Do you expect any supply difficulties in the second half of the year?
Continental has a large manufacturing footprint in the U.S., with plants in Mount Vernon, Ill.; Sumter, S.C.; and Clinton, Miss. The Mount Vernon plant is one of Continental's largest plants worldwide.
However, as with many manufacturers, disruption in the supply chain coupled with decreased production in 2020 will lead to supply shortages throughout 2021. As a global manufacturer, we are sourcing tires from our global production network to supplement local supply, but the container shortage will also impact the speed and availability of these deliveries.
We are working diligently to maximize the supply of tires available for our customers in the U.S. market and appreciate the ongoing patience and partnership of our customers through this period.
What are some of the pleasant surprises you are seeing?
One of the pleasant surprises for me has been the openness and willingness for our customers to conduct virtual business. In a very traditional industry, it was a pleasant surprise to see the level of trust that our customers exhibited, allowing us to continue doing business with them and to share information throughout the crisis.
We have actually been able to spend more time in front of customers by using these virtual tools, since it eliminates the travel time. It's a testament to how adaptable this industry truly is.
What is your reaction to antidumping duties on passenger and light truck tires made in Thailand, South Korea, Taiwan and Vietnam?
As a company, we are in favor of free and fair trade. We respect the rights of all countries to investigate and take corrective action in the event there is evidence of unfair trade.
As Thailand, South Korea, Taiwan and Vietnam make up a significant portion of the total tire supply to the U.S. market, we would expect to see the larger global tire manufacturers operating in these regions to rebalance their supply sourcing approach for U.S. deliveries away from facilities in these regions. This is similar to what happened when the tariffs on Chinese products were implemented.
Therefore, manufacturers with less diverse manufacturing networks may have challenges. Continental is in a strong position as we are not reliant on sourcing from these countries to support our U.S. business.
What kind of trends are you seeing in the marketplace?
On the passenger and light truck side, over the last two years, the shift toward higher rim diameters has accelerated. We also are seeing all-terrain products growing from a demand perspective, as vehicles in this segment are becoming more popular.
We believe there is a good correlation between stimulus checks and the increase in tire/wheel upfitting on vehicles that we currently see in the market.
Our manufacturing plants are shifting their production mix as a result of these trends and we are working to increase our manufacturing flexibility in these segments to be able to support future demand.
For commercial truck tires, over the past decade we have witnessed the volume of truck tires for the regional application continuing to increase year in and year out, nearing long-haul volumes. This has not been seen in the U.S. market in recent memory.
As soon as the next five to 10 years, regional tire shipments are expected to eclipse long-haul volumes. Many other sources support this trend, with less-than-truckload (LTL) shipments reportedly growing at a compound annual rate of 10 percent-plus and last-mile delivery continuing to grow in popularity.
In reaction to this trend, Continental has released several new tires over the last few years. Continental had anticipated growth in last-mile delivery, releasing a 16-inch all-steel retreadable tire, the Conti LAR 3, in 2018, designed specifically to deliver the lowest overall driving cost in this segment.
This year, additional sizes will become available. The company enhanced its HDR2+ regional drive tire last year, available in 22.5 and 24.5 sizes, with new tread compounds to deliver improved wear performance, wet traction and cut/chip resistance.
This year, the company will debut its Conti HDL 3 LTL drive tire designed specifically for LTL applications. The tire delivers market-leading mileage performance when paired with the matching drive retread. It is currently available in 295/75R22.5, and additional sizes will become available in the second half of 2021.
In the material-handling space for commercial specialty tires, we are seeing a shift toward battery-powered and autonomous vehicles. These vehicles can be heavier and some can maneuver in new ways which can be harder on the equipment's tires. We must continually improve and push our products to higher levels to perform in these markets.
In earthmover and agriculture, we are seeing larger and more powerful equipment, so we have been busy creating new sizes and designs to perform on this equipment. There is also an expectation from more of our partners for information.
They want to know tire pressures, temperatures, their route's impact on tires, cost per hour and overall information to make sound business decisions. Our digital solutions sensor technology and analytics platforms help deliver this information.
Do you expect to roll out any additional products in 2021? What will they be and what sector will they serve?
2021 has been a busy year with new product offerings and entry into new segments for passenger and light truck tires.
In February, we introduced the Continental ExtremeContact DWS-06 Plus, our next-generation ultra-high-performance all-season passenger, crossover and SUV tire, which will replace the Continental ExtremeContact DWS-06.
In May, we launched the General Tire AltiMAX 365AW, which was our first all-weather tire for passenger, crossover and SUVs. In June, we will launch the Continental ExtremeContact Force, our first ultra-high-performance competition tire for enthusiasts and professionals.
In addition, we continue to add additional sizes to our existing product offerings to ensure we can best serve our customers and consumers.
For truck tires, the long-haul segment continues as the leading segment in the U.S. market. This year, Continental will release the Conti HTL 3, a long-haul trailer tire focused on delivering maximum removal mileage. The Conti EcoPlus HT3 will remain available for fleets focused on maximum fuel savings. Both offerings are Smartway-verified and CARB compliant.
Commercial specialty tires is bringing a full line up of General-brand solid rubber forklift tires in black and non-marking compounds.
We continue to bring new sizes and types of intelligent earthmover products from our most recent plant in Lousado, Portugal. We are also extending our agriculture portfolio with new sizes and products such as the CompactMaster AG for telehandlers and many VF products.
What has been the overriding factor in all the recent price increases?
Surely raw material prices have had an impact but in 2021, freight costs have also had a significant impact. We source our products from Continental plants all over the world and the shortage of containers and even space on the cargo ships have driven up shipping companies' prices as well as our costs.
Do you expect any major investments in the next six months or year, in either personnel, distribution facilities or capacity expansions?
In order to improve servicing our customers, in May we opened a new warehouse in Reno, Nev. The 260,000-sq.-ft. facility, which houses PLT replacement, PLT OE and commercial specialty tires, enables us to be closer to our customers and further strengthens our infrastructure in the market.
Continental continues to invest heavily on technology, sustainability and mobility. What technology will be a game-changer?
Continental's digital tire monitoring solutions are changing the game for fleets. New solutions and increased functionality in existing products can be expected throughout the year.
Customers looking for the lowest overall driving cost should strongly consider a digital TPMS, as properly inflated tires get 15 percent longer tread life on the tire's first life, and 20 percent longer casing life for retreading.
One customer has told us they have reduced roadside service calls to zero by implementing our ContiConnect Yard solution. This type of service around the tire helps our customers maximize their tire investment and reduce downtime.
Continental A.G. has adopted a sustainability strategy that will see it becoming 100 percent carbon neutral, emissions-free and "circularized" by 2050. Why is that important?
We are convinced that sustainable and responsible business increases our ability to innovate and shape the future—adding value to the company and society across the world—and we believe it also adds value for the customers.
For our tire business, we aim for a continuous re-use of our tires or their input materials. By 2050, 100 percent of our tires will either be renewed or consist of 100 percent recycled or other sustainable materials. We want to eliminate waste and that is why we are continuously expanding our circular economy solutions to maximize the reusability of our tires and of all materials used for their production.
Today Continental already provides state-of-the-art retreading solutions for truck tires in order to protect scarce resources. Continental's worldwide tire retreading operations are a perfect example of intelligent circular economy solutions. While truck tires are being renewed, rubber from the removed tread is being reclaimed and used for new rubber compounds.
Continental announced an expansion plan at its headquarters in Lancaster County, committing more than $20 million for an office building for up to 400 employees. Can you provide an update on that?
We have broken ground for the expansion of our Americas' headquarters and anticipate to welcome employees to the new space during the second half of 2022.
This expansion is designed to be our workplace of the future to support operations of our business across the Americas. Networking, agility, flexibility and the ability to leverage technology to enable remote collaboration for distributed teams are some of the key features and benefits we will have in the new space.
Anything else you would like to add?
Overall, as demonstrated during the pandemic, we believe that our strong partnerships with our customers will lead Continental to success.
In addition to our tires and retreads, many of our fleet customers rely on our digital tire monitoring solutions, which help them reduce costs and improve uptime. That becomes even more important during a crisis. Customers also appreciate that we have our full team of reliable and technically trained representatives to help them.
We have already transitioned to virtual meetings, helping our customers navigate the crisis and serving as an essential business partner.