At the start of 2021 we published a headline suggesting that “shipping costs [were] temporary” and “price increases less so”. While that article was based on the latest third-party data as well as the expert opinion of a leading wholesaler, it now looks like shipping cost woes are set to continue well into 2022 and that – while they have softened recently – raw material costs will remain headwinds during the next year or so as well.
Extraordinary market conditions in sea freight are now expected to persist well into 2022, according to analysts. Meanwhile, long-haul air freight belly capacity is only expected to gradually return between 2022 and 2024. Of course, freight forwarders/shipping firms are the biggest winners in this scenario, with the same analysis produced by Jefferies further raising pre-tax profit (EBIT) estimates by 18 per cent on average in the sector for the 2021 full year and by 14 per cent in 2022.
The complexity of the UK tyre wholesale sector has certainly ramped up considerably thanks to what may be termed an almost perfect storm of external factors relating both to the Covid pandemic and Brexit. With retail margins on consumer tyres already very fine, the wholesale sector has been key in keeping price increases under control, especially considering the spiralling cost of shipping. But as those in the sector know, the value wholesalers add within the distribution chain is a considerably wider subject than purely price. Arguably, the service dimension has never been more important than in the last 18 months, as retail businesses adapted to a market transformed by externalities. Tyres & Accessories asked Graham Mitchell, Micheldever Tyre Services wholesale director, about how the business is faring in 2021, starting with its performance this year.
For tyre distributors in import-heavy markets such as the UK, the sharp and sustained rise in the cost of shipping product from key sources such as China and South-East Asia is a major headache with potential market-reshaping consequences. While there have been varying levels of success in managing this headwind according to some in the market with whom Tyres & Accessories has spoken, strategically placed orders and bumper levels of stockholding can only ameliorate prices on such products for so long. Wholesalers have faced a difficult trading environment this year, which to this point has shown little sign of abating.
Trelleborg Group brand Mitas has announced price increases for its motorcycle, scooter, go kart, trailer and aircraft tyres, as well as for its complete range of tubes and mousses. This increase, the second for 2021, takes effect from 1 October 2021 and is being implemented due to “significantly higher prices of raw materials and logistic services across the industry.”
As the April edition of Tyres & Accessories went to press, the story of the Ever Given – the 400-metre long container ship that got wedged in the Suez canal – was getting a surprising amount of news coverage. The spectacle of a ship the length of four football pitches was enough to capture the attention of many. For others, the anecdotes of tenacious tug pilots and plucky digger drivers trying to free the gargantuan vessel from its unscheduled moorings did the trick. But for those in the tyre trade – and hundreds of other lines of work connected with global logistics – there were solid business reasons for their interest. “How many boxes have you got on the Ever Given?”, one tyre wholesaler asked. “It’s times like this…”, the other comically replied leaving the rest of his reply to the imagination.
Yokohama Off-Highway Tires Europe Middle East and Africa (YOHT EMEA) has announced across-the-board price increases of 4.5 to 5.5 per cent. An official statement specified that the first price increase of 4.5 to 5.5 per cent was implemented on 1 Jan 2021. The new pricing will apply to the entire portfolio of Yokohama Off-Highway Tires EMEA (including the Alliance and Galaxy brands) and will take effect from 1 April 2021.
Spring is on its way, and independent tyre distribution firm Vimexa says it has a wide range of products available to customers. Managing director Rutger Veerman confirms that a number of brands are available, and as 85 per cent of the tyres that Vimexa supplies are premium products, import uncertainties won’t be an issue. But options also exist for customers shopping for budget tyres.
The notion of harnessing the wind to carry cargoes across the oceans is finding renewed favour, and the Michelin Group hopes this mode of shipping will offer plain sailing towards minimal CO2 emissions. The company recently signed a transport commitment with French sustainable shipping firm Neoline that will see its tyres shipped by sail from Halifax, Canada to Saint-Nazaire, France.
A shortage of shipping containers and essential equipment at Chinese ports, exacerbated by fluctuating international trading environments in the Covid pandemic, has meant inflation in international shipping rates. In November, rates for transporting containers between China and the east coast of the USA increased to $4,750 per container, 42 per cent up on July rates, according to RefinitivEikon data. The cost of shipping from China to the US west coast has increased 50 per cent to $3,878 per container. Europe’s Shanghai Container Freight Index (SCFI) spot rate index has risen sharply, with Northern Europe rates up 21 per cent and Mediterranean rates up 23 per cent, rates that have not been seen since the beginning of 2014. According to Trojan, a tyre marketing agent headquartered in Qingdao, China, shortages have worsened recently. This busy period for Chinese exports could see deficits continue to deepen into the New Year, meaning further price increases.
Back in April, Tyres & Accessories spoke to leading supplier of freight forwarding services to the UK tyre sector, Maritime Cargo Services about the perfect storm of circumstances complicating life for tyre importers. Then it was difficult to anticipate the logistical problems the industry would face by the end of the first quarter – at least far enough ahead to sidestep the issues entirely. Even armed with the expectation of disruption, the pressure has built at British ports throughout the year, especially in the last quarter as Covid began to spike again. As a result, Honda UK’s suspension of production became a high-profile symptom of the catalogue of issues causing bottlenecking and ultimately delays in the supply chain. With the end of the Brexit transition coming amidst the second spike of Covid-19 transmissions on 31 December, T&A asked MCS again about what difficulties distribution businesses need to plan for this winter.
After weeks and months of mounting pressure on UK ports, the automotive industry is showing visible signs of strain. Specifically, Honda UK has halted manufacturing at its Swindon factory because it can’t get the right parts in-time to continue production. General UK tyre supply is likely to be impacted too.
Chinese celebrations of Lunar New Year (25 January) were muted this year by the emerging coronavirus crisis, with the huge amount of personal travel associated with the holiday period down around 45 per cent. Yet global business’s reliance on China’s manufacturing meant that large orders were, as usual, preplanned to take into account the two to three weeks of manufacturing slowdown at this time of year. In the UK tyre sector, the result is that a large number of tyres that will likely exceed some distributors’ warehousing capacity are now arriving at UK ports. Freight forwarder, Maritime Cargo Services is offering one solution to companies experiencing this problem.