OTR Tire Market
Fewer Customers, Bigger Trucks Challenge Even the Best Dealers
It is by far the most volatile and unpredictable tire segment, operating at a rhythm and pace often well removed from prevailing general economic conditions. With the wide variety of applications and monstrously large equipment getting even bigger, the OTR equipment tire segment is also the most technically challenging for tire makers and dealers alike.
In a world where bigger is always better and success is measured in tons of earth moved, wildly fluctuating commodity prices and near-constant customer consolidation present today’s OTR tire dealers and manufacturers with some rather unique issues.
Tire Review sat down with the top executives of the predominant OTR tire makers to get their read on current segment conditions, the latest tire technology trends, the current status of tire chip technology, and some of the challenges dealers face.
Interviewed were: Tom Ford, general manager of Goodyear’s Global OTR Tires division; Clement Yong, executive vice president of Michelin North America’s Earthmover Group; Jack Fenner, Continental General Tire’s (CGT) national sales manager for OTR products; and Manny Cicero, president of Bridgestone/Firestone Off Road Tire Co. (BFOR).
Mining Market Trends
Perhaps the most volatile market is mining. Massive consolidation over the last few years has sharply reduced the number of mine operators, while downturns in the prices of commodity ores like copper, gold and coal have severely squeezed profits.
"1999 was a bad year in mining," said Michelin’s Yong. "The copper price today is around 80 cents per pound, and last year it was around 60 cents per pound. Mines aren’t losing money today, but they aren’t making as much as they did five years ago when copper was $1.27 per pound."
BFOR’s Cicero concurs. "Mining contracted last year, and it’s still contracting," he said. "Pricing on coal, copper, gold were at historic lows. There’s been a rebound in demand domestically this year, and the eastern coal mines have benefited from the recent high fuel prices."
Cicero noted early forecasts that eastern coal would be down in 2000 – especially in West Virginia, where restrictive legislation has hurt both mining and aggregate operations – appear to be incorrect.
However, production cost issues and other legislative action have forced mining companies to other countries. The weight of mining, noted Yong, has shifted "from North America to South America and Asia due to high production costs.
"In Peru, the salary of a driver is roughly 1/10th of that of a driver in the U.S. Production costs are far lower in South America and Asia," he said. "Plus, in most cases, South America and Asia have richer ore bodies."
High production costs combined with depressed commodity pricing were the fuel driving the mining market’s globalization engine, according to Yong.
"The main trend right now is consolidation," said Cicero. "When Phelps Dodge purchased Cypress Amex, two of the biggest mining companies became one giant company. Gold mines have consolidated. Coal has consolidated. There’s really only a handful of customers left."
Not only have mining companies consolidated, behind the scenes, tire and equipment purchasing has also contracted. "The mining operators are taking full advantage of their consolidations, and corporate offices are taking over purchases of tires," said BFOR’s Cicero. "Rarely is any buying being done on a local basis."
In addition, a handful of high profile mines from around the world have joined forces to form a buying consortium, a Web-based procurement system intended to save them hundreds of millions of dollars in buying equipment, tires and other products.
Another offshoot of mine consolidations and the advent of procurement groups, said Cicero, is a move toward equipment standardization. Instead of individual mines and quarries selecting their own equipment, some large multi-site operators are specing specific equipment – and tires – for use at all their individual locations. That means operators are giving all their equipment business to one bidder. The same with tires.
The major reason behind all the consolidation is to lower production costs. And that’s the reason why tire manufacturers have been working on new technology, said Michelin’s Yong.
"There’s a move to bigger haul trucks requiring 63-inch tires," said Goodyear’s Ford. "There’ve been a few start-up problems with these larger tires, but it appears manufacturers have worked their way through them.
While Goodyear doesn’t currently produce 63-inch tires, Ford expects truck makers will go even larger. "Right now we’re on the beginning edge of bigger trucks," he said. "Trucks are designed for a certain capacity, but they’re being run to the edge of the envelope. Operators are trying to get more return out of their haul trucks, and this is placing greater strain on the tires, causing the tires to evolve quicker."
"The next two years will be interesting for us because there will be new giant haul truck sizes," said Yong. "At least three equipment makers have plans to produce trucks going up to 400 tons or more. So we’re preparing tires to meet those needs."
Haul trucks are certainly getting larger, noted CGT’s Fenner. "We’ve already seen 57-inch tires, and now we’re well into the 63-inch tires. To get to that point you’re talking about low profile radial tires."
More on low profile/low pressure tires later. For now both equipment and tire manufacturers continue racing to produce the biggest and best machines and tires. To fulfill the unique needs of larger equipment, said CGT’s Fenner, requires more technologically advanced tires.
Another major trend is the growing use of autonomous trucks, said Goodyear’s Ford, driverless systems guided by global positioning satellites and computers. Mines are using smaller haul trucks in autonomous operations, feeling the savings they realize in fewer personnel makes up for the difference in haul truck capacity and capability.
Aggregate Market Trends
The aggregate market is very strong right now, according to Goodyear’s Ford. "Larger quarries have a lot of capacity and are producing more," he said. "And you are seeing greater radialization of haul truck tires in quarries, especially as haul trucks get larger and larger." Ford said that while 85- and 90-ton haul trucks are the norm, 150-ton trucks are becoming more common. "And there’s a growing number of load-and-carry operations, forcing loaders away from bias tires and onto radials."
"They’re doing very well right now," said Michelin’s Yong of quarry operations. "And I’m quite confident of their continued growth."
But all four executives said massive consolidation is rapidly changing the face of the market.
Much like the mining industry, globalization and consolidation has created a situation where three major groups control most of the quarries in North America, said Yong. "They’ve been making money, but they’re looking to lower their costs. For the tire companies, the quarry market has been getting tougher in terms of pricing. This means our production costs have to come down."
"There has been a race to consolidate," said Cicero of BFOR. "A lot of individual locations have sold out to what has become the Big 3. Overnight, one single company in Europe – Hanson plc – became the largest aggregates company in the U.S. Hanson, Vulcan and Martin Marietta are the Big 3. And they are dominating everybody."
CGT’s Fenner said aggregate consolidations have had a profound impact on his dealers, some of whom have done business with the same local quarry for decades. "All of a sudden somebody outside that local quarry is deciding where they are going to buy their tires and what tire they’re going to buy."
Consolidation has come about largely because of changes in permitting and environmental regulations, which have made it easier to buy out a quarry with existing permits than it is to open a new site.
Keeping consolidated customers means tire dealers "need to stay close to these people, and continue looking for ways to lower their costs," said Fenner.
The aggregate market remains strong – and should remain so for at least the next five years – thanks to increased federal spending on infrastructure projects.
TEC-21 – the Transportation Equity Act – has poured some $218 billion into road and bridge construction and rehabilitation projects. And most of that nearly quarter trillion dollars goes into the aggregate industry for roadbed rock, gravel, cement and asphalt.
Construction Market Trends
TEC-21 is also having a positive impact in the road construction segment of the market. But building construction projects have slowed, thanks to rising interest rates.
The construction segment is also seeing greater radialization, according to Goodyear’s Ford. "The change over to radials has been tremendous," he said. "We’re seeing more articulated haul trucks in this segment, with 65-series radial tires. And scrapers are also moving away from bias tires.
"Radial all-season grader tires have also really taken off, especially in northern climates," Ford continued.
Michelin’s Yong feels interest rate increases will hurt equipment purchases as much as project financing. "The volume of construction projects will flatten, and even be slightly down compared to the last five years," he said. "Less use of equipment could mean some downsizing in this market segment."
BFOR sees a growing trend toward lease/rental of construction equipment. As construction firms struggle to remain profitable, many are unloading capital equipment, renting what they need for specific jobs.
Equipment rental is also reaching down to the consumer level. "Caterpillar has opened a series of rental houses all over the country," said Cicero. "They say that’s their fastest growth business segment."
Tire Chip Technology
In the mid-1990s, the tire industry was buzzing with news about "tire chip" technology, where miniaturized computers inside a tire would report inflation pressure and temperature changes. Tire chips – or "tags" as they are also called – hold the promise of better tire management, longer tire life, greater safety, lower production costs for users, and real-time reporting of a tire’s "vital signs."
Some five years later, there is a lot of activity, testing and claims, but still no commercially available chips.
By all accounts, the tire chip itself has been reduced to the size of a pack of cigarettes, a far more manageable size than the cigar box size chips demonstrated at mining and construction shows a few years ago.
The chip systems being developed independently by Michelin, Goodyear and Bridgestone/Firestone will all feed real-time pressure and temperature data directly into each company’s respective tire tracking software, allowing the mine or quarry operator and the dealer to continuously monitor tire performance.
This instantaneous monitoring will allow the mine or quarry to make route or air pressure adjustments on the fly, making equipment more productive and better protecting their tire investments.
Goodyear’s Ford also sees the day when tire chips can interact with autonomous haul truck computer systems, allowing automatic re-routing of trucks to easier tasks should temperature and air pressure climb due to loads or distances. "I think having a chip in the tire really eliminates one of the major concerns operators and equipment manufacturers have about autonomous systems," he said. "Without a driver who can see and feel things, there is no way to keep track of tire performance or react to sudden problems or changes.
"Our next step is to get the chip to count revolutions so you can get a true mileage reading from the tires," he said.
While it has been actively testing its tire chip, Goodyear won’t say much about its performance. Ford said the company plans to have its system on display at MinExpo this October in Las Vegas, and will announce its plans – and potentially a commercial release date – during the show.
Michelin, according to Yong, currently has 31 haul trucks – including Caterpillar 793s and 797s, and Komatsu 930E giants – doing live testing of its MEMS (Michelin Earthmover Management System) chip in the U.S., Canada, Australia and Chile. Extensive testing has been done over the last 30 months, and Michelin plans to introduce its final production version of MEMS at MinExpo.
"We plan to release our first commercial version of MEMS in Spring 2001," said Yong. "I believe we’ll be the first one."
"We’re still working on the robustness of our tag, so it can hold up in these extremely brutal environments," said BFOR’s Cicero. "That it works is one piece of news, the fact that it always works and won’t require maintenance is more important. We’re going to have a very sophisticated, programmable tag, which will be a lot more functional." Cicero indicated that BFOR’s chip system might include Internet integration.
While BFOR won’t commit to a precise date, officials said they expect to make an announcement in the fourth quarter regarding commercial availability. "We’re not going to market until we know our product is proven, that we have product on the shelf, we have installation procedures established, that software is completed, and that we have a finished and ready product," said Cicero.
Right now, the main focus for tire chips is haul tires. And the growth of low profile/low pressure giant tires places greater emphasis on the need for reliable tire chip technology, said Yong. But can chips be used on other equipment? "Someday, why not put them on loaders. The chips will only get cheaper and smaller." Yong said load-and-carry loader applications could benefit from tire chips.
Tire Technology Trends
"The biggest thing we’re seeing is the growth of articulated haul trucks and 65-series tires," said Goodyear’s Ford, who feels a lot of North American operations will go to 65-series radials. "These deliver tremendous traction, stability and durability."
CGT’s Fenner also sees articulated haul trucks growing in the future. "We just brought out our new Continental brand radial tires in size 23.5R25 in both E3** and L3*. And next month we’ll be out with 20.5R25. By the end of the year we’ll probably have about 58% of the radial sizes available. We’ll certainly have radial sizes for articulated trucks. Articulated trucks are having probably the biggest impact on the market today."
Another hot technology issue is low profile/low pressure tires. "I don’t think that the 80-series tires – like the 44/80R57 – have been that successful," said Ford. "We believe you should have the same diameter tires. We came out with a 44/95R57, and have done well with it. You can run it at a lower pressure. Yes, we believe in lower pressure/low profile tires, we just haven’t gone as far with it as others."
Michelin’s Yong sees low profile/low pressure tires differently. "The bottom line of this technology is lower tire costs – better cost/hour or better cost/ton miles," he said. "Using low profile architecture, we can extend the life of a tire by 20% roughly, which means the mines can save substantially on their tire budget. Low pressure means less cutting on the tread and crown area because the tire can envelop objects."
"Tires can be only so large before they’re impossible to transport on the highway," said Cicero. "What’s forcing the trend to low profile tires is the need to fit a larger wheel diameter tire on a machine and still be able to transport that tire. The equipment companies will tell you the size of their equipment is really not limited. The limiting factor is the tire. I wouldn’t bet against a 500-ton truck in 10 years. It might have more axles, but I wouldn’t bet against it."
Some other tire technology trends to look out for:
- Extra deep treads on haul truck and loader tires, which will necessitate changes in casing design to compensate for greater heat build up.
- Growing radialization of underground mining tires.
- More use of electrical drives vs. mechanical drives on haul truck axles, which could limit tire widths and heights.
- Increased demand for all-season radials for graders.
- Enhanced versions of each manufacturer’s tire tracking software.
- More tire companies moving to 63-inch radial haul truck tires.
- Continued customization of tires for certain specific applications.
- Growth of low profile metric sizes for loader applications.
- Continued radialization of small and medium OTR tires for all applications.
National tire contracts have become a big operational issue, thanks to market consolidation. Each of the tire companies said they’re working hard to keep dealers in the chain, but they warn that dealers have to work harder to make their contribution better understood.
"The dealer has a big part in this thing, and if he does the job I think he’s going to retain these accounts," said CGT’s Fenner. "That’s why I think it’s important for the dealer to continually show customers what they really do. The dealer is the tire expert, and the operator needs that dealer not only for service, but for preventative tire maintenance, any training that needs to be done, and to make the best recommendations that deliver the best cost/hour."
"The dealer used to own the relationship with the customer," said Cicero, "more so than in any other tire segment. The dealer represented the manufacturer, and the manufacturers were strongly discouraged from having direct contact with the end user. Today, end users – especially as they get bigger, consolidate, and get more sophisticated – demand a relationship with the manufacturer.
"They understand what dealers bring in terms of service, but they want to see a team. No longer are we expected to sit in the hallway while the dealer negotiates. They want us in at the outset, and they want solutions."
CGT’s Fenner agrees. "I think it depends on how much confidence the end user has in his dealer. If his dealer is servicing properly and the end user has a lot of confidence in him, then he’s going to listen to the dealer’s recommendations."
"In any industry, if a buyer cannot clearly recognize what somebody does for them and can’t assign fair value to that process, they want to cut it out," concluded Cicero. "If the middleman is perceived as an unnecessary part of the process, his role is at stake."