TIRE RETREADING A True Case to Promote Circularity

The retreaded tire represents the symbol of the circular economy, avoids the consumption of raw materials, and drastically reduces the energy requirement compared to the production cycle of a new tire, and current technology ensures similar performance and durability. To understand the role of the unorganized sector in the push toward a circular economy (CE), Dr. Sourabh Bhattacharya, Professor of Operations and Supply Chain Management and Vinay K. Kalakabandi, Associate Professor of Operations and Supply Chain Management, Institute of Management Technology, Hyderabad consider the case of the unorganized tire retreading industry in India and examine the barriers it faces in contributing to a circular tire supply chain in India. There are more opportunities than ever for disruption in the tire recycling space, where all players in the ecosystem— manufacturers, tire recyclers, retailers, and consumers—can win. Here’s a take on this…

CORPORATIONS and Governments worldwide are pursuing scalable and sustainable strategies to promote the growth of a Circular Economy (CE). However, the recent circularity report published by the Ellen McArthur Foundation suggests that circularity in the global economy has plummeted from 8.6% in 2020 to 7.2% in 2023. Further, despite a high potential, India has been experiencing a deficit of investment in the CE space. Consequently, more effective measures are necessary to prevent further planetary resource depletion.

One industry that holds significant potential for increasing circularity is the tire industry. By nature, a tire is a product well suited for remanufacturing. Apart from the tread (the outer rubber layer that meets the road surface), all the other components of the tire (body plies, belts, liner, sidewall, and beads) are generally well-preserved even after extensive use. So, a used tire could be brought back to life using what is known as a Retreading process, where a new tread is installed over a used tire. When done skillfully, a retreaded tire could fully match a new tire in quality and safety. Given the widespread use of tires, keeping them in circulation and maximizing retreading is crucial for promoting a circular economy while realizing significant cost savings for commercial vehicle operators.

The Indian tire market, the fourth largest in the world, is similar to any other large market. A handful of original tire manufacturers (OTMs) corner a significant market share. While OEMs in the automotive sector form the primary end-user segment of these tires, the replacement market consisting of end consumers (those using passenger and commercial vehicles) forms the bulk of the demand.

The Indian tire retreading industry is characterized by a small proportion of Original Tire Manufacturer (OTM)owned and franchised tire retreading facilities and a large proportion of fragmented small and mediumsized unorganized players. However, anecdotal evidence points to a crucial role that unorganized players could play in the push towards CE. For instance, India has the highest polyethylene terephthalate (PET) waste recovery rate, mainly achieved by a network of unorganized scrap dealers. Additionally, the unorganized sector powered the sale of 17 million refurbished/second-hand smartphones in India in 2020, compared to 3 million by the organized sector. Similarly, unorganized tire retreaders, characterized by ubiquitous pre-existing capacity, widespread physical footprint, and unparalleled reach, are well poised to play a crucial role in the journey towards CE. They hold the potential to extend the usable life of products made using natural resources (natural rubber, carbon black and steel), reducing greenhouse gas emissions and resource waste while creating employment opportunities, and providing economic benefits to the customers by reducing their total cost of ownership (TCO) of tires.

Academic research on the barriers to circular economy suggests that CE stakeholders face technological, regulatory, market (economic) and cultural (behavioral) barriers. As can be seen, these barriers are generic in nature. To make the understanding of these barriers more nuanced and actionable policy makers and OTMs, there is a need to add context specificity to these barriers. To this end, we conducted a comprehensive study involving 23 tire retreaders from 15 cities across 8 Indian states. Our analysis identified many critical and interconnected barriers to the retreader's business growth, classified under four main categories: policy- related, retreader-related, customerrelated, and supply chain-related. Here are some key findings on each of these barriers are as follows:

7 Policy Related barriers: The Bureau of Indian Standards defines process specifications for tire retreading and certifies the retreaded tires for their safety, quality, and reliability. Retreaders are mandated by law to follow these standards. However, the unorganized retreaders we interacted with were unaware of these standards, pointing towards a poor implementation of standards. Moreover, there is also no specific government policy or incentive for the tire retreading industry.

7 Supply chain related barriers: Retreaders reported huge variation in the monthly demand for retreading leading to erratic capacity utilization. Further, increased raw material prices are reducing the gap of prices between retreaded and new tires.

7 Retreader-related barriers: Retreaders reported a lack of skilled labor in the industry with a high number of sub-par players. Absence of effective promotional tools impacted their business development capabilities. While there were no specific government incentives and support schemes specifically for the tire retreading industry, there are some government schemes for SMEs in general. Retreaders, we interviewed lacked awareness of these schemes.

7 Customer related barriers: Customer’s choose least price option for retreading which usually means using a sub-par retreader which results in poor quality and consequently bad perception about retreading itself. A customer’s lack of awareness plays an important role in shaping the perception about retreading.

India has the highest polyethylene terephthalate (PET) waste recovery rate, mainly achieved by a network of unorganized scrap dealers. Additionally, the unorganized sector powered the sale of 17 million refurbished/second-hand smartphones in India in 2020, compared to 3 million by the organized sector. Similarly, unorganized tire retreaders, characterized by ubiquitous pre-existing capacity, widespread physical footprint, and unparalleled reach, are well poised to play a crucial role in the journey towards CE.

According to BlueWeave Consulting research, India retread tire market size to grow at a significant CAGR of 3.21% by 2029. The demand for retread tires is expected to continue to increase during the forecast period. The India Retread Tire market for retread tires is seeing new growth due to the continuously developing vehicle sector. Consumer preference for sustainable alternatives is also more likely. Leading retread tire producers are employing cutting-edge production techniques and strategies to get rid of operational problems and provide customers with high-quality retread tires. Retreaded tire sales are also flourishing due to the growth of the logistics sector and increased freight demand. Tire wear and tear is causing a tremendous rise in the need for tire retreading.

We found that the two major barriers that most retreaders in our study reported were lack of effective promotional tools and poor implementation of standards. As can be discerned, these barriers are interconnected and often reinforce each other resulting in subdued profitability of retreaders, thereby going against the cause of CE. To overcome these barriers, our study suggests the following implications for the Government and the Original Tire Manufacturers (OTMs).

Development of retreaders' awareness and skills: One of the critical obstacles our study identified is the ineffective promotional methods employed by unorganized retreaders. The Ministry of

MSMEs has established schemes to offer marketing and business development assistance to retreaders. However, the awareness of such programs and schemes among retreaders is alarmingly low. Hence, the government must conduct campaigns across multiple platforms to educate retreaders about these programs and schemes.

Retreader certification: OTMs should implement regular training programs for developing retreaders' technical skills and encourage them to obtain industry-standard certifications. These certifications would serve as promotional tools for retreaders, fostering overall improvements in the quality of retreaded tires. By endorsing certified retreaders to customers, OTMs can strengthen trust in the retreading process and establish themselves as effective sales channels for the retreaders. Moreover, OTMs are in a favorable position to raise awareness about the government's incentive and support schemes.

Customer Education: Due to the lack of adequate knowledge, customers generally prioritize short-term economic advantages when choosing a retreader and overlook the long-term perspective of total ownership costs of tires, leading to skepticism surrounding tire retreading. Since many customers are fleet owners of trucks, buses, and off-the-road (OTR) vehicles located in various states, it is recommended that local road transport authorities implement awareness campaigns using print and electronic media in the vernacular languages. OTMs, on the other hand, must leverage their position as the primary point of contact with customers to educate them about the retreading process.

Recognizing the importance of retreading, governments worldwide have begun implementing rules and regulations related to tire retreading processes, such as those seen in EU countries (UN-ECE Regulation No 108 for car tires and No 109 for truck tires) (European Commission, 2014). However, in India, these regulations are still in their early stages. Currently, OTMs lack the incentive to expand their retreading capacities due to high upfront investment costs and concerns about the potential cannibalization of their new tire businesses. However, the introduction of extended producer responsibility (EPR) regulations mandates that Indian OTMs be responsible for recycling 100% of the tires they produce by 2024/25. Complying with the EPR regulations would necessitate significant collaborative efforts between the government, OTMs, and the existing retreaders and recyclers.

Further, effective regulatory enforcement and monitoring by the government are crucial in implementing tire retreading standards. Adherence to the standards is necessary to ensure retreaded tires' safety and high quality, instilling customer confidence in the unorganized players and ultimately fostering their business growth. Moreover, rigorous enforcement of standards will effectively eliminate unskilled and ill-equipped retreaders, resulting in improved capacity utilization among the remaining players and reduced demand uncertainty. However, the government must carefully consider the societal implications of strictly implementing these standards, as it may potentially lead to the loss of employment and financial distress for numerous retreaders.

Green tax incentives: To encourage environmentally friendly transportation, the Government of India has incentivized the purchase of electric vehicles (EVs) by reducing the Goods and Services Tax (GST) on EVs from 12% to 5% in 2019. However, there is a notable absence of similar green tax incentives for retreaded tires. This disparity in tax implications within the same circular supply chain discourages collaboration and undermines the objectives of the circular supply chain. The government should introduce green tax incentives like reducing the current GST on retreaded tires and procured rubber treads, ultimately reducing the costs of raw materials for retreaders.

Sustainability is top of mind for tire manufacturers, retailers, recyclers, and consumers alike. In fact, many major manufacturers have already announced far-reaching sustainability goals. For example, Michelin has committed to making its tires 100% sustainable by

2050, Goodyear aims to replace all petroleum-based oils in its tires by 2040, and Bridgestone intends to slash its CO2 emissions by 50% from 2011 levels by 2030 and become carbon neutral by 2050. Indian OTMs, including JK Tyre and Apollo Tyres, have committed to achieve carbon neutrality by 2030, while India as a whole aims for netzero emissions by 2070. With both the government and OTMs dedicated to their carbon-neutral goals, they hold significant responsibilities in tackling the challenges confronted by tire retreaders. The collaboration between these three key stakeholders—the government, OTMs, and retreaders—will be crucial in establishing strategic partnerships that can bring about genuine circularity in India’s tire industry.