Remoulding the UAE: Recessionary factors put pressure on suppliers and retreaders

14th September 2011 | 0 Comments
 
Remoulding the UAE: Recessionary factors put pressure on suppliers and retreaders

Those living in the seven emirates that make up the UAE – Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah and Umm al-Quwain – are certainly no strangers to high temperatures. While the mercury rose to 47 degrees Celcius and above this summer, pressures caused by the global economic crisis, which triggered a local property collapse in its wake, have also put the heat on the domestic new tyre and retreading markets. Tyres & Accessories recently visited to the country’s largest Emirate by population (Dubai) to learn more about the local and regional retreading and new tyre markets.

Up until the credit crunch took effect Dubai was home to a booming property market with real estate projects such as “The Palm” (an entirely man made island resort based on the series of mini atolls construction using land-reclamation techniques along the capital cities coastline) and Burj Khalifah (the tallest building in the world) garnering worldwide attention. However the bubble has since burst, meaning construction vehicles are no longer required in the numbers they were and therefore resulting in new tyre sales going flat. At the same time many people lost money directly or indirectly through the collapse of the property market and have since found themselves in less prosperous positions then they once were meaning passenger car tyre sales have also witnessed the effect.

There are differing opinions on exactly what is going on in the UAE economically, but all agree that the construction-dependent emirates such as Dubai have experienced a very significant downturn. Austrian retreading materials supplier Kraiburg’s view is that the term “recession” doesn’t cut it when it comes to describing the current economic situation in the UAE. “It would be more accurate to describe the goings-on there in recent months as a complete collapse, with some 90 percent of all public building projects (including the famous man-made palm island project and plans for the second airport) having been shelved altogether or at least put on hold,” Kraiburg marketing manager Holger Duex wrote in an official statement commenting on the matter last year. What is clear is that what was once a hive of construction activity with 30 per cent of all the cranes in the world concentrated in the region is still faltering.

As you can imagine, with a downturn of this magnitude in the economy, in a region where double-digit growth rates were previously the order of the day, this has had grave consequences for the 24 retread firms in the UAE. Nevertheless tyre firms in the area, such as Kraiburg have gone on the record as saying that HGV retreads in the United Arab Emirates (UAE), and in Dubai in particular, offer “unequalled” opportunities. The European firm relocated its production partnership from Dubai to the neighbouring emirate, Ajman, with the opening of a new retreading plant there 18 months ago.

As a result there are now a number of professional and large-scale operations in the region (Bandag [with Al-Dobowi owning the franchise], Kraiburg [in partnership with Standard Retreads] and Michelin all maintain operations in neighbouring markets), there are also many other factories that can only be described as “small and un-organised.”

One of the most influential players in the domestic tyre market is the Al-Dobowi group, which not only is the official distributor for Hankook tyres in UAE, but also sells its Infinity private brand here, which is now increasingly sold around Europe and Africa as well. Al-Dobowi started retreading in the Middle East more than 15 years ago. A little over a year later the company became Bandag main dealer. Today the Bandag franchise is the biggest in the region and the company has between 40 and 45 per cent market share in the UAE. Fleet salesmen KK Singh started with the company 12 years ago.

Since then the quality of the company’s retreads and indeed Al-Dobowi’s Infinity private brand, has grown to the extent that now sales staff report that they are able to sell tyres on the basis of their brand equity. As a result it is tough to find a truck fleet in Dubai of more than 100 vehicles that is not supplied by Al-Dobowi. Following Bandag’s approval of Infinity tyres as retreadable casings back in 2009, an increasing number of fleets are being fitted with this new tyre/bandag retread combination.

The UAE has traditionally been considered a brand conscious market with around 350,000 premium new passenger car tyres sold annually in the UAE. In the commercial vehicle sector 90,000 retreads are sold annually. Between 25 and 30 per cent of the total tyre parc in Dubai is made up of retreads (the average across the wider Middle Eastern region is around 15 per cent). However, the status quo has been changing in this setting in parallel with trends observed in some European markets. And what’s more the apparent desegmentation of the market is expected to offer more opportunities for new tyre manufacturers in terms of sales. And for the same reason retread production is increasingly hindered by a lack of quality casings.

Retreaders have improved quality standards

This final point has also become the subject of increased attention over the last few years due to increased efforts, which have very much been led by the retreaders themselves, to improve quality standards.

Following the implementation of European quality directives ECE 108 and 109 over here and a series of road traffic accidents in the UAE, the ruling emirs upped the amount of roadside vehicle inspections and on-road quality control check. However, at this point there was no specific law covering tyre quality so the market was in chaos and many believe that retreads were discriminated against with the visual appearance of some tyres (especially those retreaded with the pre-cure process) being singled out for unwanted and unwarranted attention. The was seen as particularly unfair in light of the fact that while these products were being singled out, vehicles with dangerously worn, underinflated and damaged tyres that were not retreaded apparently avoid detection. The accusation was that the police were simply fining trucks for having what they described as “bad tyres” meaning retreads.

According to Al-Dobowi, the Bandag retreading factory was the plant to get accredited with GSO-965. Since then the company has trained more than 50 police officers on how to make better and more uniform road checks. Further factories have since been accredited, but there are also those that believe some firms achieved the new higher standards more by “influence” than by quality. In mid-March 2010 the authorities took further steps to establish uniform quality standards in the retreading sector with the aim of putting the apparent quality control “chaos” in the industry to an end.

Take up of official standards is said to have been pretty much uniform amongst the larger players. In mid-March 2010 the authorities took steps to establish uniform quality standards in the retreading sector put the apparent quality control “chaos” in the industry to an end. Examples of these standards include ISO 9001 and GSO 962.

The government implemented GSO-965 in 2005 and standards began improving, but the number of road deaths is still high. There were reported to have been 458 highway fatalities in the first quarter of 2011 alone.

Pressures on local retreaders

To a similar extent as in Europe, but arguably for different reasons, retreaders in UAE report that it is tough to get good quality casings. Dubai neither has clear vehicle load limiting laws nor the procedures necessary to enforce them. As a result overloading is rife and, when you add in the effects of the intense heat on the life of tyres, this means that many first life casings are not suitable for retreading by the time that the treads are worn down.

The exceptions are with special vehicles such as oil and liquid tankers and concrete mixers that have unchangeable load restrictions imposed on them by the physical volume of their appliances. However when it comes to three axle trailers, overloading is said to be commonplace. One industry insider told T&A that it is not uncommon for trucks designed to carry a 45 tonne payload to be burdened with as much as 70 tonnes. In normal circumstances the heat alone can reduce the mileage of 200,000 km tyre to around 60,000 km just as it does in other similarly hot markets such as some African countries. However the combination of overloading and underinflation can reduce these figures even further.

The most common size here (and across the Middle East) on six-wheel buses and trailers is 1200 R24 – a size leading players Bridgestone and Michelin simply don’t make for these markets. 1000 R20 is a common size for buses. And again this unique environment is providing opportunities for new tyre suppliers and retreaders alike.

Kraiburg’s customer base is reportedly dominated by end-users (including international firms like Cemex) and Al-Dobowi/Bandag’s is not different. With this in mind T&A visited two of the firm’s most influential customers.

Kingdom of Saudi Arabia vehicle parc over the last five years

(vehicles still in use up to 12 years old)

Group

2004

2009

% Change

 

Total Parc

Highest Volume Model

Total Parc

Highest Volume Model

 

Car

1,427,761

Toyota Camry

2,527,545

Toyota  Camry

77.03

Light 4×4

291,887

Toyota Land Cruiser

496,056

Toyota Land Cruiser

69.95

P/Up, Light Van

703,986

Toyota Hi Lux pickup

767,219

Nissan Pickup

8.98

Truck

87,531

Isuzu Elf 350

172,168

Isuzu Elf 350

96.69

Bus

36,618

Hyundai bus 12,000kg

31,191

Hyundai bus 12,000kg

-14.82

TOTAL

2,547,783

 

3,994,179

 

56.77

Source: Auto Strategies, CIP Development Services.

ASCON – Associated Constructions and Investments Co. LLC’s – view

Despite the economic downturn which burst the bubble of the booming property market and simultaneously put the brakes on the construction industry in Dubai, there are still a number of local businesses that are fairing well. Most of these survive and succeed due to shrewd choices of which projects to get involved with in Dubai and due to the boom of the Saudi Arabian construction business, which reportedly continues to grow relatively unaffected by the macroeconomic effects.

One such example is ASCON which has a total fleet of over 300 vehicles ranging from passenger cars to 80 tonne heavy trucks. Of these around 25 to 30 are trucks that Europeans will recognise and most of these are 6 wheel vehicles plus a few flatbed trailers. Each truck drives approximately 60,000 miles a year, according to the company’s manager – plant, A Muthu Fareed.

The pressures of the faltering construction market, which to some is all but dead in Dubai, has forced companies in this sector to reduce costs. As a result the environment is said to increasingly push buyers towards brands such as Hankook and Infinity. However while the costs may be lower, A Muthu Fareed is positive about the results “the tyres perform at equal levels to…Michelin and Bridgestone…Infinity is a good casing.” The end user was somewhat less generous when it came to appraising the performance of certain well-known Indian produced radials. The result is that fleets are retreading their Infinity casing two and even three times on occasion. Fareed reports that this works well with casings that are in good condition and maintained well throughout their lives.

ASCON also buys tyres, especially those for its JCB, backhoes and wheel loaders from other suppliers such as Trelleborg and occasionally Solideal, however, KK Singh pointed out that Al-Dobowi is the only OTR retreader to deal with all the many and various crane sizes present in the UAE – which also goes some way to explaining the firms strong position in the local market.

Other construction companies too are under pressure from clients to reduce costs and therefore squeeze margins. He reports that it is not unknown for customers to reduce the price they are willing to pay after construction starts for example. As a result he agreed with the view that construction firms are increasingly choosing lower cost tyres.

Second opinion: Wade Adams Construction

Another influential fleet in the UAE is Wade Adams Construction, which is seen as something of a blue chip account. While senior workshop manager Issa M Ayoub agrees with our assessment that 1200 R24 is amongst the most common sizes in the UAE, his view differs when it comes to the subject of overloading. Perhaps due to the fact that Wade Adams runs a very tight ship when it comes to fleet management, and perhaps because overloading may have been over emphasised, Ayoub points out that under-inflation is more of a problem because the heat build up this causes significantly worsens the already intense affect the hot weather has on tyres.

His view is that hiring the right people and giving them the right training is key to maximising the mileage of tyres, utilising retreading as part of a whole-life approach wherever appropriate. With the right tyres placed in the right positions run at the right pressures plus retreading (a new tyre plus two retreads), Ayoub reports that he has been able to triple the mileage of first life tyres alone despite the tough operating conditions.

When it comes to the development of the Middle Eastern markets, Ayoub has a slightly different view regarding the increasing prominence of what were previous call budget tyres, but are now sometimes known as emerging brands. Rather than the whole situation simply being prompted by price pressures caused by the recession, he points of that supply issues have also played their part. And this has a knock-on effect on the availability of high quality casings.

One way Issa Ayoub (who buys a range of tyre brands from suppliers including Al Dobowi) makes his purchasing decisions is on the basis of tyre performance, which is all tracked in-house. While telematics and online tyre management systems are all the rage for national and international fleets in the UK and Europe, this concept is still relatively new in the UAE. So when Ayoub realised there wasn’t a database designed for this on the market in the Middle East, he made one. But such is the company’s thoroughness when it comes to decision making, the process didn’t begin with the computer system, but rather the old fashioned way – pen and paper.

Since 2008 (when the system was completed) tyre reports have been punched into computers running bespoke database software. This has speeded up the data input process remarkably and means the company has its own view on how tyres perform in its “real life” tests. At the time of Tyres & Accessories’ visit in the middle of this year the company had spent three years monitoring around 65,700 tyres across 30 brands on the digital system.

So when it comes to selecting the right tyres, the company aims to make intelligent decisions. The same philosophy is reflected in the firm’s approach to retreads and the “UAE government is willing to help and understand [retreading]”, Ayoub commented pointing out that the government quality standard is the way to ensure retreading quality in countries like Dubai.

The largest retreading operation in the UAE

As we have seen Kraiburg’s new production facility was officially opened at the end of March 2010. The move to Ajman brings with it an increased production area with a covered area of 1,500 m² and a theoretical capacity of 2,500 retreads per month. At the market’s peaks Standard Retreads alone produced 20,000 units annually. During 2010 the figure was describe as “at least 30 per cent lower.” With around 15,000 retreads produced between April 2009 and 2010, Standard Retreads occupies a market share of around nine per cent.

For its part, Al-Dobowi’s Bandag franchise has an increasing influence in the local UAE and further regional markets such as Saudi Arabia. Currently the company runs the largest retreading plant in the UAE (which produces around 4000 tyres a month) plus two more in Saudi Arabia. A third factor in the Saudi capital of Rihad is also said to be in the pipeline. When T&A visited the Dubai operation, computerized buffing, non-destructive testing (including shearography) were all in operation. The plant which, as you would expect, exclusively uses Bandag quality machinery, is also the only one its kind in the UAE to utilise automated extractor fans for very clean buffing (95 per cent of dust is extracted).

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Category: International News, Retreading