Special Report: Commercial tire sector facing headwinds

AKRON — The commercial tire sector, which has been riding high the past couple of years, is starting to feel the potholes of a cooling economy that's reacting to pesky inflation, rising interest rates, falling home construction, decreasing factory output and soft retail sales.

After two straight years of double-digit growth in shipments of medium truck tires, demand this year in the U.S. could drop by as much as 5.5%, according to the U.S. Tire Manufacturers Association's (USTMA) 2023 demand forecast, issued in February.

Those still trying to process the full impact of the USTMA's less-than-rosy projection were dealt another bad card in mid-April with the publication of the American Trucking Associations' (ATA) monthly truck tonnage index report: Trucking activity in March dropped 5.4%, the largest month-to-month decline in two years.

So buckle up. It's going to be an intriguing year.

First, the market. After jumping 17% last year over 2021 to 26.6 million units, U.S. medium truck/bus tire shipments are expected to retrench in 2023 to 25.2 million units, according to the USTMA.

A silver lining? That level of shipments is still 33% higher than in 2019.

At the same time, replacement market demand for light truck tires should increase 1.6% this year to 37.9 million units, after dropping 3.6% in 2022 from 2021. Aftermarket LT tire shipments in 2023 would be 16.3% higher than in 2019, the USTMA noted.

As for trucking activity, the ATA said its advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index fell 5.4% in March from February, after increasing 2.6% during the three previous months. ATA Chief Economist Bob Costello called March's sequential decline largest monthly drop since April 2020 during the start of the pandemic.

"Falling home construction, decreasing factory output and soft retail sales all hurt contract freight tonnage – which dominates ATA's tonnage index – during the month," he said.

Compared with March 2022, the SA index fell 5%, the first year-over-year decrease since August 2021, the ATA said. During the first quarter, tonnage shipped was 0.6% below the same three-month period in 2022.

In a speech earlier in the year at the Moving & Storage Conference annual meeting, Costello reminded the audience that much of the strong growth many experienced in 2021 was fueled by trillions of dollars in federal COVID-19 assistance funneled into the economy, resulting in an artificial bump in the growth curve.

At that time, he said he thinks the "most likely path for our economy is still a recession. The timing is what's difficult. Last fall, I was saying I think it's a first-quarter event that flows into the second quarter and goes away. But now I think it's more likely a second-half-of-the-year event."

Looking over the horizon a bit, Costello noted the ATA continues to "see evidence the inventory cycle is improving, which means bloated stocks will stop being a headwind and eventually help truck freight volumes.

"Increased infrastructure spending will also boost volumes heading into the summer months. However, we expect to see continued freight softness related to lower home construction and slowing factory output."

According to the ATA, trucking represents over 72% of all tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.

Tim Denoyer, vice president and senior analyst at ACT Research, issued a similar prognosis recently, saying the mild freight downturn of the first quarter is likely to persist amid the fallout of the banking crises and the continuing retail destocking.

The truckload spot market is bottoming as labor capacity slows, according to the ACT's most recent freight and transportation forecast.

Parallel to the double-digit growth in medium truck tire shipments in 2021 and 2022, the market skewed measurably to imports, according to Tire Business' analysis of the available data.

Imports of medium truck/bus tires ramped up throughout 2022, eclipsing 2021's shipments by a whopping 38% to a record 23.9 million units.

Thailand once again was the No. 1 source of imported truck tires, with shipments running 44.6% ahead of 2021, topping 10 million units for the first time.

Vietnam, No. 2 among sources of imported truck tires, was no slouch last year, either, raising its shipments to the U.S. 61% over 2021 to 3.07 million units.

A large percentage of truck/bus tires imported from Thailand and Vietnam are from the subsidiaries of Chinese tire makers such as Double Coin, JGST, Linglong, Prinx Chengshan, Sentury and ZC Rubber.

Worth noting: The U.S. International Trade Commission has agreed to review the elevated import duties imposed on truck/bus tires from China in 2017, duties that reduced China's shipments of tires to the U.S. by over two-thirds since then.

The average value (declared customs value) of an imported truck/bus tire increased 5.3% last year over 2021 to $170.83. By contrast, the value of a truck/bus tire from Thailand actually declined slightly, 0.1% to $132.45.

The pool of off-shore companies looking to participate in the U.S. market continues to grow. Among new entrants to the scene:

• Ralson India Ltd., an Indian tire maker known heretofore as a producer of tires for two- and thee-wheeled vehicles, is coming to the U.S. with a pair of truck tire brands, Ralson and Accelus, produced at a recently opened, $350 million factory in Indore, India, dedicated to producing tires for the U.S. market.
• China's Qingdao Sentury Tire Co. Ltd. is launching availability in North America of a range of Avantech-branded truck/bus tires sourced from Sentury Tire (Thailand) Co. Ltd. and marketed by a new subsidiary, Avantech Tires L.L.C. of Newnan, Ga.
• Wholesale Tire Distributors has created a new brand, American Road Star, that launches as a full-line product covering passenger, light truck and medium truck tires produced in Thailand by undisclosed manufacturing partners.
• Sentury Tire USA has branched into the truck/bus radial arena with full ines under its Delinte and Groundspeed brands, produced in Thailand.
• U.S. importer/distributor Moncar Inc. has struck a deal with China's Chaoyang Long March Tyre Co. Ltd. to import and distributre a line of Starlux-brand radial truck/bus tires being produce at a Long March joint venture plant in Pakistan.

In addition, Hankook Tire & Technology Co. Ltd. has approved a $1.6 billion expansion at the Hankook plant in Clarksville, Tenn., that includes plans to establish TBR manufacturing capacity at the facility by perhaps as early as late 2024.

As for the market overall, Yokohama Tire Corp. (YTC) sees the market as continuing "be in flux," according to Dan Funkauser, vice president of commercial tire sales at YTC.

"To be successful in 2023, you must remain focused on why you are in business," he said in prepared remarks supplied by YTC.

Among the issues YTC considers critical for the rest of 2023 are the supply chain, inflation, driver shortages, etc.

"We went from not having enough equipment and extremely high rates to a surplus capacity and rates decreasing," he said. "... Inflation will continue to lower the purchasing power of the public. Lower purchases will lower manufacturing and thus lower demand for trucks.

A slowing economy will cause a slowdown in trucking demand, Funkauser said, and could presage a recession.

In terms of personnel shortages, YTC sees this affecting both drivers and mechanics.

"There are not enough drivers to carry all the freight that is available. Another big issue is the lack of mechanics. This affects everything from repairs and overhauls to just general and scheduled maintenance.

"Tires are one of a fleet's biggest expenses, and not maintaining air pressure increases not only the tire bill but also increases fuel consumption. Not doing both of these will have a negative effect on the equipment and the fleet productivity and profitability overall."

YTC management expects the ballyhooed last-mile delivery sector to continue to grow, the executive said, "but not at the rates we have seen in the past. The cost of those deliveries has increased and consumers are starting to feel the pinch."

The makeup of the commercial tire aftermarket continues to evolve as well, with a handful of acquisition-driven dealerships separating themselves from the rest of the pack.

With a sales boost of 28%, Southern Tire Mart solidified its position as the sector's No. 1 player with sales of $2.67 billion and nearly 250 service/sales locations. The revenue figure will continue to grow as the Columbia, Miss.-based company consolidates its most recent acquisitions.

Greensboro, N.C.-based Snider Fleet Solutions secured the No. 2 position with 27% gain in sales last year to an estimated $700 million. Snider's growth was largely organic.

Snider bumped past Best One Tire & Service, which ranks third with $653 million in commercial-related revenue.

Pomp's Tire, No. 4 with $600 million in sales, is likely to move up the list this year or in 2024 as it consolidates a trio of recent acquisitions that will boost sales by well north of $100 million.

One major competitor disappearing from the scene is Bridgestone Americas' GCR Tires business, which has now divested all but a handful the 200-plus sales/service outlets it operated in the U.S. and Canada at the subsidiary's peak a few years ago.

The remaining nine GCR sales/service locations and two retread plants in Alaska, Arizona, Montana, Nevada and Wyoming are now grouped together as GCR Mining, a business unit more heavily skewed toward the mining sector.

Also disappearing from the marketplace will be Redburn Tire, Royal Tire, Tredroc Tire, Whalen Tire, Piedmont Tire, Dale's Tire & Retreading, Callendar Tire and others, all acquired in the past dozen months by larger competitors.

Commercial tire dealers surveyed for this report in general cited rising costs, shortages of qualified people and availability of products among their concerns for 2023.

Among those who replied:

Bruce Chamblee, chief operating office for Dorsey Tire in Savannah, Ga., noted that the growth of last-mile delivery and industry consolidation are changing the dynamics of the commercial tire sector, along with the influx of imports from non-USTMA member companies.

To stay competitive, he said, Dorsey is focused on "delivering exceptional services and products" to its customers and is concentrating on "being strategic" in its purchasing and inventory policies.

David Mickelson, president of Graham Tire, said his team sees "lots of new opportunities" for growth, but that staffing and physical space are potential constraints to growth that have to be addressed.

John Ziegler Jr., vice president at Ziegler Tire & Supply, noted that fluctuating prices and product availability — from no supply to oversupply — are affected the way the company goes to market.

Rick Benton II, vice president, sales, at Black's Tire Service, said in general the prices the market is charging for commercial service are too low.

No discussion of the commercial tire sector in North America over the past year would be complete with a recap of mergers and acquisition — and there were plenty to discuss, starting right at the top, with Southern Tire Mart, the continent's No. 1 independent dealer and retreader.

Over the past 12 months, STM has:

• acquired the assets of Friend Tire Co., the Monett, Mo.-based wholesale arm of Yokohama Corp. of North America, for an undisclosed price. Friend Tire operates nine distribution centers around the country and has reported annual sales of over $150 million in the past few years.
• acquired Redburn Tire Co. of Phoenix (September 2022) — 11 sales/service outlets and five retread plants in Arizona, Colorado, Nevada and New Mexico;
• took over 26 GCR Tire outlets (September 2022) in northern California, Colorado, Nevada and Utah. Included in the purchase were four retread plants, including one standalone facility, in Fountain, Colo.

Pomp's Tire Service Inc., now the No. 2 dealership and No. 3 retreader, carried out three acquisitions that expanded its reach by 55 sales/service locations and a dozen retread plants. The deals include:

• Royal Tire of St. Cloud, Minn., (April 2023) — 17 locations throughout Minnesota and North Dakota, along with three retread plants;
• Tredroc Tire Services Inc. of Elk Grove, Ill. (September 2022) —17 locations, two distribution centers and four retread plants in Illinois, Indiana, Kentucky, Michigan, Ohio and Arkansas, and $135 million in annual sales;
• five GCR commercial tire service and retreading locations in Colorado from Bridgestone Americas Inc. (September 2022);
• Whalen Tire (June 2022) with nine locations in Montana and Washington and a pair of retread plants.
• Dale's Tire & Retreading Inc. (April 2022) of Rapid City, S.D., three stores and one retread plant.

Retreaders throughout North America for the most have benefited from the overall positive economic climate of the past two-plus years, as well as from the increased trucking activity buoyed in part by the growth of the last-mile delivery segment.

A majority of retreaders who replied to Tire Business' survey this year reported double-digit gains in retread output last year over 2021, although some of the growth could be attributed to acquisitions.

Bridgestone Americas Inc. went so far as to call demand for commercial tires in 2022 "unprecedented," and said that demand resulted in 9% growth in the sale of Bandag-system retreads versus 2021 in North America to more than 7 million units.

Bridgestone said key drivers fueling demand were growth by strategic fleet partners and the launch of its Last Mile Tire System, a program designed to accelerate adoption of retreading solutions for small- and medium-sized fleets.

Bridgestone claims the 7 million-plus units represent nearly half of the North American market for medium truck/bus tire retreads.

"Retreading makes more sense today than it ever has for fleets," Jason Roanhouse, executive director of Bandag Operations, said. "Not only does retreading deliver the same reliable performance of new tires, it helps fleets deliver on their sustainability goals while also driving bottom-line business efficiencies."

Bridgestone is forecasting additional growth in 2023 and beyond as small and medium-sized fleets increase their use of retreads based on business practices espoused by the Last Mile Tire System.

The company is ramping up production capacity for tread rubber in anticipation of the growth, committing $60 million to expand capacity at its Abilene, Texas, tread rubber plant by 16%.

Bandag's largest authorized retread partner, Southern Tire Mart, bumped past Goodyear as the largest retreader in North America based on 29% growth in output last year over 2021. STM now operates 32 Bandag system plants throughout its growing footprint, turning out 8,200 units daily.

Twenty-one of the 55 largest retreaders in North America are Bandag licensees, according to Tire Business' rankings. Fourteen are Michelin MRT franchised, while nine use the Goodyear system and four use Continental's CLC process.

Another company prepping for growth in demand for retreads is Love's Travel Stops & Country Stores, which is planning to open two more retread plants this year to complement the six Oliver Rubber-system plants it already operates.

The new plants, one in Brigham City, Utah, and another whose site is still being determined, will boost the firm's capability to supply its growing network of Love's Truck Care and Speedco locations, which numbers nearly 450 now with 15 in the pipeline this year.

Love's is considered to be among the 10 largest truck tire retreaders in North America.