucking costs once containers arrive onshore — have been coming back down to more normal levels worldwide. And though we still expect to see some headwinds in 2023, I expect raw materials costs to moderate at least somewhat, too, especially where the two costs are related," Besancon said.

"I'm hoping we'll see raw material and shipping costs come down, which should impact tire prices in the coming year, though we'll have to see what happens. We are constantly watching our costs and the market to cover expenses and provide our customers with the best possible value," he added.

Bridgestone's Seibert said supply-chain issues stemmed from several areas last year, from dealing with port congestion to general labor and logistics challenges.

"Heading into 2023, we feel prepared to face headwinds thanks largely to our manufacturing capabilities. Our OTR business is supported domestically by manufacturing facilities in Aiken, S.C., and Bloomington, Ind. Moreover, OTR plants in Japan and Thailand bolster our supply from a global standpoint. For these reasons, we are confident we are prepared to weather future issues in the supply chain," Seibert said.

The construction industry will benefit from the federal infrastructure funding for the next few years, which will support investment in people, machinery and tires, YOHTA's Besancon said.

"Obviously, that's great news for tire dealers. But I think even greater news is how much value a good, full-service tire dealer can be to a customer in the construction business.

"Tires have become more technological than ever, and a knowledgeable tire dealer can help customers find the right tire for a particular application — a decision that can have a major impact on the customer's profitability. I would say there has never been a better opportunity to become part of a customer's team, which is obviously a great way to build business," Besancon said.

He said YOHTA is developing new patterns, compounds, construction techniques and sizes, adding to the 4,000 SKUs it already produces.

Bridgestone's Seibert said he expects to see a larger focus on sustainability from construction customers.

"This is a big reason why today's customer is more tech-savvy than ever, with respect to how they measure and manage the efficiency of their operation. Customers today want innovative solutions that deliver real-time updates on every aspect of his or her operation, with safe and reliable equipment for the jobsite. They also want this in the palm of their hand," Seibert said.

Besancon added that tire dealers need to provide their construction fleet customers with the right tires for their jobs.

"If you know your customers' business — the machines they operate, the way those machines move on every cycle, the surfaces they run on and the loads they carry — you can help them thrive.

"That makes for not just a sale, but a relationship. And a good relationship gives you room to make a margin on your products and build future sales opportunities. It sets you and your customer up to succeed," Besancon said.

Road construction is getting a boost from federal funding.