Matson, Inc.

and to help the economy recover. Please turn to slide five. On the supply side, the constraints in the Trans-Pacific air and ocean markets are expected to remain for some time. On the second quarter call, we discussed the dislocation in Trans-Pacific air freight markets due to the loss of passenger plane belly capacity. Although some Trans-Pacific passenger routes have been reinstated in the last few months, according to IATA, global passenger plane belly space capacity, which is approximately 50% of the global air cargo capacity, is unlikely to see pre-COVID levels until 2024. Complicating the air freight picture is the means by which a vaccine and related injection supplies will be handled and distributed. According to IATA, providing a single dose of the vaccine to 7.8 billion people would fill 8,747 cargo airlift at a time when freighter utilization is already operating at a high level. DHL recently noted that delivering 10 billion doses over the next two years would require 25,000 flights, about 2,000 pallet and container moves, I'm sorry, 200,000 pallet and container moves, and 15 million cooler boxes. This is an enormous logistical effort that will strain the air cargo resources further. Turning to capacity of the ocean transportation market, there are a couple of points I want to make regarding capacity. One, several trans-Pacific ocean carriers have fully deployed capacity in the trade lanes in recent months to manage the elevated import volumes. And the order book for new container ships is at its lowest level since 2003 due to a number of factors, including global economic uncertainty. So at least in the short to medium term, the ability for ocean carriers to add additional capacity in the trade lane is limited. And two, industry consolidation in the last decade and the formation of alliances in the last three years should lead to better alignment of capacity to avoid over-tonnaging the markets. Ten years ago, there were 21 international ocean carriers, and today there were 12. The three alliances that most of the remaining 12 operate in control approximately 85 percent of the capacity across the Trans-Pacific. Today, it's much easier for these alliances to balance market demand by adding small increments of capacity across their constituencies. And lastly, on the supply fundamentals, there is significant equipment demand and port congestion in the U.S. West Coast. These two factors are an incredibly important governor on the growth capacity in the trade lane, particularly during peak volume periods such as the one we're experiencing now. As container volume ramped in the second and third quarters this year to meet the elevated consumer demand, demand for containers and chassis was exceptionally high. Many inbound containers were being trucked and sent on rail to the interior without paying return trip, thereby stranding a supply of available containers. The increase in intermodal volume led to congestion at the rail yards in Southern California and also led to delays in the delivery and return of equipment. Warehouses on the West Coast were taking on more and more volume given the demand, with many containers sitting on chassis in the warehouse slots. In the ports, with increased volume comes increased time to offload and increased turn times at the terminals. This has also had an impact on the availability of equipment. It's also led to birthing delays of vessels. According to the Pacific Merchants Shipping Association, the PMSA, in September 2020, 21.2% of the containers at the ports of LA and Long Beach stayed on the terminals for five or more days before getting picked up. In September 2019, it was 2.8%. Every ocean carrier is undertaking a massive effort to reposition containers to Asia to meet the elevated demands. We don't expect the equipment demand and the port congestion factors to change in the near future. So the supply side trends are quite favorable given the capacity constraints in the ocean and air freight markets, as well as the outsized demand for equipment and the issues that come from increased volume and congestion at the West Coast ports. Our CLX Plus service has proven to be the second best service in the Trans-Pacific trade lane behind our CLX service. Both services rely on the same competitive advantages at the destination end. We own and control our own chassis. This is an important differentiator for us given the terminal congestion and equipment availability challenges in Southern California that I just described. We avoid the issues with chassis pools that our competitors rely on, and by providing the chassis ourselves, we help the truckers to save time and money. We also have a great combination of SSA terminal operation and the shipper's transport off-dock facility. SSAT is the best terminal operator on the West Coast with its efficient operations, and the shipper's transport facility is a unique, off-dock, bonded facility that is difficult to replicate. Taken together, our competitive advantages in destination services drive industry-leading turn times and provide next-day cargo availability for our customers that is simply unrivaled. We also avoid the congestion issues that other carriers face during these peak periods. In summary, I am confident we can make the CLX Plus permanent. We have 15 years of experience operating an expedited service in the trade lane, offering unparalleled destination services that our customers value. Our customers' businesses are growing to meet the challenge of this time, and so are we. We seek opportunities to improve the long-term economics of the service. The AAX service is one such opportunity that not only helps lower the break-even economics, but also drives additional customer engagement on a new service offering. And we have the backdrop of favorable demand and supply fundamentals that are unlikely to dissipate anytime soon. Our expedited ocean services and air freight are perfectly suited for the demands of an increasing e-commerce world but given the constraints in the air cargo markets, we expect demand for our expedited service to remain elevated. With all this said, a number of demand and supply factors could change that may alter our views, but as we sit here today, this is how we see it and are planning for into 2021. I will now move on to slide six. I want to spend a few moments on our current priorities as we continue to navigate our way through this pandemic and period of economic uncertainty. Our first priority, we continue to safeguard the health and safety of our employees throughout the organization, guided by processes on PPE, disinfecting, and social distancing put forth by the Coast Guard, CDC, and other government agencies. We're also maintaining our position on working from home for those whose job functions allow them to do so. Our second priority is ensuring the consistency of our ocean transportation services and delivering exceptional service for our maps and logistics customers. Within ocean transportation, we're focused on maintaining our best-in-class on-time performance, ensuring quick turn times at the terminals, and providing the quickest cargo availability for our customers. For our logistics customers, We continue to provide the highest quality customer service and execution for our customers as the supply and demand conditions remain volatile. Our third priority is to find new opportunities in this evolving pandemic environment and drive organic growth. The organic opportunities tend to be low risk and high investment returns given the low capital outlay. On our second quarter call, we went into greater detail on one such opportunity, the CLX Plus service, which is a key contributor to our year-over-year improvement in financial results. In August, we announced the introduction of the AAX service that is a backhaul service on the CLX Plus from Alaska to China. Our fourth priority is maintaining cost and capital discipline during this period of economic uncertainty. Since we amended our debt agreements in the early days of the pandemic in March, we've been intently focused on free cash flow generation and reducing leverage. And I'm happy to say that our leverage under those amended debt agreements is now approximately 2.4 times versus 3.4 times at the end of the first quarter. Since the end of 2019, we've reduced our total debt by nearly $135 million. On our first quarter earnings call, we outlined the operational changes and management initiatives to address the challenges of the pandemic. We meaningfully exceeded the high end of the $40 to $50 million range that we provided with the introduction of the CLX Plus as the largest contributor to this effort. With respect to capital expenditures, we continue to be selective in our investments. We are investing in new equipment to support the China service and AAX, which is approximately $30 million, as well as some equipment that we've leased to support these efforts. We're also completing our committed capital projects that are coming to an end this quarter, namely the first phase of the Sand Island Terminal renovation and the last new vessel in the Hawaii service, which are the next two priorities, which I'll discuss. The final vessel and a four-vessel new build program for the Hawaii service is expected to be delivered at the end of this quarter. Matsonia's arrival will mark the end of a major achievement for us in this nearly $930 million program that will have taken eight years to complete from the design stages through delivery. We're coming to an end of the work on the first phase of the Sand Island Terminal in Honolulu. We completed the last major items in this phase earlier this quarter, and we'll begin to wrap up the smaller items by the end of this year. We expect to begin work on the second phase in 2021. We have indicated before that we expect to trend on our maintenance CapEx level of between $50 to $60 million per annum following the completion of the Hawaii New Build program. As I noted a few moments ago, we're investing approximately $30 million in new equipment to support the growth of our China service at AAX. to maximize the opportunities for us, so we expect to be higher than the maintenance levels in 2021 in light of this equipment investment. And our last current priority is to complete the scrubber program, which remains on track. The last vessel in the sixth vessel program is currently in dry dock and is expected to be back in service early next year. I will now go through the third quarter performance and provide commentary on current business trends. Please turn to slide seven. Hawaii container volume for the third quarter decreased 0.8% year over year, and the westbound container market declined modestly year over year. The westbound container market benefited from the reopening of the local economy following the shelter-in-place and temporary retail store closures in the second quarter And it also benefited from government stimulus efforts. But these benefits were outweighed by the continued negative impact from the state's COVID-19 mitigation efforts, including the restrictions on tourism, and a second shelter-in-place that took effect in August. The second shelter-in-place had a modest negative impact on volume in September. Lastly, we did not carry any patient volume during the quarter. I will now go through the current business trends in our Hawaii service So please turn to slide eight. The Hawaii economy remains in a significant downturn, challenged by the near zero tourism in the last half year. Travel restrictions to Hawaii were eased on October 15th with the pre-travel testing program. However, in the near term, the levels of tourism are expected to remain low and to have a meaningfully negative impact on Hawaii's economy. The economic recovery trajectory in Hawaii remains highly uncertain given the low levels of tourism, the difficult business environment for tourism-related businesses, and the uncertainty with government stimulus and support efforts for the businesses and individuals deeply impacted by the pandemic and its related economic effects. UHERO's latest economic projection shows GDP growth in 2020 and 2021 of minus 11.8% and 1.2% respectively. Unemployment in the state remains elevated and is projected to be well above 2019 levels for the next several years. September unemployment rate for the state was 15.1 percent, the highest in the country. And UHERO is projecting the unemployment rate for 2020 and 2021 to be 12.4 percent and 9.7 percent, respectively. These levels are well above the 2009 unemployment rate of approximately 2.7%. To give you a sense of the volume trend one month into the fourth quarter, our westbound container volume in October decreased approximately 0.3% year over year and was consistent week to week in the month. The westbound volume largely consisted of sustenance, home improvement, and retail goods in advance of the holiday season. Moving to our China service on slide nine, Matson's volume in the third quarter 2020 was 124.7% higher year over year. Approximately 85% of the year over year volume increase was driven by the CLX Plus with the remaining approximately 15% related to increase in volume on a regular CLX service. The capacity of the CLX service increased year over year due to the addition of one of our larger vessels, the Daniel Kandaway, at the beginning of the third quarter, in addition to its sister vessel, the Kaimana Hila, towards the end of the third quarter last year. We continue to see dislocation in the air freight markets lead to strong demand for Mattson's expedited service with both CLX and CLX Plus vessels sailing at capacity in the third quarter. Demand for the CLX and CLX Plus was driven by e-commerce and other commodities as a result of tight inventories in the U.S. and continued consumption of imported goods in lieu of services. To give you a sense of the current volume trend, our eastbound container volume in October increased 148.6% year over year, led by the CLX Plus service, but also higher volume on CLX due to the Daniel K. and OA in the service. The volume strength we saw in the third quarter continued through October. Throughout the month, we saw increasing customer demand to get on our CLX and CLX Plus services as a means to avoid U.S. West Coast port congestion. Please turn to slide 10. On August 26, we announced the introduction of the Alaska to Asia Express, or AAX, as a backhaul service on the CLX Plus. The first voyage took place on September 29th from Dutch Harbor. The AAX will serve as an important route for Alaska seafood exports to Asia consisting of dry and frozen fish volume. We will provide connecting service from Anchorage and Kodiak from our domestic Alaska service that is served by three vessels. We expect the AAX service to be a modest contributor to the Alaska volume and not a material contributor to consolidate operating income for the full year 2020. We're excited to provide this service for the upcoming A fishing season in the beginning of 2021. Turning to slide 11, in Guam, maximum container volume in the third quarter 2020 increased 2.1% year over year, primarily due to increased demand for home improvement and government cargo. Volume in the quarter benefited from the reopening of the local economy following the shelter-in-place in the second quarter, and it also benefited from government stimulus efforts. The local government issued a second shelter-in-place order in August to mitigate the spread of COVID-19, which had a minimal impact on our volume. Similar in many respects to the Hawaii economy, the Guam economy is in a downturn as tourism levels remain depressed and tourism related business activity remains incredibly low. Unemployment remains elevated and well above pre-pandemic levels. The economic recovery trajectory remains highly uncertain. For the month of October, our westbound container volume decreased 1.5% year over year with modest negative impact from COVID-19 restrictions and partially offset by higher government cargo. In the near term, we expect to see a stable retail environment, but we also expect tourism to remain challenged by COVID-19 and have a negative impact on freight demand. Moving now to slide 12, in Alaska, Madison's container volume for the third quarter of 2020 increased 1.5%. Despite the summer's seafood season being in its off season and our expectations for lower volumes, We saw higher southbound volumes year over year as a result of a stronger seafood volume compared to the prior year. This increase in southbound volume was partially offset by modestly lower northbound volume. Northbound volume in the quarter benefited from the reopening of the local economy, following the shelter-in-place and temporary retail store closures in the second quarter, and it's also benefited from government stimulus efforts, including the early issuance of the permanent fund dividend. The Alaska economy continues to recover from the second quarter lows, but the recovery trajectory remains highly uncertain. Unemployment remains elevated above pre-crisis levels. The Alaska government paid its permanent fund dividend early in July versus typically in October, which may impact customer spending in the fourth quarter. And the continued low oil price environment has negatively impacted and is expected to continually continued to negatively impact oil exploration and production. Northbound volume in October 2020 increased 12.1% year over year, driven primarily by higher volume of sustenance goods and home improvement in advance of the holiday and winter period. Turn next to slide 13. Our terminal joint venture, SSAT, contributed $7.7 million in the third quarter of 2020 compared to $8.4 million in the prior year period. The lower contribution was primarily a result of lower lift volume. SSAT's lift volume was impacted by blank sailings from the larger ocean carriers in the first half of the quarter and was close to flat year-over-year in September. Deployed capacity in the Trans-Pacific Trade Lane is higher than last year to manage through the elevated demand during this peak season. We expect SSAT to be a beneficiary through the elevated import volumes. Turning now to logistics on slide 14, operating income in the third quarter came in at $11.9 million, or $600,000 higher than the operating result in the year-ago period. The increase was primarily due to improved performance in all of the business lines driven by the continued reopening of the U.S. economy. In the near term, we expect the elevated consumption of e-commerce and other high-demand goods and inventory restocking trends to benefit most of the business lines. Within transportation brokerage, we continue to see increasing intermodal volumes in line with the trends in the U.S. West Coast import volume. With increased freight demand and terminal congestion in Southern California comes rail congestion and chaotic truck conditions, which historically has benefited our transportation brokerage business. At Span Alaska, our freight forwarding business performance steadily improved since the second quarter low and is tracking similarly with the North Valley volume trends in our Alaska Ocean business. We continue to see steady business activity in warehousing and supply chain services in line with what we've seen in the first three quarters of the year. And with that, I will turn the call over to Joel for a review of our financial performance. Joel.

Okay, thanks, Matt. Now on to our third quarter financial results on slide 15. Ocean transportation operating income for the third quarter increased 42.6 million year-over-year to 86.5 million. The increase was primarily due to a higher contribution from the China service, including CLX Plus. Lower vessel operating costs including the impact of one less vessel operating in the Hawaii service and the timing of fuel-related surcharge collections, partially offset by a lower contribution from the Hawaii service and higher general and administrative expenses. The company's SSAT terminal joint venture investment contributed $7.7 million or $0.7 million less than the prior year period. The decrease was primarily due to lower lift volumes. Logistics operating income for the quarter was $11.9 million, or $0.6 million higher than the prior year period. The increase was due primarily to a higher contribution from transportation brokerage. EBITDA for the quarter increased $45.6 million year-over-year to $134.7 million due to higher consolidated operating income of $43.2 million and higher other income of $2.9 million, partially offset by $0.5 million and lower depreciation and amortization, which includes dry dock amortization. Interest expense for the quarter was $5.7 million or $2.5 million lower than the second quarter of 2020. Lastly, the effective tax rate in the quarter was 25.4%. On a year-to-date basis, ocean transportation operating income increased $63.7 million year-over-year to $136.7 million. The increase was primarily due to a higher contribution from the China service, including CLX Plus, and lower vessel operating costs, including the impact of one less vessel operating in the Hawaii service, partially offset by lower contributions from the Hawaii service. The company's SSAT, Terminal Joint Venture Investment, contributed $15.4 million, or $2.4 million less than the prior year period. The decrease was largely attributable to lower lift volumes. Logistics operating income on a year-to-date basis was $25.9 million or $4.8 million lower than the prior year period. The decrease was due primarily to lower contributions from transportation brokerage and freight forwarding. Slide 16 shows how we allocated our trailing 12 months of cash flow generation. For the LTM period, we generated cash flow from operations of $339.2 million and received $14.3 million from sale leasebacks, from which we used $59.4 million to retire debt, $80 million on maintenance capex, $168.2 million on new vessel capex, including capitalized interest and owner's items, and $21.9 million on other cash outflows, including $18.5 million in financing costs related to the two Title XI transactions and amendments to the debt agreements in the first half of 2020. while returning $38.6 million to shareholders via dividends. Turning to slide 17 for a summary of our balance sheet, you will note that our total debt at the end of the quarter was $823.6 million, and our total debt net of cash and cash equivalents was $810.9 million. During the quarter, we retired $66.4 million of debt. At the end of the third quarter, our leverage ratio per the amended debt agreements was 2.4 times compared to 3.03 times at the end of the second quarter. Footnote 4 on this page shows the total debt and EBITDA as defined in the amended debt agreements. The revolver balance at quarter end was $123 million, and our available borrowings was approximately $519 million. Please turn to the next slide. On slide 18, the review of our new vessel payments, for the third quarter, we had new vessel cash capital expenditures of $39.3 million, and capitalized interest of $2 million for total capitalized vessel construction expenditures of $41.3 million. The table on the right-hand side of the slide shows the cumulative and remaining new vessel progress payments as of September 30th. Our final payment on Matsonia will be due upon delivery, and as Matt said, we expect the vessel to be delivered by the end of the quarter. The picture on this slide is of the Matsonia on her way to sea trials from the NASCO shipyard in San Diego and Maxonia is currently 99% complete. With that, I'll turn the call back over to Matt.

Thanks, Joel. There's been no shortage of uncertainty in 2020 for us, but Maxon and its employees adapted to the extraordinary conditions and fostered organic growth opportunities to drive exceptional financial results in the third quarter. I'm proud of our accomplishments here to date, but we are heads down to finish off a good year and prepare for 2021. and the evolving challenges during this unprecedented time. As key supply chain provider to lifeline economies and a leading provider of expedited ocean services to the U.S. West Coast, we're focused on what we do best, providing exceptional customer service and on-time delivery to meet our customers' needs. And with that, I will turn the call back to the operator and ask for your questions.

At this time, if you'd like to ask a question, please press star, then the number one on your telephone keypad. Your first question comes from the line of Jack Adkins. Jack, your line is open.

Okay, great. Thank you, operator. And, guys, congratulations on another great quarter here. Thanks, Jack. So I guess maybe if we could start with the outlook. You know, I noticed that this quarter you guys sort of didn't provide your normal line item guidance. And I certainly understand, given all the uncertainty out there right now, it's just tough to predict. I guess I was just sort of curious if we could maybe talk about some high-level directional trends sequentially. You know, typically we see earnings, let's just talk about the ocean transportation segment, anywhere between 30% and 50% from an operating income perspective sequentially. It just sounds like volume is actually ramping sequentially for you guys, though. So can you kind of help us think about how we should be thinking about normal seasonality and how the business is going to be trending third quarter to fourth quarter?

Yeah, Jack, I'll do the best I can. It's difficult to forecast in this environment. You know, we've had conversations with our customers and And they're doing as best they can to meet this demand that they're seeing throughout their networks. And it's really, again, I would say some of the things we're seeing in our Jones Act end markets and what we're seeing in maximum logistics, frankly, including China, is the very strong demand we're seeing in the U.S. associated with the items that we discussed in the call around the work from home experience, inventory stocking, the benefits of stimulus, and all of the factors that are creating this very robust freight demand environment. We are pleased that we have seen the improvement that we've seen in Hawaii and Guam and Alaska. It's hard to know. We might have predicted or we might have guessed earlier in the year, let's say in March and April, that we would not have seen the levels of demand that we ended up seeing. Again, I think it's a combination of the same factors. It's stimulus spending. We tend to provide essentials. Those are just some of the factors that go into it. Beyond that, you know, how long, Jack, this remains is partly a question of macroeconomics. Is there going to be a second stimulus? Is the U.S. economy in recovery? How will the pandemic progress? What's the election cycle look like? When is a vaccine available? So, again, it's difficult for us to know what's happened. I would comment that some of our normal seasonality, it's just really hard to tell where we go from here. But we're pleased to be in a position where we're able to serve our end markets. I'm really proud of the fact that we were able to be there and stand up our second expedited China string. But a lot of our end markets are performing better than we would have expected in March or April. So that's all I can really say, Jack. without being too specific because we ourselves aren't quite sure where the economy is going from here.

No, no, I understand. I just wanted to kind of get your additional thoughts on that, Matt. So that's helpful. Thank you. Maybe just a couple of other ones for me. You know, of the items that you guys undertook this year to support and improve financial results, you know, you said you're well ahead of the $40 million to $50 million initial expectation, obviously, because of the wild success of of clx plus um but you know when we think about that that 40 to 50 million number uh going into next year how much of that is tied to cost that you guys have maybe taken out temporarily that would maybe get feathered back in next year can you kind of maybe quantify that for us as we think about 2021 jackets joel i'll take that one

So as we said in our last call, it's a mixed bag. There are a number of cost initiatives and some revenue initiatives. The biggest revenue initiative is, of course, the CLX Plus. So we've talked at length about how we see the supply-demand elements there and that continuing into 2021. The remaining cost items, it's really – we can't give a lot of guidance on it because it really depends upon each market. And when volumes come back in a lot of those markets where we have to reintroduce some additional costs, really typically around our terminals and the gate hours and our hours of operation, whereas you have more cargo flowing through, you reintroduce some of those costs. So it will be a function of the volumes returning in a lot of those Jones Act markets is the way to think about it.

Okay. But, Joel, with volume kind of back to flat in Hawaii – looks like growth again in Guam and Micronesia and Alaska. I mean, would you say that those costs have kind of come back into the model now or no?

Some of them have, but not all of them. So it depends on the different submarkets within each of those markets. And so some of those have come back, but a lot of those have not yet. And then I should also say, Jack, there will be some pieces that will be permanent. Some of it will be permanent. Sure. But more than half of the remainder that's not revenue will be dependent upon volumes in those markets.

Okay. That's helpful. Maybe one last one, and I'll turn it over, just kind of thinking about the logistics segment for a moment. Obviously, a lot of dislocation in the domestic supply chain as well on the surface-based side. You know, I guess you guys did a really great job just in terms of maintaining your operating margin there this quarter. We saw others not do nearly as well. How are you guys thinking about the logistics business as we head into 2021 where you should get some relief on the revenue margin side? And, you know, obviously underlying demand trends and pricing trends are obviously pretty positive.

Yeah, I think the way I would answer that is, first of all, our logistics businesses, all of them are performing well. And, you know, as the president of our logistics business, Rusty Rolf, says, that logistics business tends to thrive in chaos. And so there's been a lot of dislocation. We're a small, nimble organization. We've responded well to those markets. And if we are in the beginning of a grinding and slow economic recovery, we expect, we're not gonna give guidance, We expect the good performance to continue. But, again, I think it's more subject to where the U.S. economy is in macro. But if there is more congestion on the rails, if there's more congestion at ports and terminals, the better off we do.

Okay. That makes sense. Thanks again for the time, guys. Congratulations.

Thanks, Jeff.

Your next question comes from the line of Ben Nolan. Ben, your line is open.

Thank you, operator. Good quarter, guys. I want to start a little bit, and you, Matt, spent a whole lot of time and was very helpful about thinking through the permanency or permanence of the CLX Plus service and sort of how things are different now at this time. But I wanted to maybe see if there's a tie-in here between some of the chaos that's happening and congestion issues and everything else in the West Coast. Are you being able to leverage your expedited service to maybe win more long-term business? Or alternatively, have you seen any expansion in the premium that you get? If people are grappling for spots, is there anything you're doing to sort of leverage that position at all?

Yeah, I mean, from our perspective, having been at this for 15 years, we've developed a really good base of customers who have, as their business has expanded, we've been able to accommodate that growth. And so the way I see the market today, Ben, is that obviously we're seeing some very busy, hectic congestion on the U.S. West Coast. There's a lack of empty equipment, not in Mattson, but in the market. There's a lack of chassis. There's shortages of labor. There's disruption of rails. This is a very frothy period. That part of it is temporary. And I can't say when that will end. It may end in two weeks. It may not end until after Lunar New Year. It's really hard to know where that part ends. But we're not relying on any of that cargo. to impact our belief on the continuity of our CLX Plus service. A lot of our thinking around CLX Plus, we outlined and we went into quite a bit of detail, but among the more important factors is this growth in e-commerce and the way in which cargo is being shifted, and e-commerce wants an expedited transit. And together with a more orderly containers, supply demand, the air freight, all of those things separate from the congestion we're seeing right now gives us confidence, and not the least of which is to have identified and are in the execution stage of identifying a backhaul in the AAX to give us somewhat dual head-haul economics are all factors that give us that confidence that we described. And we always look for balancing leveraging the opportunities in the short run with making sure we're maintaining enduring customer relationships that go year in and year out. So there are some markets where we could charge a lot more than other times of the market, but I could just give you as a data point, we are turning away each week more cargo on our CLX and CLX Plus service than we are carrying, to give you a sense of the demand right now. And again, we don't expect that super high demand to continue, but we expect enough demand to continue to make this, we think, long-term a success.

Okay. And I guess that's what I would have expected. I guess I was asking, and maybe you answered, I don't know, but is there a way to turn that leverage that you have with a really unique product into saying, okay, I'll fit you in here, but I want to know that, you know, I'm going to have 10 boxes of weed from you for the next year or something like that? Or is that just not part of the process?

That conversation has been going on for 15 years. Everybody wants to get on the ship in the peak season, right? Which customers can give us those containers every week, 52 weeks a year, right? So it is an ongoing element so that we might, in peak season, forego the highest cargo because people can give us cargo 40 weeks a year, and so we're balancing the seasonal impact with the year-round customer contribution. Yeah, so that is just a core part of how we approach the market and have for a long time.

Okay, that's helpful. And then maybe for Joel or both of you, deleveraging, I think it's happening a lot faster than any of us thought that it would. And you did walk through your capital allocation hierarchy. I appreciate that. But to the extent that let's hope and say that some of this elevated level of cash flow continues to be here for a little while and you do delever really quickly. Are there things, as you look out into the future, maybe capital projects or refleeting Alaska or anything else where you say, okay, well, you know, we thought this was maybe five years away or something else, but now we're in a position where we can maybe pull that forward? Or is that not even necessary? The timeline is what the timeline is, and it's not a function of capital.

Yes. Ben, thanks for that question. So I'd say we do – very much think long-term in everything that we do. So we do have a view of when we're going to need Alaska vessels and other major investments as well. And all that was really baked into what we've been describing for the last couple of years in the overall plan of deleveraging when we're finished with this vessel cycle. So what we're going to continue to do is stick with that plan because we did look at all those long-term needs as we put that plan together. It just so happens that this is all happening in this very uncertain time of the pandemic. where we've seen some businesses' opportunities really expand for us. So the deleveraging has definitely accelerated because of this performance, but it hasn't changed our view that we're still sick with this plan, and the capital allocation hierarchy is something that we feel very good about and it's very appropriate. So we look for us to continue to focus on deleveraging and any kind of organic growth or other types of investments then it's still going to be subject to our normal discipline of the kind of return thresholds that we see. So we're really – the overall message is we're sticking with that plan.

Okay. I appreciate it, Joel. And then last for me, and I'll turn it over. I am still – I scratch my head at, like, the Hawaii volumes, given unemployment and everything else. And it's great for you guys, but how much of that – and particularly Hawaii, but maybe also Alaska – And Matt, you mentioned a little bit about stimulus and the perpetual payments and so forth. How much of that do you think is of the cargo is stimulus specific or at least linked to stimulus that might be at risk if those payments don't continue? So are you at all concerned that there might be a little bit of a volume cliff at some point?

Yeah, I mean, I said in all three of the Jones Act markets that this has come back faster than we expected, and I think in part it's the same package on the U.S. mainland, right? I mean, this demand for work from home and home improvement and getting money into the hands of the unemployed is and the PPP loans, keeping small businesses afloat, and all of the really timely federal government response to the pandemic has all helped. But we remain cautious because our point is it's unclear what's going to happen next. Is the delivery of the vaccine going to bridge and additional stimulus bridge us into a into a lasting recovery? Will there be an air pocket in any of our trades? Those all are really hard to forecast. And so, again, we feel well. And the other thing, and you know this, Ben, a lot of our business is grocery store business, right? It's going to our longtime customers who are selling the basics. And so we know there's a certain floor level of demand that will continue. So It's better than we expected, and it's not crystal clear whether it continues, although we hope it will. That's why it's really difficult for us to talk about exactly what's going to happen. So, you know, it's as much about the macro as it is about any of our end markets in particular.

All right. I appreciate that, Matt and Joel, and I appreciate the time, and congrats again. Fantastic quarter, and it looks like it's the second of a number. So good work. Thanks, Ben.

Your next question comes from the line of Steve O'Hara. Steve, your line is open.

Thanks. Thanks for taking the question. Good afternoon.

Hi, Steve.

Hi. I guess first just on the talk about confidence in CLX Plus being a longer-term initiative, does that mean that you were kind of in the process of taking maybe a longer-term initiative capacity acquisition or anything like that? I think you'd chartered capacity in that market, but have those charters, you know, gone out in time more than, you know, maybe previously?

Yeah. So, Steve, we are in – we have six chartered vessels in the service. We don't envision – purchasing any vessels. We continue to think the best way to address this market is chartering. And you may know that, for example, the International Ocean Carriers charter or operate about 50% of their capacity as chartered. So it's a normal way in which an operator would have a portfolio of owned and chartered assets. So it feels normal to us to have that combination. We expect that to continue. Our confidence going into 2021 and make CLX a permanent service. As these charters expire, we will be renewing them. In due course, I don't think we're going to do a five-year charter or whatever, but these will be rolled over on kind of six, 12-month terms. and those will be negotiations with the charter owners as we go. But we're definitely keeping our feet on the ground here. We have a lot of confidence in them. We're confident we're going to be able to charter vessels to be able to continue the service, and we'll be sort of balancing the renewals with the owners' intentions there. But it's hard to be real specific about it.

Okay, that's helpful. And then maybe, is there a way to think about pricing within CLX and CLX Plus in terms of, you know, maybe where rates are versus, you know, you know, the impact of this, you know, as, you know, maybe other methods of shipping come back over time, you know, what the, you know, that pricing looks like and, you know, relative to what it is today.

Yeah, I mean, I can, I mean... And you know this, Steve, that our service commands a premium to the spot market, and it has for a long time. And the same is true in this environment for both our CLX and CLX Plus vessels as the fastest and second fastest service in the Trans-Pacific. And owing to the fact that we're turning away more cargo than we're carrying, we can be selective in the cargo that we continue to carry, and that commands a market premium. And so I would say if you look at the SCFI, the Shanghai Containerized Freight Index as one that, you know, it's at an all-time high. And so, you know, we're not giving specific, you know, rate guidance, but our rates are doing very well. And, you know, that's just at one market data point. The SCFI is at a record high. We command a premium to the spot market and have, so. um, we're feeling good about where we are on, on the pricing.

Okay. Um, and then, um, just on the, uh, you know, comments, I guess, around October, um, specifically, you know, within the China market is, I mean, is that, um, you know, with the way the, the peak season works and, and, um, Is there kind of a fall-off typically, you know, in November or, you know, December as kind of peak season ends, or is it usually kind of done by, you know, October or, you know? I guess I'm just wondering, is the, you know, the...