UPS stakes claim to forwarding

United Parcel Service staked its claim to the forwarding and customs brokerage business Thursday when it closed on its acquisition of Fritz Cos., and revealed that it had also acquired a stable of smaller customs brokerage companies specializing in trade with Canada and Mexico.

Those companies will be combined with Fritz and UPS's existing freight forwarder business in a new, as yet unnamed unit, with an estimated $750 million in annual revenue.

The acquisitions immediately make UPS a major player in forwarding, particularly in North America, and enhance its ability to provide shippers with a full menu of services.

"The integrated network UPS is creating is unmatched in its scope and range of services," boasted David Abney, who will head the new division, which has not yet been named. Abney is a 27-year veteran of UPS and former president of SonicAir, which is now part of the UPS Logistics Group.

The Fritz transaction, announced Jan. 10, was worth $437 million based on Wednesday's closing price for UPS stock. Each share of Fritz common stock will be exchanged for 0.2 shares of UPS Class B common stock. UPS will issue 7.4 million shares of that stock to Fritz shareholders, who approved the deal Wednesday.

The sale marks the end of the line for San Francisco-based Fritz, which was founded in 1933. The company ran into trouble after it went on an acquisition binge in the early 1990s and then had trouble absorbing those new companies.

Fritz had gross revenue of $1.6 billion and net revenue of $619.3 million during the fiscal year ended last May 31. Fritz owns and operates 400 facilities in more than 120 countries and has over 10,000 employees globally.

Fritz will be branded now as "Fritz, a UPS company." Its headquarters will remain in San Francisco and Graham Napier will stay on as president and chief operating officer, Napier said. Its common stock was delisted from the Nasdaq exchange at the close of trading Thursday.

Abney said he expects Lynn Fritz, the company's chairman and chief executive, "to provide us with his expertise, networking with large customers and people in the industry."

Besides Fritz, the new acquisitions include:

H.A. & J.L. Wood, Inc. of Pembina, N.D.
Border Brokerage Co. of Blaine, Wash.
Fulfillment Systems International (FSI) of Buffalo, N.Y.
Trans-Border Customs Service (TCS) of Champlain, N.Y.
W.Y. Moberly Inc. of Sweetgrass, Mont.
Miles Group, Inc. of El Paso, Texas
William F. Joffroy, Inc. of Nogales, Ariz.

Miles is the largest of these, with more than 850 employees and approximately 40 facilities along the U.S.-Mexican border, according to UPS spokeswoman Peggy Gardner. All the companies "have great reputations for high-touch service," she said.

Those acquisitions were all cash transactions and terms were not disclosed.

"From a coverage point of view, we felt this is an unmatched offering. It gives our customers a single point of accountability to manage their transportation needs," said Abney. He declined to say where UPS will rank now in terms of forwarding and customs brokerage companies, but said, "when we were looking at this from a strategic point of view, we thought we would want to be in the top 10."

Noting that there aren't many large customs brokers in the U.S., Gardner said that can present problems for big shippers because they end up having to deal with multiple companies to meet their needs. "We think that the ability of UPS to pull together a network that allows companies to clear goods through one provider is especially powerful."

Abney said UPS is not looking to merge the information technology systems of the new acquisitions. Rather, he said, "We're looking to take advantage of synergies." Abney praised Fritz's Global Business System that the company has implemented throughout Asia, soon to be followed by Europe and North America. "We had our systems design people evaluate it," he said. "UPS has some expertise and some synergies we can obtain from them. They complement each other very well."

The new business unit will be based in Atlanta, where UPS has its corporate headquarters. UPS's existing freight forwarder business includes Unistar USA, UPS Italia and a British company called Atlas Air that is unrelated to the U.S. air cargo carrier with the same name.

UPS officials declined to comment on the status of a lawsuit brought by FedEx Corp., which sought to block the Fritz acquisition. Fritz provides customs brokerage services for FedEx in Memphis, Oakland and Anchorage. Fritz is under a court order to keep the FedEx information confidential.

Asked about the prospect of future acquisitions, Abney said UPS continues to evaluate new possibilities, and noted that the purchase of First International Bank is expected to close this summer. That deal will enhance UPS's trade finance capabilities.