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Ryder is a North American truck rental company wich also runs a transportation and logistics consulting business that accounts for around 40% of the company's revenue. 90% of the company's revenues came from North America in 2007, and at year's end the company had approximately 126,400 commercial trucks, tractors and trailers leased or rented through 683 locations in North America.[1]

Due to globalization, demands for commercial transportation worldwide have increased. With the increased volume of commercial transport, the logistics business has become more complex, and legislative changes have placed overhead strains on smaller carriers. For example, transportation companies must comply with Department of Homeland Security and Department of Transportation Security regulations that control who may engage in motor carrier operations and set guidelines for safety and financial reporting.[2] Ryder's large scale ($6.57B in 2007 revenues) make it possible to absorb these costs without a significant hit to operating margins,[citation needed] and Ryder has grown as a result of a robust transportation and freight need, expanding its revenues at 7.2% CAGR between 2005 - 2007.[3]

Contents

[edit] Business Overview

[edit] Business Segments

The company divides its operations into 3 segments:

  • Fleet Management Solutions - 57% of 2007 Operating revenues [4][5] - This portion of the business is the main operation, offering vehicle leasing and rental options, as well as associated products and solutions for the trucks, such as technology, fuel, insurance, and other overhead support functions. Used trucks are eventually sold by the company on the second-hand market. This portion is a primarily U.S. business.
  • Supply Chain Solutions - 34% of 2007 Operating revenues[6][7] - The Supply Chain Solutions segment consults to other businesses involved in complex supply chain or shipping operations. The company offers both advice as well as help with execution on a new plan once it has been agreed on. Actual implementation can also be outsourced to Ryder, which then handles the contracting of freight to third parties or internally.
  • Dedicated Contract Carriage - 9% of 2007 Operating revenues[8][9] - This segment fully operates carriage for its customers, and as of 2007, maintains 300 accounts.[10] As a result, this business collaborates with the other two segments and will "take over" their businesses when appropriate. This business is a popular provider to customers with time-sensitive deliveries or particularly complicated supply chains.
The FMS business is Ryder's largest
The FMS business is Ryder's largest[11]
Revenues ($MM)'[12] 2005 2006 2007
Fleet Management Solution$3,921.19 $4,096.05 $4,162.64
Supply Chain Solutions$1,637.83 $2,028.49 $2,250.28
Dedicated Contract Carriage$543.27 $568.84 $567.64
FMS Contribution64.3%61.2%59.6%
SCS Contribution26.8%30.3%32.2%
DCC Contribution8.9%8.5%8.1%

Note: Ryder's revenues above do not include negative eliminations that are a result of cross divisional charges. Of all of Ryder's businesses, the Supply Chain Solutions group is growing its revenues fastest, at 24% in 2006, and 11% in 2007.[13] This is a result of changing needs in its customers, as customers retool their supply chains to meet demands of globalization, leading to more international revenues.

[edit] Financial Analysis

Ryder's Operating Margin are predictable around 6%
Ryder's Operating Margin are predictable around 6%[14][15]
($MM)[16][17] 2005 2006 2007
Revenues5,740.86,306.66,566.0
Operating Income359.1393.0405.6
Operating Margin6.3%6.2%6.2%
Revenue Growth-9.9%4.1%

Ryder's revenues growth is moderate, at under 10% a year for the years 2006 and 2007[18], and margins have been predictable at 6.2-6.3%.[19] This is a result of the nature of the business - growth is slight as the gain on marginal business is slow, and the margins for the business are slim but consistent and predictable - headcount, fuel costs, and leasing profits are stable and predictable for Ryder, especially at its nearly $6B scale.

Most of Ryder's revenues are earned in North America
Most of Ryder's revenues are earned in North America[20]
Geographic Share ($MM)[21] 2005 2006 2007
North America5,205.75,701.25,889.6
Europe343.2346.9377.7
Latin America172.3237.4277.4
Asia19.621.121.3
North America Share90.7%90.4%89.7%
Europe Share6.0%5.5%5.8%
Latin American Share3.0%3.8%4.2%
Asia Share0.3%0.3%0.3%

More than 90% of Ryder's business has come from the domestic North American market (including Canada), and reflects how large the business and need for commercial leasing is in the North American market. The business had been slow to expand in the emerging markets of Latin America until the late 1990's, and Asia in the 2000's.[22] The segment that operates primarily internationally is the SCS business.

[edit] Trends/Forces

[edit] Continued outsourcing of supply-chain management the primary cause of revenue growth

Fueled by globalization, many of the North American industrial sectors have tried to migrate their supply chains, including manufacturing, assembly, packaging, and other operations, into lower-cost areas in order to be competitive. As a result, Ryder has grown both the SCS and the DCC segments to take advantage of this trend. In 2007, these segments contributed 34% and 9% respectively to overall revenues, growing at a 12.5% and 1.5% CAGR (DCC lost business in 2007, its a smaller business so is vulnerable to individual contracts) between 2005-2007.[23] In addition, due to increased costs associated with the purchasing and maintaining of a fleet of vehicles and additional costs from Department of Transportation (DOT) regulations[24] such as driver screening, training and testing, and record keeping, more companies are migrating their entire freight business to Ryder.

[edit] Over 90% revenue exposure to North America and high client concentration a risk in the face of North American recession

Despite a global footprint, about 90%[25] of the company's revenues are still earned in North America, with special dependence from the Fleet Management Systems segment, the Americas-centric business. High dependence on the US would restrict the company's growth, a particular concern with recessionary concerns facing the American economy. These concerns stem from the U.S. Housing Market bubble burst of 2007-2008, which is restricting the access of consumers to credit to finance consumption. As Ryder is a provider of commercial shipping solutions, it is dependent on the needs for supply chain and freight of the industrial firms that it supplies and consults to, who are in turn dependent on those household consumers. The company's SCS and DCC businesses are more resilient against recession than the FMS business, due to the more long-term nature and more "fixed" natures of those businesses. In addition to these concerns, the SCS business faces high client concentration, in which the top 10 accounts contributed 72% of revenues for the business. Losing a single account will lead to a significant decline of SCS revenues in the face of a recession.[26]

[edit] Company is engaging in small-regional acquisitions in America

Ryder has been actively acquiring smaller regional competitors in the domestic North American market, capturing their consumers, and then taking cost synergies from closing down the former competitor's infrastructure and moving it over to Ryder's existing facilities. Acquisition from 2005 onward have included 4 G's Truck Renting Company (New York), Pollock NationaLease (Canada), Lilly Truck Leasing (NE U.S.)[27], and Gator Leasing (Florida)[28] It can be seen that these acquisitions are part of Ryder's continued growth strategy, and since it already has so much infrastructure in place, grabbing the accounts and this cost cutting by sharing fixed cost is paying dividends to the national player. In addition to realizing the plant-closure synergies, Ryder's scale lets it pool and hire drivers, overhead costs, and fuel negotiating power to keep general costs low.

[edit] Competition

[edit] Commercial Vehicle Rental

  • Penske - Penske is a private competitor, and the closest thing to Ryder's direct competitor, offering both vehicle leasing as well as supply chain management services.
  • PACCAR (PCAR) - Paccar manufactures a range of trucks under nameplates such as Kenworth, Peterbilt and DAF. In addition, it participates in leasing arrangements under its subsidiary, Paccar Financial Services.

[edit] Supply-Chain Management

FedEx and UPS were both originally freight-haulers, shipping goods from point to point. However, both evolved into B2B (business to business) companies on the supply chain side, routing much of the traffic for both industry and manufacturing giants as supply chains became more complex due to Global sourcing, as well as the E-Commerce crowd as their businesses grew during the 90's. Both offer fully-outsourced shipping as well as the option to consult and provide advice to their customers.

[edit] Market Share

Ryder has approximately 17% share in the global industry
Ryder has approximately 17% share in the global industry

According to Datamonitor research, the Global truck rental/leasing market was sized at approximately $24.3B in revenues in 2006, with 1.5MM units leased.[29] The company's own estimates place the broad market of all commercial vehicles at $26B domestically.[30]

This market corresponds to Ryder's FMS (Fleet Management Solutions) segment, which earned $4,096.05 MM in 2006, giving the company approximately 17% share in the global market.

Global Truck Leasing Total 2006 Revenues ($B)[31]
Ryder$4.1
Others$20.2

The company also estimates the global supply chain business to be sized at $317B dollars globally[32], in which its own $2.25B of SCS revenues in 2007 would constitute under 1% share.[33]

[edit] References

  1. Ryder Systems FY 2007 10-K "Business" pg. 1
  2. Ryder Systems FY 2007 10-K "Regulation" pg. 8
  3. Ryder Systems FY 2007 10-K "Selected Financial Data" pg. 18
  4. Note that Operating revenues are a non-GAAP measure, and do not include fuel-based revenues
  5. Ryder Systems FY 2007 10-K "Industry and Operations" pg. 1
  6. Note that Operating revenues are a non-GAAP measure, and do not include fuel-based revenues
  7. Ryder Systems FY 2007 10-K "Industry and Operations" pg. 4
  8. Note that Operating revenues are a non-GAAP measure, and do not include fuel-based revenues
  9. Ryder Systems FY 2007 10-K "Industry and Operations" pg. 6
  10. Ryder Systems FY 2007 10-K "Industry and Operations" pg. 6
  11. Ryder Systems FY 2007 10-K "OPERATING RESULTS BY BUSINESS SEGMENT" pg. 28
  12. Ryder Systems FY 2007 10-K "OPERATING RESULTS BY BUSINESS SEGMENT" pg. 28
  13. Ryder Systems FY 2007 10-K "OPERATING RESULTS BY BUSINESS SEGMENT" pg. 28
  14. Ryder Systems FY 2007 10-K "Selected Financial Data" pg. 18
  15. Ryder Systems FY 2007 10-K "Consolidated Results" pg. 21
  16. Ryder Systems FY 2007 10-K "Selected Financial Data" pg. 18
  17. Ryder Systems FY 2007 10-K "Consolidated Results" pg. 21
  18. Ryder Systems FY 2007 10-K "Selected Financial Data" pg. 18
  19. Ryder Systems FY 2007 10-K "Consolidated Results" pg. 21
  20. Ryder Systems FY 2007 10-K "OPERATING RESULTS BY BUSINESS SEGMENT" pg. 28
  21. Ryder Systems FY 2007 10-K "OPERATING RESULTS BY BUSINESS SEGMENT" pg. 28
  22. Ryder Systems FY 2007 10-K "International" pg. 7
  23. Ryder Systems FY 2007 10-K "Industry and Operations" pg. 6
  24. Cato Institute "The Disunited States:A Country In Search of an Efficient Transportation Policy" March 10, 1987
  25. Ryder Systems FY 2007 10-K "OPERATING RESULTS BY BUSINESS SEGMENT" pg. 28
  26. Ryder Systems FY 2007 10-K "Risk Factors" pg. 12
  27. Ryder.com "About Us > Company Info"
  28. Reuters.com "Ryder Agrees to Acquire Florida-Based Gator Leasing" April 14, 2008
  29. Datamonitor Industry Research, "Global - Truck Leasing" May 15, 2007
  30. Ryder Systems FY 2007 10-K "Business" pg. 1
  31. Datamonitor Industry Research, "Global - Truck Leasing" May 15, 2007
  32. Ryder Systems FY 2007 10-K "Business" pg. 4
  33. Ryder Systems FY 2007 10-K "OPERATING RESULTS BY BUSINESS SEGMENT" pg. 28
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