One of my first economic lessons was that free lunches were not free. My high school economics teacher had it stenciled on the front of his classroom wall, so it was always in your face: “There is no free lunch.” One day, he explained in great detail how many people had to get paid in order to deliver a free lunch in the cafeteria. Nothing has changed over 40 years later.
The basic supply-and-demand model was another economic lesson I still remember. When supply exceeds demand, pricing tends to be lower, while demand exceeding supply tends to result in higher prices. Countless other factors ultimately determine the market price, but the supply-and-demand model is at the core of every product or service.
Truck tires are not immune to the economic factors that govern the theory, but major inputs such as natural rubber, oil, energy, and transportation play a critical role in establishing the equilibrium that determines the market price. The 2024 truck tire market forecast, released in December by the U.S. Tire Manufacturers Association, sheds some light on how supply and demand have contributed to current pricing.
Based on their projections, original equipment truck tire shipments decreased by 7% in 2024 compared to 2023, or by 400,000 tires. On the other hand, replacement shipments increased by 12.5%, or 2.6 million tires. The original equipment projection is more concerning for Tier 1 and Tier 2 manufacturers because most new trucks and trailers come equipped with name-brand tires. And while the replacement figures would appear to offset those losses, it’s important to note that imported truck and bus tires continue to flood the market, putting additional pressure on domestic manufacturing.
I don’t want to jinx it, but it’s been a while since any price increases were announced for several reasons. First, the level of demand for replacement tires has not changed significantly. Second, in the first half of 2024, truck and bus tire imports increased year over year by 21%. Of the top 10 importing countries, Cambodia, Vietnam, India, and Thailand led the way, each with double-digit increases. The remaining six countries outside the U.S. that manufacture truck tires all experienced decreases, with South Korea, Japan, and Canada losing the most market share. In other words, six of the top 10 truck tire imports delivered fewer tires, but the top four countries increased by so much that overall imports rose by 21%.
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While replacement shipments increased overall, it appears most of the increase came from tires imported from four countries that collectively have the lowest average value. In my opinion, the supply of low-cost import truck tires increased in conjunction with the increase in domestic replacement demand, so tire prices remained stable. Fleets have benefited because import pricing pressure forced domestic manufacturers to forego any major increases in 2023 or 2024.
Looking ahead to 2025, I do not expect any significant changes, even with the new 12.33% tariff on truck tire imports from Thailand. Labor and regulatory costs for the top four import manufacturing countries are significantly lower than the rest of the world, an advantage compounded by rising costs for U.S. manufacturers and other more industrialized countries. The current level of equilibrium will continue as long as there are no major changes to the model or inputs.
Of course, truck tires are still agricultural products subject to the price and availability of natural rubber, which has remained stable. Any major reductions in supply or increases in demand will affect every tire manufacturer regardless of the country. Additionally, it’s important to note that ocean freight plays a major role, so any disruptions at West Coast ports will directly impact imported truck tires from Southeast Asia.
While the supply side remains strong at current domestic and import truck tire manufacturing levels, it is still too dependent on imports. In the event of another global catastrophic event, demand would remain relatively stable, but there won’t be nearly enough domestic supply, especially with a truck tire plant in Buffalo abruptly closing its doors last year. Think of the tire shortages and price increases coming out of the pandemic times 10. I believe the ample supply of low-cost imported truck tires is controlling prices, but it’s a delicate balance with potentially dangerous economic consequences.
