Olympic Spirit

Attending the Essen show reminds you just how much trends change. This year there was less emphasis on size and performance, and much more on green issues (see page 52 onwards of the forthcoming July edition of Tyres & Accessories for comprehensive coverage). And yet as many budget tyres are being imported from the Fast East and China as ever. Seeing as I am on the subject of Essen, take the German market for example: here the budget segment has doubled over the last decade and now holds a 31 per cent share of the summer PCR market, according to 2hm & Associates. And while the share of budget summer tyres has doubled over the past 10 years, the share of premium products has fallen to 39 per cent from 50 per cent during a decade. The same analysts put this trend down to Germany’s ageing car parc – the average age is now 8.2 years compared with 6.2 years old a decade ago. Something similar is happening in the UK market with the familiar 40:20:40 (Premium:Mid-range:Budget) boundary lines being continually blurred.

So increased demand equals increased supply from the Far East does it? That’s how it used to work. And there are certainly more radials being exported from China than ever before. Just look at the record number of radial imports into markets like India. As a direct result of this, certain segments are finding it increasingly difficult to source what they are looking for. This is the other side of the supply and demand coin.

The situation is further complicated by China’s willingness to do almost anything to strengthen its place on the global trade map through a successful Beijing Olympics – a policy that has the knock-on effect of complicating various supply chains in the process. Basically it comes down to factory output and China’s national stance on green issues: “Quick tidy up we have got visitors.” The current situation is that the government of the People’s Republic has taken draconian steps to rein-in factory emissions during the countdown to Beijing 2008. And not everyone is aware of the effect this is having on parts of the tyre market.

You see, the name ‘Beijing Olympics’ is actually something of a misnomer. In fact, the 2008 event will actually spread across large parts of China – as far as major tyre producing cities such as Qingdao (which will host the sailing events). This means some factories have had to reduce production from three-shift patterns to just one. And of course this means product output has also followed suit. The result is that some factories only have enough capacity currently available to fulfil their OE commitments and so are prioritising this above export and aftermarket sales.

Here’s one (real life) example of what this means for purchasers from the world of ply wood. Customer X places an order, but due to government restrictions the company involved cannot supply the customer with the product on time. However, despite placing the order in good faith, customer X is also facing difficulties getting his money back because the supplier is either unwilling or will only do so at the current exchange rate. This puts customer X between a rock and hard place. He either has to wait till after the Olympics to get the plywood he has already paid for, or take a hit on the foreign exchange rates. Either way he and his customers ultimately lose out from China’s bid for Olympic glory.