Commercial tire market cautiously recovering from 2023 challenges

Commercial tire market cautiously recovering from 2023 challenges

To better understand commercial tire expectations for the remainder of the year, we spolke with Pierluigi Cumo, VP of B2B products at Michelin North America.

Despite a tough commercial tire market in 2023 due to overstock and and the effects of a rubber-banding supply chain, some tire manufacturers are expressing a cautious optimism for stabilization and gradual recovery through the rest of 2024 and into 2025. North American fleets are focusing their efforts on operational efficiency and profitability amidst lower shipping rates.

To better understand market expectations for commercial tire dealers, we recently sat down with Pierluigi Cumo, vice president of B2B products at Michelin North America, during the company’s Sustainability Summit in Sonoma County, California. Read on for Cumo’s thoughts on developing sustainable tires for commercial fleets and whether Michelin’s product development and release strategy is influenced by market conditions.

Where do things stand right now in the commercial tire market? What are people asking for, especially in terms of sustainability? What are the expectations in the marketplace?

Pierluigi Cumo: The biggest thing right now is just where the market is versus where the market has been. When we think about COVID-19, it was crazy for everyone in many ways. I think the transportation industry saw peak and unheard-of demand during those years. At the end of 2022, that very quickly fell off. Around October or November of 2022, it fell dramatically. And throughout last year, we were seeing double-digit declines in the replacement tire market, which obviously comes down from how much the vehicles are actually being used. Freight demand decreased dramatically, and what we see this year is a similar pattern. So, they reset the baseline and now they’re moving at a lower point, a bit above where they were in 2019, but massively below where they were the years after that.

I think that’s true for other segments that we’re in, although maybe travel’s the exception because they saw a decline and now they’re seeing a peak. But, we see a similar dynamic and very strong acceleration and deceleration. When we get to today, they’re more thinking about how they will make it through this year, or the next year. Shipping rates are much lower than they used to be, which means that their profitability and their margins are much lower.

I’m hearing from fleets that they have their contracts being renegotiated for certain shipping lanes, which are profitable, secured, all of that. Companies are coming in and bidding that out. So they’re in a mode where they need to make sure that their operation is efficient and that they can still be profitable through this year, they’re hoping that recovery is coming later in the year or next year, and that we don’t see an economic slowdown, which would be dramatic.

In the context of sustainability, is that their biggest concern? Absolutely not right now. However, I think sustainability is a concern in the context of sustainable performance, meaning fleets will invest in things that are sustainable for their business or will provide measurable, quantifiable benefits for their business. They’re not going to do sustainability for sustainability’s sake.

When you think about the for-hire companies, the people who usually hire them are not willing to pay more. People aren’t stepping up to say they will pay more if you have a sustainable XYZ on your vehicle, or have EVs. 

The other group, which would be your private fleets and big retailers, has other incentives. They may be considering sustainability metrics because, similar to Michelin, they have broader ambitions that they need to deliver against, and transportation is probably a good lever to do that easier than changing how you package your products or something like that.

How are these fleets approaching their own sustainability goals by application?

Cumo: I think you see it when you’re looking at specific vehicles by application. When you talk about BEVs, fleets that have a more regional, local application are probably the ones that can actually have a conversation on total cost of ownership to make it viable. Last-mile delivery fleets are probably in the best position to have a conversation like that because they have somewhat predictable, short routes. They’re going back to their depot every day and they’re close to an urban center, which means they probably have more access to infrastructure than elsewhere.

As you start drifting away from that, it becomes more and more complicated to enable that operation to sustain that strategy and make it cost-feasible. When you look at long-haul, battery-electric is nearly nonexistent. If you have the conversation with the city folks, they’ll talk about how well-suited hydrogen is for long-haul applications and the work that’s being done in that space to make that a reality, but then you have to think about how to distribute hydrogen and how to make that viable, and how to make that green.

I’ve heard from tire dealers that 2023 was a tough year on the commercial side. Do you expect that to get better this year? Are you seeing the light at the end of the tunnel?

Cumo: I think we can see the light because the beginning of 2023 was very bad. I think now we’ve found the bottom, and I don’t think we’re going to get much further from the bottom in 2024.

The economy is not showing signs that it’s going to slow down, but I don’t think the situation’s going to improve dramatically by the end of this year. It’s more likely next year.

Does that influence your product release strategy for 2025, since that’s when you expect things to start turning around in the market?

Cumo: No, we develop products based on the evolution of our product portfolio. It’s not very dependent on where the market will be at one point or another.

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