Brexit, Covid and shipping cost increases point to tyre price hikes in 2021

After months of mounting pressure on UK ports, the automotive industry is bearing visible signs of strain. Specifically, Honda UK halted production at its Swindon factory in December 2020 because it couldn’t get the right parts in time to continue production. But the ramifications don’t end there. General UK tyre supply is likely to be impacted too. And the result of the Brexit and Covid market pressures as well as shipping cost increases are likely to result in tyre industry price hikes during 2021.

Since that initial closure in December, Honda announced that it is pausing car production at its factory in Swindon this week; the third time it has done so in a little over a month. The Japanese car manufacturer said in a statement that output would be paused from Monday to Thursday next week, the longest such pause so far. It said that global supply disruption as a result of the coronavirus pandemic was responsible for the pause.

At the same time, ports are facing a perfect storm of problems. And with the vast majority of the UK’s tyre demand being imported, the impact of the growing pressure on ports will inevitably put pressure on the tyre business too.

Shipping perfect storm

In terms of disruption, the Covid-19 pandemic, which itself is a multifaceted problem, is an obvious reason. First there’s the fact that restriction of movement has caused increased pressure on the delivery end of the logistics business. At the same time, social distancing and enhanced hygiene measures have slowed down the process of unloading ships. One tyre distributor told Tyres & Accessories of a 300 per cent increase in shift changeover time due to increased cleaning in loader/crane cabs at ports. All of this was exacerbated by the thousands of containers of PPE the government imported and left at the port of Felixstowe (Britain’s largest port) for weeks.

Before the pandemic, there was already talk of mounting pressure on the port system due to Brexit. Those problems haven’t completely manifested owing to the fact that deal talks have been continuing throughout the year. Now, however, as discussions between the British government and the EU are at the 11th hour, that pressure is only likely to get worse.

And, on top of all this, the basic cost of shipping has gone up significantly. One tyre importer told T&A that costs had tripled during the course of the last year. Another said it was more than that.

At the time of the Swindon shutdown, the BBC reported that Honda is looking at air freight in order to address its supply problems. This makes a limited amount of business sense when the factory is otherwise losing millions of pounds an hour. However, when it comes to tyre production and distribution, it is unlikely that air freight will be the answer. And all of this means 2021 will at least see UK tyre supply squeezed, but there are also legitimate concerns of shortages.

Of course, those making tyres within the British Isles stand to gain. Specifically, retreaders and the relatively small amounts of new tyre manufacturing that remain in the UK stand to benefit from a shortage scenario, but what about the aftermarket? Ever since the global financial crisis of 2008, there has been talk of desegmentation in the market. A volume market fight-back, supported by European legislation made a big difference in the years that follow. However, the return of economic pressures that have come with the Covid-19 pandemic has led some commentators to suggest that budget sales will pick up again. Speaking in November 2020, GfK representatives told T&A that the market is down, but not by anywhere not by as much as feared. As far as brand segment is concerned, budget sales were only up one percentage point to 45 per cent of retail sales (compared with a peak of 54 per cent a few years back), while premium sales also grew by the same proportion to 24 per cent of the UK tyre replacement market. Meanwhile, sales of mid-range tyres have historically been squeezed by the above movements. In a shortage scenario, that’s the part that is most likely to change. Cost increases will make budget tyre prices less attractive. In the commercial vehicle tyre business, retreads, which have had a hard time fighting against the cheap prices of low-cost imports will benefit. And in the car tyre side of things, where retreads have negligible market share, mid-range tyres are likely to be the best value proposition for pandemic-pressured consumers.