Ryder's Green Initiative Underway - Analyst Blog

Shutterstock photo

Ryder System Inc . ( R ), the world's largest provider of integrated logistics and transportation solutions, has entered into its first "Flex-to-Green" lease agreement with Source Interlink, a U.S.-based publishing and logistics company.

Per the agreement, Ryder will provide Source Interlink with a flexible option to exchange diesel vehicles for natural gas-powered vehicles. However, the terms of the deal remain undisclosed.

In September last year, the company first launched its "Flex-to-Green" lease offering to support sustainable transportation, or eco-friendly transportation for private fleet operators. This lease offering involves incorporation of fuel efficient vehicles into their fleets including liquid natural gas and hybrid vehicles. The deal provides customers with an opportunity to convert their conventional vehicles to new fuel-efficient ones as per their preference.

In 2010, Federal Corporate Average Fuel Economy ( CAFE ) set out a fuel economy standard of 34.1 miles per gallon, which is to be implemented on automobiles manufactured from 2012 through 2016. As per market sources, it is estimated that the mandate will require investments of approximately $50 billion by automakers to upgrade their technology to meet the CAFE standards. Therefore, energy conservation is going to be a major area of investment for transportation companies over the next few years.

Several companies, especially those involved in transportation and logistic services, are increasingly realizing the benefits of fuel efficiency mandates.

Fuel-efficient vehicles are not only designed to minimize the harmful effects of heavy fuel consumption but are also expected to aid in optimal utilization of resources through alternative fuel usage, ultimately leading to significant cost synergies for companies. Consequently, it is apparent that Ryder's Flex-to-Green lease offering is a significant step toward tapping a gradually growing market arising from a compelling need for sustainable transportation. Further, this will also enhance the competitive position of the company against rivals like Con-Way Inc. ( CNW ).

Ryder has pioneered several such initiatives that promote the utility of alternative fuel vehicles. The SANBAG (San Bernardino Associated Governments) project is one such. Under this project, Ryder collaborated with Southern California Association of Governments Clean Cities Coalition, to sell approximately 200 heavy-duty natural gas trucks to customers last year.

In addition, the company was also benefited by gaining three natural gas compliant maintenance shops in Rancho Dominguez, Orange and Fontana, as well as two fueling stations through SANBAG.  

The company currently supplies alternative fuel vehicles in southern California and Arizona, which is also home to Source Interlink's largest distribution center. As a result, Source Interlink will also benefit from an easy access to Ryder's fueling and maintenance centers, which was one of Source Interlink's key reasons to enter into the deal.

We can expect that with the growing demand for fuel efficient transportation, Ryder will boost its infrastructural capabilities by expanding into new markets and thus, promoting its Flex-to-Green lease initiative.

Currently, we have our long-term Outperform recommendation on Ryder supported by a Zacks  #1 Rank (Strong Buy).

CON-WAY INC ( CNW ): Free Stock Analysis Report
RYDER SYS ( R ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: CAFE , R

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com