RANCHO CUCAMONGA, Calif. — The ripple of 2020's global production shutdowns and unpredictable markets looks more like a tsunami in 2021, and it is stretching the Asia-to-U.S. supply chain to its limits as demand soars, Sumitomo Rubber North America (SRNA) Inc. officials said recently.
Shipping containers are in short supply and so is space on ships. Companies lucky enough to get on a vessel — likely paying premiums of at least 200% — still have to wait out an extended process at U.S. ports, where COVID-19 restrictions and off-load demand have created a bottleneck.
"There's been no improvement to the supply chain," Ron Papcun, senior vice president of operations, said during a virtual presentation by SRNA on Feb. 2.
There is such a demand for vessel space, companies are paying premiums of 200% to 300% to guarantee space, he said.
Because suppliers can't guarantee vessel space, many have canceled orders or put them on hold. Others have switched to Tier 3 and 4 carriers, he said, and as cancellations rise, ocean carrier reliability has plummeted.
"Retailers continue to replenish inventory at a faster rate than the Asia-to-U.S. supply chain can handle," Mr. Papcun said.
U.S. ports and inland terminals are overwhelmed, he added, and vessels are lining up at ports, creating a bottleneck and equipment shortages. Surging COVID-19 cases in California port operations — he noted 800 active cases the last week of January — also are causing delays.
He said importers can expect a two- to four-week delay as vessels are stuck waiting outside of port.
Shipping delays also are causing a shortage of microchips, which is slowing production by U.S.-based vehicle companies, the company said.
Darren Thomas, senior vice president and chief operating officer, said he believes recent price increases at the start of year were "robust" enough to handle additional costs from import-duty changes, raw- materials price increases and shipping issues.
"The prevailing impact on price will likely come from freight costs," he said.
Rick Brennan, vice president of marketing, said SRNA expects prices to remain relatively flat in the first half of the year.
Rancho Cucamonga-based SRNA is the North American subsidiary of Japan's Sumitomo Rubber Industries Ltd., overseeing sales and distribution of the Falken and Ohtsu brands, as well as the Dunlop brand in original equipment applications with the North American subsidiaries of the Japanese vehicle makers and the Dunlop motorcycle brand in all applications.
SRI produces tires at eight facilities around the globe, including in Thailand, where the company faces preliminary anti-dumping duties of 13.25%.
The late December ruling by the Department of Commerce determined that passenger and light truck tires imported from South Korea, Taiwan, Thailand and Vietnam should be subject to anti-dumping duties. Commerce is scheduled to announce its final determinations in these cases on or about May 14.
"That threw us a curveball, and I think the market is still trying to figure out what that means," Matt Leeper, vice president of sales, said.
He noted that SNRA sales were slightly above the rest of the market last year, and despite challenges the company is optimistic.
"We're going to keep doing what we're doing to continue the success we've had recently," he said, noting January was strong across all divisions with SRNA.
The company said demand relief would come from increased production at plants in Japan and at the firm's factory in Tonawanda, N.Y.
Passenger and light truck tire volume was down about 7% in the U.S. in 2020 (down twice as much in Canada), but truck/bus radial volume ended the year 1.6% ahead of 2019 (but down 6.8% in Canada), the company said.
"Our U.S. plant has been gearing up for increased production," Bob Klimm, director of sales, TBR, said, adding that relief in the commercial tire segment is expected to come in March.
Mr. Klimm called last month the company's "best January ever," with sales up 26% from January 2020.
"We had a good January, and we expect that the industry had a pretty good January, as well," Mr. Brennan said.
He said the industry still is largely waiting to see if a COVID vaccine and new round of stimulus funding will increase the amount of driving.
In the U.S., vehicle miles driven dropped significantly at the start of the COVID-19 pandemic (down more than 100 million miles between January and April 2020). While the numbers rose in late summer, total miles driven were down 13.7% in 2020 versus 2019, according to SRNA.
"Interesting, interstate driving miles were down the most," Mr. Brennan said. "Especially in towns where the lockdowns were in place for a long time."
He also noted a lack of commuter miles as more people are working from home because of the pandemic.