Pacer International, Inc. Business Information, Profile, and History

Company Perspectives:

We formed our company with the same clear purpose that motivates us today: To provide transportation and logistics solutions with a focus on customer profits and customer service. Pacer International continues to grow fast--and strategically--strengthened by services that support our full-service capabilities.

History of Pacer International, Inc.

Pacer International, Inc. is one of the largest freight transportation and logistics services companies in North America. Through long-term agreements with railroads such as Union Pacific Railroad, CSX, Canadian National Railroad, and several Mexican railroads, Pacer International has access to a 50,000-mile North American rail network that embraces most of the major population and commercial centers in the United States, Canada, and Mexico. The company serves regional, national, and global manufacturers and retailers, offering itself as a single source for all freight shipment and logistics support for its customers. Pacer International contracts with independent trucking contractors who control more than 700 trucks. The company's intermodal marketing operations are located in California, New Jersey, Tennessee, Illinois, and Ohio. In addition to its North American operations, Pacer International also operates as an international freight forwarder, an indirect ocean carrier, and a customs broker. The company serves more than 1,000 clients internationally through 17 offices and approximately 100 agents. Pacer International is the largest provider of container intermodal rail service in North America that is not affiliated with a railroad.

Origins

Pacer International was formed in 1997, headed by a veteran and an innovator in the intermodal transportation industry, Donald C. Orris. Intermodal transportation referred to the movement of freight in a trailer or container by using two modes of transportation, typically by rail and by truck. The type of company that emerged in 1997 represented years of work by Orris to increase the efficiency of freight transportation. In 1984, Orris started working on a project whose aim was to double the efficiency of transporting containerized freight. At the time, Orris was serving as a senior executive at global container operator American President Lines Ltd. (APL), where he spearheaded the company's domestic transportation and intermodal marketing activities. Orris's senior position at the well-known freight company provided him with a wealth of contacts in the industry, enabling him to solicit the help of colleagues, railroad executives, car designers, and customers to implement the industry's first double-stack, or stacktrain, rail network for containerized freight. By developing technology that would enable one container to be stacked atop another container, twice as much freight could be carried with essentially no added locomotive power required. Orris's dream was realized, resulting in the creation of APL's stacktrain operations.

Orris eventually became president of Southern Pacific Transportation Company, a position he held until Southern Pacific merged with Union Pacific Railroad in 1997. The merger prompted Orris to set out on his own, marking the beginning of an expansion program that would result in a more than $1 billion-in-sales intermodal marketing company within a few short years. Orris and several other industry leaders formed a management group that acquired Pacific Motor Transport from Union Pacific Railroad. Using Pacific Motor as the foundation for a company that would become known as Pacer International, Orris set his sights on cobbling together an industry giant via acquisitions.

When Pacer International was formed, manufacturers and retailers were looking for third-party companies able to handle the logistics activities they conducted in-house, part of the general corporate trend to outsource activities so that companies could focus on their core businesses. Orris tailored Pacer International to provide the freight transportation services required by manufacturers and retailers, creating what the industry referred to as a "non-asset-based" company. As a non-asset-based company, Pacer International limited its investment in equipment and facilities. Instead, the company signed contracts and forged agreements with transportation providers, selling itself to its customers as a service provider. By employing this strategy, Pacer International controlled, but did not own, transportation equipment. Pacer International sold the freight to railroads and trucking companies for transportation, acting as a comprehensive orchestrator of the logistics involved in moving freight by rail and by truck.

Setting out, Orris's ambitions were high, entailing an aggressive program of internal growth and acquisitions. Much of the company's rapid growth during the late 1990s and the early 21st century was achieved through the acquisition of other non-asset-based intermodal marketers. Orris presided over a buying spree that began in December 1997, when his company acquired Interstate Consolidation, Inc. and Interstate Consolidation Service, Inc., two Los Angeles-based providers of intermodal marketing, cartage, and consolidation services. Orris struck again in the first half of 1998, when his company acquired Kansas City-based Stutz & Company, whose operations were absorbed into Pacer Transport, Pacer International's DeSoto, Texas-based flatbed and specialized heavy-haul trucking unit. Not long after the acquisition of Stutz, Pacer International announced that it had reached an agreement to purchase Chicago-based Cross Con Terminals, Inc. and Cross Con Transport, Inc. The acquisition of the Cross Con companies, which generated $53 million in annual sales at the time of the June 1998 announcement, made Pacer International one of the largest brokers of intermodal transportation and related logistics services. The addition of the first three acquisitions set the tone for the pace of revenue growth the company would record during its first five years of business. In 1996, Pacific Motor Transport generated $86.8 million in revenue. After the purchases completed by Orris, Pacer International ended its fiscal year in March 1998 with $252 million collected in revenue.

Following the acquisition of the Cross Con companies, Pacer International completed two more acquisitions during the second half of 1998. In July 1998, the company acquired two non-asset-based logistics companies, Professional Logistics Management Co., Inc. and 3PL Corporation, each based in Pacer International's hometown of Lafayette, California. In December 1998, the company completed its fifth acquisition in 12 months, merging with Memphis, Tennessee-based Manufacturers Consolidation Service. An intermodal marketing company, Manufacturers Consolidation gave Pacer International a 26-city national sales and operating network highlighted by a particularly strong presence in the southeastern United States.

Using bank debt to finance its acquisition campaign, Pacer International pressed ahead with its growth plans in 1999. One pivotal deal neared conclusion as 1999 began, a transaction that involved the stacktrain, or double-stack, operations belonging to APL. Orris outbid, among others, a company named Norfolk Southern, clearing the way for the acquisition once the company negotiated contracts with APL's rail carriers, such as CSX Intermodal, Inc., Canadian Pacific Railway, and GE Capital. The deal was eventually completed, thanks, according to one report, to an agreement signed with CSX Intermodal. On June 25, 1999, roughly one month after the stacktrain acquisition was completed, the Journal of Commerce and Commercial reported a multiyear deal between CSX Intermodal and Pacer International. The agreement covered the shipments managed by APL before Pacer International acquired the company's stacktrain operations, shipments that included all stacktrain operations between the Mississippi River and the East Coast. According to unnamed industry officials cited in the Journal of Commerce and Commercial article, CSX Intermodal reduced its rates to facilitate Pacer International's acquisition of the APL Network, a claim Orris denied.

As Pacer International's buying spree continued, it became evident that the company was gearing itself for a conversion to public ownership. In April 1999, against the backdrop of the agreement with CSX Intermodal, the company merged the operations of Rutherford, New Jersey-based Keystone Terminals, Inc. into its own. Founded in 1964, Keystone Terminals was regarded as one of the oldest intermodal marketing companies in the country. In January 2000, Pacer International completed the eighth acquisition of its two-year campaign, purchasing Conex Global Logistics Services, Inc., a Los Angeles-based intermodal operator. In September 2000, the company purchased GTS Transportation Services, an $87 million-in-sales logistics and truck-brokerage operation based in Livermore, California, that managed shipments for customers in the United States, Canada, and Mexico. In November 2000, Pacer International purchased New York-based RFI Group, Inc., a freight-forwarding and customs-brokerage firm that gave Orris's firm a new dimension. RFI, with $113 million in 1999 revenues, possessed ocean transportation operations, the addition of which broadened Pacer International's freight distribution services to include international trade related services for the first time.

RFI and Rail Van Joining the Pacer International Fold in 2000

By the end of 2000, Pacer International was nearing the conclusion of its third year on the acquisition trail. The financial and physical growth achieved during the three-year period had vaulted the company into the ranks of the industry's elite. By the time the RFI acquisition was completed, Pacer International was generating approximately $1.4 billion in pro forma revenue, exponentially more than the less than $90 million the entity collected before Orris took charge. The conclusion of the RFI transaction did not signal the end of Orris's expansion plans. Roughly a week after the RFI acquisition was completed, Pacer International announced that it was in negotiations to acquire Rail Van Global Logistics. Based in Ohio, Rail Van operated as a logistics provider for large manufacturers, generating $513 million in revenue.

On the same day Pacer International announced the possibility of a merger with Rail Van, the company also revealed its intentions to file for an initial public offering (IPO) of stock. The acquisition of Rail Van was completed in December 2000 as plans were set for the company's debut on Wall Street, which was slated for February 2001. Orris planned to use the proceeds from the IPO to reduce the company's long-term debt, but recessive economic conditions delayed the IPO for more than a year. Although the delay may have been a source of disappointment, Pacer International's performance during the year offered cause for celebration. In 2001, the company handled roughly one-quarter of all intermodal rail container shipments in the United States, holding sway as one of the dominant competitors in the industry. For the year, the company collected $1.67 billion in revenue, from which it posted $7 million in net income.

Pacer International Going Public in 2002

Market conditions improved sufficiently for Pacer International's debut on the NASDAQ in June 2002, by which point the company's long-term debt had increased to nearly $400 million. In anticipation of the public offering, Orris had hoped to raise roughly $150 million, but the IPO exceeded expectations, raising $210 million. Pacer International netted $129 million in proceeds from the IPO, enabling it to reduce its debt substantially.

Pacer International entered its new era as a publicly traded company exuding considerable strength. In roughly five years, the company evolved into one of the dominant players in its industry, an achievement that reflected the astuteness of the company's veteran management. As the company pressed ahead with its expansion plans, its management team, led by Orris, was confident that Pacer International would continue to be among the industry's elite well into the future.

Principal Subsidiaries: Cross Con Transport, Inc.; Cross Con Terminals, Inc.; Interstate Consolidation Service, Inc.; Interstate Consolidation, Inc.; Intermodal Container Service, Inc.; Keystone Terminals Acquisition Corporation; Levcon, Inc.; Manufacturers Consolidation Service, Inc.; Manufacturers Consolidation Service of Canada, Inc.; Pacer Express, Inc.; Pacer Integrated Logistics, Inc.; Pacific Motor Transport Company; PLM Acquisition Corporation; Conex Global Logistics Services, Inc.; GTS Transportation; RFI Group, Inc.; RFI International, LTD; Ocean World Lines, Inc.; International Logistics Management, Inc.; Railvan, Inc.; Pacer International, Inc.; Pacer de Mexico S.A. de C.V.

Principal Competitors: Burlington Northern Santa Fe Corporation; C.H. Robinson Worldwide, Inc.; CSX Corporation.

Chronology

• Key Dates:
• 1984: Donald Orris spearheads the development of double-stack technology.
• 1997: Orris leads a group of managers in a buyout of Pacific Motor Transport, followed by an aggressive acquisition campaign.
• 1998: Pacer International merges with Manufacturers Consolidation Service, shoring up its presence in the southeastern United States.
• 1999: Pacer International merges with Keystone Terminals, Inc.
• 2000: The company completes four acquisitions, including Rail Van Global Logistics.
• 2002: Pacer International completes its initial public offering of stock.