Is Ryder preparing to be sold?

The way Gregory Swienton talks about the changes he's made at Ryder System Inc., the $5 billion provider of fleet management and logistics services, you'd think the company was a wheezing middle-aged chain smoker who'd been whipped into shape at a health spa.

Arriving in June 1999 as chief operating officer, Swienton saw that it was ?fairly clear that we had some fundamental transformations to take on." As chief executive since November 2000, his plan has been to take the company back to core competencies — truck fleet management and contract logistics.

Everything else had to go. He got rid of the company's school bus division, the yellow rental trucks (which still, confusingly, bear Ryder's name), its aviation overhaul services division and its outbound automobile-haulage business. Ryder laid off more than 1,400 of the company's 30,000 employees last year. The company jet is history.

Swienton said Ryder has transformed itself from a holding company with seven or eight businesses to an operations company divided 60/40 between fleet management and third-party logistics. The 3PL unit, Ryder Integrated Logistics, provides supply-chain services as varied as managing the inbound flow of cargo for Honda's new Alabama plant and delivering each day's Miami Herald to its distributors.

?There's a new culture now," Swienton said. ?We're building the foundation for being a low-cost, effective solutions provider." In an increasingly cut-throat international logistics market, it's the only way to compete, he said. ?Despite the recession and 9-11, we're making money and beating expectations," he said. ?The old Ry-der would have lost money, but the new Ryder is making money."

Ryder Integrated Logistics is re-ducing the number of customers it targets and has disengaged from existing contracts that are no longer attractive. Market share and increased revenue don't count. Profit margin does. ?It's not exciting from a growth perspective," he said. ?But the margin im-provement is substantial, so as the economy recovers we'll get a disproportionate benefit."

Swienton foresees growth rates of 6% to 10%, and says there are no plans to alter the ratio between revenue from fleet management and logistics services. ?Our targets are all to do with profitability."

In the quarter ended March 31, the parent company squeezed $16.9 million in net income out of $1.149 billion in revenue, compared with $4.1 million profit on $1.281 billion in revenue a year earlier. Meanwhile, the stock price rallied 50% during a weak overall market. Swienton said Ryder reduced operating costs by $113 million in the last year. He makes no bones about it — the company has changed and investors like it.

If it sounds like a sales pitch, some say it is just that. A leaner, more-efficient company might make Ryder more attractive as an acquisition target by another 3PL. Matt Perek, senior logistics analyst with Santa Monica, Calif.-based investment bank USBX, said he suspects Ryder is seeking a buyer. ?Some of the more ambitious plans didn't come to fruition and they've been having trouble converting business to contract-based logistics," Perek said. ?I think recently they decided to put it up for sale."

Perek said one potential buyer might be Germany's Deutsche Post World Net, which is known to be looking to expand in the U.S. Other potential buyers could include ocean carrier-owned logistics companies such as NYK Logistics and Maersk Logistics, Perek said. And Asian companies such as Sembcorp Industries in Singapore are expanding internationally. ?It would have to be a global player," Perek said.

Swienton said Ryder generally declines to comment on rumor or speculation, but added: ?This question hasn't even come up for four quarters. We've always looked at all the strategic options for our business and that's something we've considered but we've said publicly that we're not going in that direction — and that still stands." Technically, because Ryder is a publicly traded company, it is always available for ?for sale," in the sense that the board is obliged to the shareholders to consider any beneficial offer.

Greg Burns, vice president of research at New York investment bank J.P. Morgan, said there have been continual rumors about Ryder being for sale, but they never seemed to come to anything.

This is because Ryder lacks a critical ingredient that is often most appealing to globe-trotting logistics companies looking for acquisition targets: an established forwarder network. This was what attracted buyers to such companies as Fritz, Circle, Air Express International, and others.

?I would say that unlike a lot of freight forwarders that have all been taken out, Ryder and the truck-leasing business in general wouldn't have the same strategic appeal as a freight forwarder network," Burns said.

On the contrary, he said that Ryder may have missed out by not buying a forwarder when it had the chance three or four years ago, before Swienton took over. That would have given it more credibility as a provider of logistics services competing against the likes of Kuehne & Nagel, Exel and Panalpina, Burns said.

?It was no secret that Circle was on the block and that Fritz was available," said Burns, referring to forwarding companies purchased, respectively, by EGL and United Parcel Service. Burns said Ryder's biggest shortfall ?is that they have no global platform, and it's hard to see how they would build that quickly."

Swienton said, however, that the company's international capabilities are in good shape. Ryder is focusing on winning deeper and broader contracts from a more narrow band of multinational customers than the company previously wooed.

?Most customers are established in international markets and are now looking for a way to leverage a global environment and make it as efficient as possible," Swienton said. ?We're in Asia and Europe and elsewhere be-cause our customers took us there." The strategy is to expand geographically with the customer, not build a foreign network and then fill it, Swienton explained.

Swienton said Ryder has identified 130 to 150 ideal target customers, including many current customers, such as Whirlpool and Honda. Ryder's supply-chain services will expand into longer-term contract logistics work that takes it deeper into a shipper customer's operations. The idea is to get involved in improving a shipper's cash-to-cash cycle, reducing inventory, managing warehouses and performing mass-customization work such as packaging. ?We're right in the middle of the assembly line sometimes," Swienton said.

Like many other 3PLs, Ryder sees its own customers as a major source of additional business.

He's also interested in providing a consultative role, helping shippers design better supply chains. He said that the kind of multinational corporations he wants to serve are more concerned with supply chain design and lean inventories than ?haggling over freight per pound."

Swienton said most companies now recognize that the real savings in logistics no longer are in transportation. Rather, it is more effectively using supply-chain planning to make operation more efficient.

?They care about that, of course," Swienton said. ?But the bigger money is elsewhere."

Burns said that, although some of Ryder's positive financial performance has been the result of a strong market for truck stocks, and a good used truck market, Swienton has done a ?solid job" in making Ryder more efficient.

Swienton said he was invited in as chief operating office because he is a hands-on manager who pays attention to detail. ?I get very involved. That's my inclination," he said. ?They didn't want someone who would oversee from a high level. I'm not talking about micro-managing. I'm talking about making sure when we make a decision, we've got it right. I spend a lot of time getting communications right with the employees. Marshalling the support of 29,000 people is the biggest mission. After all, they're the ones who get the job done."