Back in April, the unknowns of the pandemic were prominent, freight forecasts were pessimistic, and the commercial vehicle industry braced for the worst. Fast forward to today, and the industry appears to be weathering the COVID storm considerably well.
“We’ve been saying for the past couple of years that we were due for a recession, just from an economic point of view,” explained Dusty Smith, general manager of Advanced Analytics at Goodyear Tire & Rubber Co., during a Dec. 10 media session of Goodyear’s Virtual Customer Conference.
“We were in the longest expansion history of the U.S. and things were trucking along from an economic standpoint,” Smith continued. “When we looked at those indicators 10 months ago, it was the same thing we said in years past—we are due, but we don’t see anything in the underlying fundamentals of the economy pointing toward a recession, so the outlook coming into the year was actually pretty positive. Then COVID hit.”
When the pandemic struck, consumer behaviors changed with more people working from home, triggering a significant market shift. COVID-19 ignited the already growing trend in e-commerce and last-mile deliveries.
Smith pointed out that last-mile deliveries are on the rise, 65-year-old online shoppers are up 12% just from March, and there has been a 44% increase in traffic across online retailers. Business-to-business interaction has also doubled since COVID struck, according to McKinsey & Company, with online app ordering up 30%.
“Some of this may subside and it may dip a little bit when things go ‘back to normal,’ but it has been a trend pre-COVID and it has been accelerated really since then,” Smith said.
Josh Mottor, a Goodyear market intelligence analyst, noted that based on the growth of last-mile delivery, OE tire shipments for Class 4-7 are back up to pre-pandemic levels.
“We’re beginning to see evidence of an upward cycle in OE orders, and that upward cycle appears to be starting earlier than what we had anticipated,” Mottor said. “The industry took a significant downturn but never really quite hit the lows that everyone predicted, and the recovery is happening a lot quicker than originally anticipated.”
For the replacement tire industry, Goodyear saw a drop of 14% for ton-miles per Class 8 in April. Growth stalled in Q3 for ton-miles per Class 8, but Goodyear is seeing continued growth into Q4 with trends ticking upward again in Q1 2021, Mottor noted.
He also pointed out that medium-duty freight metrics were very similar but not quite as extreme as Class 8. The drop in ton-miles was about half as low as what the Class 8 drop was back in April.
“Overall, if you consider how this plays out versus GDP, medium-duty total tonnage for 2020 is only going to be about 2.7% lower than in 2019,” Mottor said. “If estimates are correct, Class 8 tonnage is going to be about 5% lower than in 2019. That helps prove out the shift we are seeing in those shorter, quicker trips and in that last-mile delivery.”
Overall, there has been a shift away from rail and air freight to trucking, and although regional and urban deliveries are growing faster, it’s important to remember that medium-duty tonnage equates to just about a tenth of all Class 8 tonnage, Mottor pointed out.
“Medium-duty trends are full of opportunity, but overall, it’s really still the big rigs that are moving all of that [tonnage],” he said. “Class 8 tire growth and strength in the long-haul segment and opportunities in the urban and regional segment point back to the fact that trucking is the king of moving all of this.”
Commercial outlook
Roughly 75% of all tonnage today is hauled by truck, and that percentage is expected to grow through 2024. Mottor explained that growth trajectory means total ton-miles for medium-duty and Class 8 should return to pre-COVID levels sometime in 2022.
“Short- and medium-haul trucking in the industry is going to continue to keep up with the share of long-haul as the market continues to shift toward consumers buying goods online,” Mottor advised. “As that trend continues and people continue to buy online we will continue to see more of that short to medium haul taking share away from the long-haul side of things. In fact, that industry in 2020 is expected to experience an all-time high in share from medium ton haul miles, and short haul is at its highest point since the last recession.”
Regarding commercial tire replacement, in 2019, the focus in the U.S. was on the impact of tariffs and was a down year for the industry overall, falling off from 2018 levels, Mottor said. After the impacts of COVID started to take hold, some analysts began forecasting double-digit losses for 2020. Now, however, the replacement industry is expected to be down by only about 3%.
“We kind of expected some recovery this year in 2020, but because 2019 was so low, the negative 3% forecast for the end of 2020 is somewhat misleading,” Mottor said. “After we saw the impacts of COVID starting off, some were forecasting a double-digit loss in April and May. From that standpoint, the industry being down only 3% is kind of a testament to how much the shifting consumer trends have reshaped things. As those trends switched during COVID, that has really had a strong impact for us.”
Mottor also pointed out that in 2017, the North American tire industry shipped about 19.5 million replacement tires. “When the dust settles, we should be back to that level by about 2022,” he said.
When it comes to last-mile and regional delivery, Dustin Lancy, Goodyear’s product marketing manager, explained that as the commercial industry is seeing growth in full-size cargo vans, there has been a difference from a tire and servicing perspective as consumer-type vehicles are now being used in commercial trucking fleets.
“For the vehicles being used in commercial trucking fleets for pickup and delivery and package delivery type services, the fleets are still wanting to have the same type of benefits from the commercial servicing standpoint—reporting and data on the products—just like they would on larger rim diameters,” Lancy said.
“We’re at a very unique inflection point right now where these smaller vehicles are growing so rapidly and becoming a part of trucking fleets,” he added. “It’s a very interesting marketplace, and there are new tire sizes coming. We see that the last-mile delivery segment is one of the top segments that is primed to adopt electric vehicles because of their type of routes and accessibility to charging stations close to their yard. So, it’s going to be a very interesting segment as we continue to have e-commerce and package delivery increase to homes and businesses over the upcoming years. Adding the electric vehicle or alternative fuel source option for these vehicles definitely makes it very complex.”
