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Ruan embraces its future by selling a big part of its past


Ruan Transportation Management Systems, the trucking firm that helped make John Ruan II one of the most powerful men in Iowa business, is undergoing its largest strategic shift in 20 years.

Over the past three years, overseen by Ruan’s son, John Ruan III, the company has packed its top management ranks with outside executives in an attempt to boost the company’s capabilities and take advantage changes in the nation’s trucking industry wrought by a combination of consolidation, technology and interest rates. It is undergoing other transformation as well.

The most visible of Ruan’s changes happened March 1, when Ryder System Inc., one of the nation’s largest trucking and transportation companies, completed a deal to buy all of the assets of Ruan Leasing Co. The Ruan Transportation subsidiary has struggled to maintain its profitability for the last several years, vexing Ruan executives even as they searched for ways to shore it up and make it competitive against larger national trucking firms. Ryder paid $145 million in cash for Ruan Leasing.

With the sale, Ruan is betting it can earn fatter profits and grow revenues more quickly by becoming more deeply intertwined with its customers, which include Target Corp., snowmobile manufacturer Polaris Industries Inc. and furniture maker HON Industries Inc. It intends to do this by making better use of technology to track its trucks and freight, which it says will help customers cut their shipping costs and keep inventories lean. Ruan’s leasing business didn’t hold the same promise, executives said.

“We didn’t see it as a business where we could get the kind of return that we would like,” said Mark Murfin, Ruan’s vice president of sales and marketing. “Leasing is a very capital intensive business, and the rental business needs to have a critical mass. You need to have a lot of trucks to compensate for the busy periods. We just don’t think that we get our best return on capital investing in that product line. Where we think we can get the most value is in other parts of transportation.”

Though Ruan Leasing is the No. 3 equipment leasing company in the United States, it was a distant third behind General Electric Capital Corp. and Ryder. Ryder, which owns a company fleet of 160,000 trucks, had net income of $93.7 million on revenues of $4.78 billion last year.

By contrast, Ruan Leasing had a fleet of about 6,800 vehicles and an additional 4,800 units under contract maintenance agreements as of August. The division had revenue of about $180 million in 2002, former Ruan spokesman Matt McCoy told the Business Record in August. The company believes its transportation and logistics business will grow fast enough to replace the income lost from its leasing operations “in the next several years,” Murfin said.

In its announcement last week, Ryder said it was acquiring about 6,400 vehicles from Ruan leasing, 37 service locations and more than 500 customers. The Miami-based company also said it had purchased full service contract maintenance agreements covering about 1,700 vehicles.

Size matters in the truck leasing business because companies that lease trucks are under great pressure to keep their equipment rented as much as possible. The larger a company, the more financial resources it has at its disposal to stretch through hard times, and to be able to buy trucks quickly when demand explodes.   Ruan began leasing trucks in the early 1980s, when the federal government, under President Ronald Reagan, deregulated the industry, Murfin said. In more recent years, Ruan’s leasing business has been hurt by falling prices for used equipment and higher borrowing costs.

Prices for gasoline, too, have increased. Last summer, Ruan Transportation said it was cutting 100 jobs at the leasing business, including about 30 in Des Moines, in a bid to reduce costs amid the difficult environment. Dozens of smaller trucking firms have not survived, Murfin said.

“What we saw happening is that the cost of securing trucks was going up and the cost of fuel is going up,” said Murfin, who came to Ruan three years ago after a 26-year career at Ryder.

“Even though interest rates appear to be pretty good, interest rates from banks to regional companies like us are still pretty high.”

Other executives who have come to Ruan in recent years from other transportation-related companies include Ruan President Mike Kandras, who was part owner of Minnesota-based Northstar and prior to that was an executive at Burlington Northern Santa Fe Corp., and Ruan Chief Financial Officer Mitch Pool, a former executive at Allied Van Lines.

Other Ruan executives, including Chris Colley, Bill Dees and Charlie Bruce, have all come to Ruan from Ryder, people close to the company said.  With the completion of the sale, which was first announced in December, Ruan essentially has a chunk of cash equal to about a quarter of its annual revenues, Murfin said. It plans to invest that money in an effort to build its quickly growing transportation and logistics business, which is more profitable and carries far less financial risk than its leasing business.

Ruan’s transportation and logistics business had revenues last year of about $700 million, about 20 percent higher than 2001, former spokesman Matt McCoy told the Business Record in August. At that time, Ruan employed about 4,500 workers nationwide. Following the sale, Ruan has about 700 fewer workers, though Ryder hired many of them, the companies said.

The sale, which Ruan has been working on for a year, also frees Ruan managers to focus solely on transportation and logistics. In that business, Ruan still owns trucks and employs drivers, but contracts are typically longer than in the leasing business. Transportation needs for clients are also more stable and easier to forecast, which means that Ruan will be better able to predict demand and won’t be as much at the mercy of the economy to keep its trucks full and on the road, instead of depreciating in a yard.

“The lending business was very susceptible to the swings of the economy,” Murfin said. “The transportation and logistics side of the business is less susceptible.”

Technology improvements are also letting companies, from manufacturers to retailers, track their freight with increasing precision. Ruan plans to add to its abilities to monitor its fleet, including more powerful software. Following the sale, the company will own about 2,500 tractors and 3,500 trailers. Ruan’s transportation and logistics business employs about 2,800 drivers.

“The places where we are providing services is more in depth in outsourcing than in the leasing business,” Murfin said. “We’re a more integral part of our customers’ business. When you do that, when the relationship is that deep, it’s a harder decision to do business with us, and it’s a harder decision to not do business with us.”

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