Trelleborg eyes ag market growth in North America

TIVOLI, Italy — North America accounts for about 17% of Trelleborg Wheel Systems' (TWS) global revenue and the company, which soon will come under the Yokohama Rubber Co. Ltd. (YRC) umbrella, is focusing on growing in the region's farm and industrial tire markets.

North America is "an extremely important market for us, for our future growth and our grow-by strategy, because we're quite strong in Europe and in the rest of the world, but obviously America, for us, it's a relatively new venture and it's developing very well and very fast," TWS President Paolo Pompei told Tire Business.

He said he believes Yokohama's $2.3 billion acquisition of TWS, which is expected to close before year-end, will help Trelleborg in that aspiration.

He said TWS will continue to operate as a separate operating unit under Yokohama, and its headquarters will remain in Tivoli. Pompei said he expects to continue overseeing TWS, where he has spent almost 25 years of his career.

"We'll keep investing in our facilities and keep growing our market share in the North American market," he said.

"Clearly we'll have the opportunity to be stronger together with our Yokohama colleagues with a full portfolio of products, especially in the off-the-road segment. Yokohama can count on us in order to support their presence in the North American market. The brands are remaining in the Trelleborg Wheel Systems," he said.

TWS brands include Cultor, Maximo, Mitas and Trelleborg.

"In terms of business continuity, business will carry on, business as usual as it is today. We'll enjoy the possibility to be part of a big tire group, which I think is a big advantage for Trelleborg Wheel Systems."

Tire dealers shouldn't see any changes at this stage, he said.

"We're really complementary to the Yokohama group and this is the great part of this deal. There is not much overlap. So the tire dealer can just enjoy the possibility to buy premium solutions or Tier 2 or Tier 3 solutions from the Yokohama group.

"To be honest with you, for them it's just a wider choice as it is already today. It simply will be a wider choice from the Yokohama group."

He views the acquisition as a positive for both companies in the North American market.

"There is no real overlap (in the North American market) in some ways. We play in different segments. Yokohama is extremely strong in specific applications, when I say Yokohama I also mean Alliance, which is extremely strong in specific applications.

"We are really focusing on ag large equipment and when we talk about material handling, there is no real overlap. In construction, as well, we are focusing on specific niche equipment. That was what was a fantastic part of this deal is that we are really complementary in 95% of the cases."

In North America, the ag tire market this year "has been fantastic so far," Pompei said.

"As you know, the demand in the region is extremely strong, driven by two elements. First of all is the income of the farmer that is actually going up. Commodity prices of wheat, grain, soy, they are almost double compared to 2020," he said.

"So obviously the income of the farmers is going up. This is obviously driving new investments. In North America, especially for the larger equipment, we were coming from seven years of a fluid investments level while now the investment level is moving up due to the confidence of the farmers, which is now higher and they're able to keep investing."

There is, of course, concern about rising inflation.

"But at the moment I don't see this inflation affecting the agricultural tire market at all, actually," he said, noting that commodity prices are driving inflation.

In North America, Trelleborg Wheel reported revenue of $199 million last year, or 17% of the unit's global revenue.

Pompei said the main challenge for the company, and the industry in general, is trying to support the supply chain as there is growing demand in both the original equipment market and the aftermarket.

Pompei said there is strong demand for tires from ag equipment makers, "which is really something we weren't expecting, but I think it's a long cycle and, despite inflation, I think the farmers today are well compensated by the increase of the prices."

He said he believes the North American ag market will benefit from the agricultural supply disruptions in Europe due to the war in Ukraine and countries seeking to establish new supply sources.

"The North American market is going to have a very good year in the agricultural business so far, and I don't see a decline at least for the next six to nine months."

The industrial tire market is also quite strong, both in OE and replacement, he said.

However, the industrial tire business has been impacted by the shipping disruptions.

"Many components on the OE level are coming from outside the United States and this is obviously, as you know very well, the global logistics at the moment is facing a shortage of containers. It's very difficult to get the containers to get shipments.

"So obviously the agenda of the OEMs in the industrial tire business, it's really not easy to get parts from different sources. But the market is strong. The main challenge is how to face this demand," Pompei said.

"I believe, in the industrial tire segment, inflation will have an effect sooner or later, because obviously there is more difficulty in passing the pricing onto the end-users in this scenario. But again, at the moment, demand remains strong both in industrial tires, as well as in the construction segments."

Pompei said he expects construction tire demand will remain strong for a longer period of time due to the U.S. government's planned investments in infrastructure over the next few years.

"My only concern is about inflation," he said, adding, "Clearly the economy is growing, just there is a shortage of people in North America. This shortage of people will drive inflation, but it's also creating some concern for production output."

Trelleborg operates two factories in North America — in Spartanburg, S.C., and Charles City, Iowa.

"The main challenge for our teams in those factories is to recruit people and bring more people on board to follow up existing demand.

"I don't see anything that is changing from a structure point of view for the next few months that will make more people available because, as I say, the economy is very strong at the moment.

"So I think that this is going to be the main challenge from now on — to keep recruiting people, retaining people and making sure they will be with us long-term. … The labor market is very dynamic. Again, we need more people," he said.

Supply-chain disruptions and labor shortages are the biggest challenges but Trelleborg is big enough to find solutions, he said.

"The real unemployment is basically zero, at least in the areas where we operate. In the past we would always talk about the need to find good people. At the moment, really, we need to find people. I think it's a challenge for all North American players at the moment as far as I can see."

Another challenge is producing enough tires to meet demand.

"In ag, the main challenge is to really produce more in order to be aligned with the existing demand. In material handling, tires are coming from outside the United States.

"Obviously the main challenge is in the supply chain, finding containers, having the possibility of getting shipments of tires. There is a long lead time to get the shipments arriving in the country. And then, of course, inflation, because the containers have gotten extremely expensive when you ship from Europe or from Asia to the United States," he said.

Both of Trelleborg's U.S. factories are running at full capacity, he said, and the tire maker is investing in more capacity to meet demand over the next 10 years.

"We are very pleased about the development of our factories. We bring technology, we bring innovation into this market. I will say we are really on the edge in terms of innovation at the moment when we look at the overall market in North America."

Everything is getting bigger in the North American farm market, Pompei observed.

"We see more and more the consolidation of big farms. Big farms are obviously taking on board bigger equipment and bigger equipment means bigger tires.

"Bigger tires are driving obviously the necessity to carry more load, that are made to be gentle on the soil and made for less compaction. Wide solutions is one of the ways to reduce compaction. Trelleborg has been, since 1960, providing solutions that are obviously working in this direction," he said.

In addition to designing tires to reduce soil compaction and improve traction, Trelleborg is pursuing connectivity among the tires, the equipment and the driver for the agriculture and construction markets.

"So they are able to adapt the kind of tire pressure (needed) based on existing soil conditions and weight. This is where I see the tire we'll develop more and more in the future — creating intelligent tires, autonomous tires that can inflate and deflate with changing working conditions."

Sustainability is also a driving force behind the development of Trelleborg's tires so they are recyclable at the end of their lives and more carbon-free, he said.

"This is extremely important because we want to contribute to the sustainability of our planet. ... Connectivity and sustainability are two important pillars of our development activities for the years to come."

He also said providing just-in-time service for customers in all four segments — agriculture, industrial, construction and two-wheeler — are also important items on TWS' agenda.

The Yokohama acquisition will help toward these goals, he said.

"We look forward to joining the Yokohama group because we can clearly see the possibility to enter in a group investing in our future and keep investing in our development."

At the time of the Tire Business interview in mid-May, Ukraine was still trying to repel Russia's invading army while the rest of Europe was dealing with the impact of sanctions against Russia.

"We are sitting in Europe where the war is close by, and it is something that is obviously affecting our daily work in many, many ways, from the occupational point of view but also the emotional point of view," Pompei said.

"So if the war was not there, this would be a positive perfect storm and an ideal scenario where you can really build the future, investing in factories, machineries, products.

"And that is what we're doing in North America because, at the moment, the North American market is probably one of the most promising markets in the world at this stage. Not only in terms of growth but product development and innovation.

"So the agenda is really exciting. We are happy to bring our technology in the North American market to grow more people and develop our business in North America. … We look forward to investing in this market. It is strategic for us today and tomorrow."