Overview of the Tyre Industry
The tyre export industry is a significant player in global trade, providing essential components for vehicles. With technological advancements, increasing vehicle production, and expanding international trade networks, the tyre export and manufacturing sectors are poised for growth.
The global tyre market was valued at approximately USD 232 billion in 2023. This figure represents growth from the previous year, driven by factors such as increasing vehicle production and advancements in tyre manufacturing technologies.
A Closer Look at Tyre Exports by Countries
In 2023, the global tyre export market was significantly influenced by key players such as China, Thailand, Germany, Japan, and the USA. These countries together accounted for 45.6% of all rubber tyre exports. The dominance of Asian countries was particularly notable, with exports totaling $45.8 billion, representing 50% of the global tyre exports. Europe followed with a 37.6% share, North America contributed 9.3%, Latin America 2.5%, Africa 0.6%, and Oceania 0.1%.
Current Freight Situation
The ocean freight and shipping market is experiencing turbulence, with various factors contributing to an unpredictable landscape.
Baseline Fundamentals
- Overcapacity: Fleet growth has outpaced demand growth, with a 25% increase in fleet size versus an 8% increase in demand over the past five years. This has led to substantial overcapacity, which is expected to worsen with an additional 1.5 million TEUs entering the market by the end of 2024.
- Slow Steaming: Slower sailing speeds have absorbed some capacity, but oversupply remains a significant issue.
Red Sea Crisis
Diversions and Distance: The Red Sea crisis has forced vessels to reroute around southern Africa, increasing the need for TEU miles. The overcapacity is barely sufficient to manage these new routes without further disruptions and faster vessel speeds.
Port Congestion
Gradual Worsening: Congestion in Asian and Western Mediterranean ports has reached critical levels, exacerbating global supply-demand imbalances.
Spike in Demand
Early Peak Season: A sudden increase in demand, likely an early peak season, has added pressure to the system. This spike has not affected air freight, similarly, suggesting specific factors in ocean shipping, such as shippers preemptively avoiding disruptions.
Echoes of Pandemic Disruptions
The current market situation mirrors early pandemic conditions, where capacity shortages led to unprecedented rate increases. Spot rates on routes like North Asia to the US East Coast have already seen significant hikes, indicating potential for pandemic-level rate increases if trends continue.
Issues Faced by Tyre Exporters
As of 2024, the situation of tyre exporters is experiencing some changes, with new trends and developments emerging in the market. Here’s an update on the current situation:
1) Global Demand
The global demand for tyres is expected to grow moderately, driven by increasing vehicle sales, urbanization, and infrastructure development. The International Tyre and Rubber Study Group (ITRS) projects a 4.8% CAGR for the global tyre market from 2024 to 2026.
2) Market Trends
- Sustainability: The market is shifting towards eco-friendly options with a focus on reducing environmental impact and increasing fuel efficiency.
- Advanced Materials: The use of materials like silica and nanotechnology is becoming more common.
- Electric Vehicles (EVs): The rise of EVs is driving demand for tyres with reduced rolling resistance and improved traction.
3) Regional Demand
- Asia-Pacific: The largest and fastest-growing market due to vehicle sales in China, India, and Indonesia.
- Europe: Steady growth driven by demand for premium tyres.
- North America: Slower growth due to declining passenger car sales and a shift towards EVs.
- Latin America: Rapid growth driven by vehicle sales and infrastructure development.
- Trade Tensions
- US-China Tensions: Increased tariffs on tyre imports have affected competitiveness, but manufacturers are mitigating impacts by shifting production or increasing domestic output.
4) Recent Developments
- EU Regulations: New tyre labelling regulations for fuel efficiency, wet grip, and noise ratings.
- US EPA Rules: New fuel efficiency standards for tyres.
- Investments in EV Technology: Major manufacturers are investing in EV-related technologies.
Shippers’ Perspectives and Strategic Insights
The market’s volatility presents challenges for shippers in planning and budgeting. Here are some strategic insights:
- Monitor Key Trade Lanes: Focus on major routes like Far East to North Europe, US West Coast, and Mediterranean due to recent rate movements.
- Leverage Spot and Long-Term Rates: Balance opportunities in the spot market with long-term contracts for stability.
- Prepare for Early Peak Seasons: Adjust logistics strategies to account for early peak seasons, ensuring capacity and avoiding disruptions.
Potential Scenarios for the Upcoming Months
1) Continued Rate Increases
If high demand and the Red Sea crisis persist, rates could climb, potentially reaching early pandemic levels. Early data for June suggests this trend may continue, especially on key routes from the Far East.
2) Rate Stabilization or Decline
If the Red Sea routing reopens, the return of overcapacity could cause a sharp drop in spot rates. If the current demand spike is short-term, rates might stabilize or decrease after this period.
What’s 2024 like for the Tyre Industry? Growth, Trends, and Challenges
The global tyre market is expected to grow in volume and value through 2024, driven by specialty applications like motorcycles, high-performance vehicles, and OTR tyres. According to Smithers’ report, ‘The Future of Global Tyres to 2024,’ the market value is projected to increase from $239 billion in 2019 to $280 billion by 2024, with a compound annual growth rate of 3.2%. The tyre industry will adapt to global challenges, including regulatory changes, technological advancements, and sustainability efforts. Key trends over the next five years include:
1. Regulatory Environment: Expansion of labelling requirements, fuel efficiency mandates, and lower emissions will drive innovation and technology adoption.
2. Tyre Technology Advances: Continued focus on improving performance, reliability, durability, and incorporating intelligence/data predictive analytics.
3. Sustainability: Greater emphasis on sustainable practices, from raw materials to recycling, and efforts to achieve zero waste and defects in manufacturing.
4. Market Dynamics: Growth in vehicle production, increased performance/load demands, and expansion of e-commerce will influence tyre demand and distribution methods.
5. Vehicle Sharing and Fleets: Adaptation to vehicle sharing trends and sophisticated fleet management will drive changes in tyre usage and services.
Conclusion
The ocean freight and shipping market is at a critical juncture, facing high uncertainty. Overcapacity, rerouting challenges, port congestion, and demand spikes create a complex environment with potential for both sharp rate increases and decreases. Shippers need to stay informed, adapt quickly, and strategically manage their supply chains to navigate the months ahead successfully. While the exact trajectory of freight rates remains uncertain, preparing for continued volatility and potential stabilization is essential for mitigating risks and capitalizing on opportunities in the evolving tyre export market.
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