I am personalizing this column directly to you this month since this will be the last time I will write for Tire Business. The time has come for this old cowgirl to saddle up and ride into the sunset.
Before I do, though, I'd like to look back and see what's happened in both the commercial truck tire and the trucking industries over the past 25 years when I first started to write the commercial tire column for Tire Business in 1996.
You'd be amazed at all the changes and evolutions these industries have gone through. Even if you've worked in the commercial truck tire industry these years, I'll bet you've forgotten many of the milestones and industry-shaping events that have brought us to where we are today.
The economy affects everyone's business, but no industry more so than the trucking industry and its health affects your business. If the economy doesn't grow, neither does freight, and freight revenues decline.
Diesel fuel is a fleet's largest expense, and the price directly impacts its bottom line.
If there's not a lot of freight to haul, and especially if the cost of diesel is high, fleets don't buy trucks; they park or sell trucks.
If truck sales are down and trucks aren't wearing off tread rubber rolling down the road, original equipment (OE) and replacement tire sales drop, along with truck/trailer maintenance services. And so goes your commercial tire business.
Since the trucking industry is linked to the U.S. gross domestic product (GDP), let's look at its growth rate over the years. As a general rule, when the GDP is greater than 3% annually, the country is generating a lot of freight for trucks to haul.
From 1996 to 2000, the GDP grew on average more than 4% each year. Things were good for trucking and the commercial tire industry, as freight was plentiful and diesel fuel stayed at record low levels. The average price for diesel was $1.23 a gallon.
By 1998 diesel averaged around $1.04 a gallon. As a result, fleets ordered an abundance of trucks and trailers.
The long awaited Transportation Equity Act for the 21st Century (TEA21) was passed in May 1996 and authorized slightly more than $29 million for road and bridge work each year through 2003.
Effective in March 1, 1998, antilock braking systems (ABS) were required on all new trailers, dollies, straight trucks and buses in addition to new tractors that already had ABS required.
In 2001, due to the terrorist attack on 9/11, GDP growth plummeted to 1%. Freight tonnage languished as GDP growth varied quarter by quarter between 1.5% and 4%. Members of the International Longshore and Warehouse Union (ILWU) were locked out of 29 ports in California, Oregon and Washington by the Pacific Maritime Association for 10 days before President Bush invoked the emergency provision of the Taft-Hartley Act as fears grew that the economy could be seriously impacted.
In 2002, the trucking industry, as well as many tire dealers, were shocked when one of the nation's largest trucking companies, Consolidated Freightways (CF), abruptly closed its doors on Labor Day, laying off 15,000 employees. The final blow came when one of the company's surety bondholders canceled coverage related to the company's self-insurance programs for workers' compensation and vehicular casualty.
Since then, insurance remains a problem for trucking companies. The shrinking number of commercial auto insurance providers and the growth in lawsuits and higher awards have resulted in higher insurance costs
Between 1999 and 2002, there were more than 8,400 trucking bankruptcies ranging from small, undercapitalized companies to industry giants such as CF. On the bright side, these bankruptcies put surviving firms in a position to command higher rates.
By 2004, GDP once again grew to better than 3% through 2006, but in 2007 the growth rate fell to 1.9% due to the bank crisis, which heralded in the Great Recession. The country's economy contracted by 0.1% in 2008 and 2.5% in 2009.
The price of diesel fuel hit a record high of $4.764 a gallon in July of 2008. This high price effectively curbed demand in the second half of the year, and the price of gasoline and diesel nosedived 44% from its peak to $2.664 a gallon by November.
As a result, Americans drove 79.2 billion fewer vehicle-miles during that span than during the same period in 2007, a decrease of 3.5%. It was the first time in 27 years that there had been a drop in miles driven in the U.S.
During this time, fleets began looking at alternate fuels to power their vehicles, along with energy-conserving components such as wide-base tires and lightweight aluminum wheels. The SmartWay Transport Partnership, launched in 2004, really took off and got fleet and supplier interest as fleets started spec'ing trucks that were SmartWay-certified.
Fleets pre-bought thousands of new trucks in 2006 to avoid having to buy more expensive trucks with lower-emission engines mandated on Jan. 1, 2007, resulting in overcapacity that plagued the industry and impacted fleets' profitability.
In 2008, as a result of the lagging economy and high cost of diesel, more than 2,500 U.S. carriers went out of business, and the existing fleets not merely parked their trucks but sold them abroad to buyers in Mexico, Russia and Eastern Europe, which permanently removed capacity from the industry. Naturally, new truck and trailers sales tanked to about 50% below 2006 levels.
Thanks to The American Recovery and Reinvestment Act of 2009, the country pulled out of the Recession in 2010 with a modest growth rate of 2.6% although the unemployment rate hit a high of 9.9%. The cost of diesel fuel bounced around between $3 and $4 a gallon between 2011 and 2014.
In 2011, the economy ebbed and flowed monthly with the strengthening and weakening of consumer confidence but the GDP expanded by 2% annually, and business investment surged at a rate of 16%.
The trucking industry benefited by keeping tight control on capacity and freight rates. In fact for the first time in years, freight rates climbed as much as 10%. As a result, GDP finally surpassed its pre-recession level after 15 quarters, which is three times longer than the average for the 10 previous recoveries since World War II.
Pent-up demand for new trucks and trailers — which fleets hadn't bought since 2006 — drove new truck and trailer sales in 2011. Fleets bought new equipment to replace old units, not to expand their fleets. New truck sales rose more than 55% from the previous year and trailer sales almost doubled.
This uptick in commercial vehicle sales lasted until 2016 when manufacturing weakened, freight growth was lackluster and fleets were cautious.
From late 2015 through the first six months of 2016 the economy stalled. GDP expanded at just a 1.1% pace. Between July and September, however, GDP growth accelerated to a 2.9% rate, boosted by rising consumer spending, which makes up about 70% of the economy.
This was tied to the low unemployment rate, which fell to 4.6% in November, a level not seen since August 2007, and workers saw the biggest annual pay gain since the end of the recession. Employers added about 175,000 jobs a month in 2015. too. All of these things boosted consumer confidence.
After GDP grew 2.9% in 2018, it slowed in 2019 to just 2.4%. The root cause in slowing down not only the U.S. economy but also the entire global economy was tariffs. Industrial production, manufacturing, construction and durable goods orders for 2019 were flat or worse. However, the growth in e-commerce kept trucks plying the roads.
From 2016 to 2019, the unemployment rate declined steadily to 3.5%, which is considered full employment. From 2014 to 2019 diesel fuel varied monthly between $2 and $3 a gallon.
The large number of new truck sales in 2018 was due to customers desperate to move goods and willing to pay high rates, which resulted in the fastest fleet growth since 1999. By 2019, there were 75,000 more tractors in the market than were needed to haul the level of freight.
The U.S.-Mexico-Canada Agreement (USMCA) — the trade deal that overhauled the North American Free Trade Agreement (NAFTA) — took effect in 2019. This agreement was critical to the trucking industry since the vast majority of trade between Mexico and Canada is moved on trucks, with $770 billion worth of goods crossing our borders every year. It generates $12.6 billion in annual revenue for the trucking industry.
The biggest source of change and uncertainty for the trucking industry in 2019 was the trade war between the U.S. and China, which resulted in the U.S. imposing import taxes on $360 billion in Chinese products, and China taxing $120 billion on U.S. exports. The war wreaked havoc on American exporters and manufacturers and affected the economy and the freight generated for the trucking industry.
After more than 18 months of economic sanctions and tough talk, the Trump administration announced on Dec. 13, 2019, that an initial agreement, Phase 1 of the final trade deal, had been reached.
As a result, President Trump agreed not to hike tariffs on $250 billion in Chinese goods to 30% from 25%. The resolution of the trade war had a high upside for trucking as it accelerated the global economy and spurred a strong rebound in manufacturing and commodity pricing.
Then in March 2020, the COVID-19 pandemic hit the U.S. and the economy shut down. The recovery was V-shaped. It dropped like a rock at almost 3.4% in 2020, came back like a rocket at 5.4% in 2021, but demand patterns are not the same as what they were before.
The trucking industry experienced huge demand but was constrained by a limited supply of trucks and drivers. As a result, 2020 ended with a 5.6% growth in GDP. According to Goldman Sachs, 2021 should end on a strong note as well with a GPD growth rate of 4% and a forecasted GDP growth rate of 3.8% in 2022.
Currently, another major problem is bottlenecks in the supply chain. Shipping experts said the worst chokepoint is along the Southern California coast, at two of the nation's biggest ports, Los Angeles and Long Beach.
On Sept. 27, 64 container ships with millions of dollars of toys, electronics, furniture and other goods lay at anchor waiting for an unloading berth. This is primarily due to a port labor shortage caused by COVID-19.
Warehouse space is also exceptionally tight. National vacancy rates are less than 5% and less than 2% near ports as shippers say they do not have enough space to store the goods.
In October, the Biden administration encouraged the ports to operate 24/7, which helped ease the bottlenecks a bit, but didn't address the root problem of ports moving freight inefficiently.
The cost of transportation has skyrocketed due to a mismatch in the location of containers, which is fueling inflation.
Container freight rates increased for 19 consecutive weeks and are 351% higher than the same time a year ago. A 20-foot container that cost $3,500 to import from China to the U.S. before the pandemic now may cost more than $10,000 for the same trip.
U.S prices are rising at the fastest rate in 30 years as businesses pass on growing labor and transportation costs to consumers. Prices jumped 6.2% in October from a year earlier.
Despite price increases, economists called for a 1.4% growth in retail sales. Retail sales in November and December will be 10% higher than the year before, which would be the biggest such gain in seven years.
Inflation likely will remain elevated in the coming months before moderating. While the effects of inflation have been longer lasting than anticipated, inflation is expected to drop back to the nation's longer-term 2% goal. This Christmas, however, many kids and adults are going to be disappointed due to disruptions in the supply chain and shortages of products.
Receipts at gasoline stations jumped 3.9% in 2021, the most since March 2020, despite the fact that Americans are paying some of the highest prices at the pump in seven years. The price of diesel fuel rose again on Nov. 1 to $3.727.
Fleets fared very well in 2021. There was plenty of freight for an industry that had tight capacity due to a shortage of drivers estimated at 80,000 individuals. Retail sales were up more than 20% in 2021 as most people received stimulus checks, and those who were unemployed received higher unemployment benefits.
Amid pandemic conditions, consumers bought a lot of goods since they didn't buy a lot of services. This resulted in strong freight volumes and rising rates all year.
The truck driver shortage was once again the top concern for U.S fleets in 2021 followed by driver retention and compensation. During the past 15 years, the trucking industry has struggled with a shortage of truck drivers.
The shortfall was first documented in a 2005 report. At that time, the shortage of drivers was roughly 20,000. During the Great Recession, the driver shortage was erased but only because industry tonnage volumes plummeted.
However, as industry volumes began to recover in 2011, the shortage slowly returned. The driver market continued to tighten, and the shortage rocketed to roughly 50,700 drivers by 2017 and continued to escalate through 2021 to a shortfall of 80,000 drivers.
Trucking industry recruiters face unprecedented challenges with a tight overall labor market, the ongoing driver shortage and a growing number of drivers who have tested positive for drugs or alcohol and have not begun the process to obtain treatment and eventual reinstatement.
As of October, 91,370 drivers had been declared ineligible because of a positive test, and only 18,926 have applied for reinstatement.
The good news is that enrollment in driver training schools is rising, primarily attributable to the favorable public perception of truck drivers as they carried out their work during the pandemic.
State departments of motor vehicles (DMVs) are once again back to working full time and are processing applications for commercial driver licenses. In the past couple of years, fleets have made an earnest effort to raise driver wages.
Wages increased to more than $1,400 a week from $1,150 in 2020, which on an annual basis means they increased to more than $72,000 from $59,800.
In 2021, trucking employed 3.36 million professional truck drivers, with women making up 7.8% of the nation's drivers — an all-time high. Some large fleets have embraced a new approach to recruiting women with special women-targeted programs. Minorities accounted for 42.3% of truck drivers.
The big news in 2021 was that Congress finally agreed to a $1.2 trillion infrastructure bill that it's been trying to pass for more than 30 years. The bill replaces the five-year 2015 FAST Act highway authorization measure that was due to expire on Sept. 30.
The Infrastructure Investment and Jobs Act will modernize the nation's ports, airports, rail and road systems, making it easier for companies to get goods to market, reduce supply chain bottlenecks and reduce transportation costs.
The bill includes an apprenticeship program for drivers younger than 21 to qualify eventually to drive Class 8 trucks in interstate commerce. (Currently they are allowed to drive only intrastate.) The law provides a 38% increase in funding for road and bridge maintenance and repair in addition to $66 billion for freight and passenger rail operations, $65 billion for rural broadband and $46 billion for climate change programs.
The biggest trend occurring now is the electrification of Class 8 trucks along with last-mile delivery light-duty, delivery trucks and vans. Almost every truck manufacturer in North America and Europe is working on developing electric trucks. In 2021, their efforts gained momentum with more investment, more prototypes unveiled and more deployments in real-world freight operations.
As a result of this rapid adoption of EVs, internal combustion vehicle (ICVs) sales are expected to peak in 2021, and by 2025, EVs will be more economical than ICVs. By 2030, half of all vehicles sold are expected to be either electric or a hybrid.
The EV truck market is burgeoning, and demand for EV-optimized tires for trucks will see a 29% compounded annual growth rate (CAGR) through 2028. Buses will see a 19% CAGR through that period. The next focus is on developing a network of charging stations that will enable trucks to recharge as they move across the country.
The second big trend is the exploding e-commerce market that is changing the way freight is delivered and the vehicles that deliver it. As a result, the light- and medium-duty truck tire market is growing at a faster rate than the large truck tire market.
E-commerce delivery vehicles are a perfect application for EVs since these vehicles don't travel far, return home every night and can be recharged for operation the next day. Current light truck tires in the 16-, 17.5- and 19.5-inch rim diameters were never designed to handle this new set of performance criteria, so tires must be designed specifically for this application. The double-digit growth in this market is certainly an opportunity commercial tire dealers can't ignore.
Wow. A lot has changed in the trucking industry. But what about the commercial tire industry?
Back in 1996, the mantra for the industry was outsourcing and core business: "Do only what you do best and get rid of the rest."
This motivated fleets to outsource tire maintenance, and commercial tire dealers found that contract tire maintenance could be a very profitable and beneficial arrangement for both the fleet and the dealer.
During this time, tire and tread rubber companies recognized the trucking industry's desire to get out of the tire maintenance business. They introduced new programs to address this need, ranging from new and improved 24-hour emergency road service networks to new software programs designed to track tires from cradle to grave.
The great demand for new tires for new trucks and trailers resulted in a replacement tire shortage that affected commercial tire dealers. New tire manufacturers initiated plant expansions designed to increase truck tire production about 20% to 25%.
In 1997, Michelin created its MRT retread program and got a big shot in the arm in 1998 when Tire Centers Inc., Bandag's largest independent customer, elected to go with Michelin's retread program.
That same year, Marangoni entered the U.S. retread market with its Ringtread precure system. Despite these new entrants, though, the number of retread shops in the U.S. continued to decline. At the end of 1997 there were 1,316 shops, down 2.6% from 1996.
In 2000, Michelin introduced the wide-base tire concept to the trucking industry with promise of terrific fuel economy. Unfortunately, it did not take off until other manufacturers introduced their versions in 2011.
In 2002, Bridgestone/Firestone announced it had turned the corner after experiencing great losses as a result of its 2000 recall. It posted first-half operating earnings of $54 million and a 12% jump in sales compared with an operating loss of $75 million the previous year.
All Tier I and Tier II tire companies announced price increases from between 3% and 6% depending on tire size and type. The blame was placed on rising raw material costs, especially natural rubber and rubber chemicals, as well as costs associated with the Transportation Recall Enhancement, Accountability Documentation (TREAD) Act (which mandated TPMS on all vehicles with a GVWR of 10,000 lbs. or less) and insurance premium increases.
Another big happening in the tire industry in 2002 was the merger of the International Tire & Rubber Association (ITRA) with the Tire Association of North America (TANA) (successor of the NTDRA) to form the new Tire Industry Association (TIA). The merger joined legions of commercial tire dealers with hordes of retail tire dealers, as well as tire manufacturers and other associated tire industry suppliers.
In 2002, Michelin introduced the long-awaited tire tag system. This technology, called eTire System, included the InTire Sensor, sidewall-mounted Sensor Dock, handheld or drive-by reader and BIB TRACK software that captures tire pressure, wheel position and maintenance information. The sensors could be installed in any brand of tire and the data is stored on the server and not in the sensor.
In 2003, China eclipsed the U.S. as the largest consumer of rubber in the world.
By 2007, tire manufacturers were dealing with the soaring price of oil and other raw materials. The result was price increases. Almost all Tier I and Tier II tire manufacturers announced price increases for truck tires that year. Despite these obstacles, 2007 was a fairly good year for tire companies. This was due mostly to the closing of high-cost plants, stabilization of raw material costs and tire price hikes that held.
Due to the high cost of fuel, which negatively impacted vehicle miles driven, both original equipment and aftermarket truck tire sales tanked. Goodyear idled truck tire production at its plants in Danville, Va., and Topeka, Kan., and Bridgestone cut production at its truck/bus tire plants through year-end 2008 to deal with impact of the Great Recession.
The big news in 2008 was that Bridgestone completed the purchase of Bandag Inc. for $1.05 billion to fortify its position in truck tires. It folded its Bridgestone, Firestone and Dayton lines along with its Bandag retreading operation into a single operating unit, which was then renamed Bridgestone Bandag Tire Solutions. Michelin completed the purchase of Oliver Rubber Co. from the Cooper Tire & Rubber Co.
Once again, every commercial truck tire manufacturer in the U.S. raised tire prices three times that year, ranging from between 5% and 10%. The price of steel, carbon black, rubber chemicals, synthetic rubber and natural rubber escalated due to global demand, mostly from China and India. Retread prices increased as well, between 5% and 9% for each round of price adjustments.
By 2011, price hikes continued to be the bane of the industry as oil prices remained high, natural rubber prices hit new highs, and other raw material prices continued to escalate. Just about every manufacturer issued three or four price increases for both tires and retreads. The industry struggled to fill back orders of truck tires for both OE and replacement markets, prompting several companies to announce capacity expansion investments at their truck tire plants.
In 2011, Goodyear added new features to its Fleet HQ commercial business solutions programs, including a new, free app for smartphones, and launched its Uni-Maxx Truck Care on-highway truck service network, a nationwide quick-lube type of service for truckers located at travel plazas.
Not to be outdone, Michelin launched the Michelin Commercial Service Network, a franchise network of commercial tire dealers designed to provide a high level of consistent and quality service across the U.S.
The services offered included road service, online operating manuals and online fleet reporting. Over the year, this network grew by nearly 70% to approximately 200 locations. Michelin also opened its Advantage Program to owner-operators, which was originally designed for small fleets.
The year 2011 brought about a change in the direction of truck tire development. More tires were introduced to the market that were designed for specific applications.
The high cost of fuel made tire manufacturers look at reducing rolling resistance in all product offerings, but they also designed and manufactured products to meet the needs of specific fleet applications.
While a plethora of tires was added to the SmartWay-verified list from all truck tire manufacturers during the year, tire companies introduced numerous tires for long-haul, regional, pick-up and delivery service, mixed service, construction, refuse and on/off road (logging, oil fields and mining) applications. More companies introduced new wide-base tires, including Bridgestone, Continental, Goodyear and Double Coin.
In 2016, Michelin introduced a full line of Uniroyal-brand medium truck tires to the U.S. market. Uniroyal truck tires hadn't been produced since Michelin purchased Uniroyal-Goodrich Tire in 1989. Pirelli Tyre S.p.A made a huge splash with its announcement in April that it planned to sell truck tires in the U.S. and Canada through a new entity, TP Commercial Solutions L.L.C., as part of its global growth strategy.
Cooper purchased a majority share (65%) of China-based Qingdao Ge RUi da Rubber Co. Ltd. for $93 million for the purpose of providing additional radial truck and bus tires, including the Roadmaster brand tires, for the North America market as well as for Asia.
Continental broke ground on a $1.4 billion plant near Clinton, Miss., to produce consumer, medium truck and possibly OTR tires. The plant opened in October 2019.
Of huge importance to the commercial truck tire market was the Commerce Department's antidumping investigation into imports of radial truck/bus tires from China. The report found that such tires from China were being dumped in the U.S. at less than fair value. The Commerce Department levied countervailing duties ranging from 17.06% to 30% on Chinese truck tires to offset subsidization from the People's Republic of China.
This year has seen several changes in the tire industry. After 19 years as CEO of TIA, Roy Littlefield III — who grew membership to more than 13,000 from 2,700 in 2002 — is stepping down and will be replaced by Dick Gust, an active industry voice in the tire recycling area.
Tire companies are emphasizing sustainability, feeling an urgent need to lead manufacturing and transportation in reducing carbon emissions and protecting the environment.
One way tire makers are focusing on sustainability is by contributing to better and cleaner mobility by providing different tires that will be sustainable, connected and rechargeable. This includes using more sustainable manufacturing processes, the use of renewable materials, such as plant-based oils to recycled plastics. and implementation of technologies that help to reduce waste.
Some tire companies have turned to solar power for their U.S. plants in an effort to reduce CO2 emissions by 2030 and achieve carbon neutrality by 2050. One tire maker has already taken an initial step toward reaching zero emission goals throughout the supply chain by 2050. Its zero-emission mobility business is on track to becoming completely carbon-neutral by 2022. It's an exciting time with good news for planet Earth.
I hope you enjoyed a look back at 25 years in the trucking and commercial tire industries.
As I mount up on Buttermilk and ride off into the sunset, I wish you all a very successful next 25 years and urge you to take advantage of all of the new opportunities that the trucking and commercial tire industries present to you.
My wish is that you are filled with hope and kindness and strive for a brighter tomorrow!
Merry Christmas and Happy Trails!
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