Matson, Inc.

Good day, ladies and gentlemen. Thank you for standing by. And welcome to MAPS's second quarter 2022 financial results conference call. At this time, all participants are on a listen-only mode. After this speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1-1. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host, Lee Fishman. Please go ahead.

Thank you, Olivia. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer, and Joel Winnie, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides, and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption risk factors on pages 13 to 24 of our Form 10-K filed on February 25th, 2022, and in our subsequent filings with the SEC. Please also note that the date of this conference call is August 1st, 2022, and any forward-looking statements that we make today are based on assumptions as of this date. We undertake no obligation to update these forward-looking statements. With that, I'll turn the call over to Matt. Okay. Thanks, Lee, and thanks to those on the call.

Starting on slide three, Massen performed well in the second quarter with higher year-over-year operating income in both ocean transportation and logistics. The increase in ocean transportation operating income in the quarter was driven by significant demand for our China expedited ocean services. In our domestic trade lanes, we saw higher volume in Alaska and softer volumes in Hawaii and Guam compared to the second quarter of last year. In logistics, The increase in operating income was due to strength across all of the business lines as we continue to see favorable supply and demand fundamentals in our core markets. Please turn to slide four. I want to start off providing our views on the current market environment across the domestic trade lanes, logistics, and the Trans-Pacific trade lane, after which I will walk through our current priorities and then our trade lane performance in the second quarter. Starting with our domestic trade lanes, we continue to see economic recovery in Hawaii, Alaska, and Guam from the pandemic lows. In Hawaii, domestic tourism was strong in the first half of the year, and we saw increasing international tourist arrivals, but total arrivals are still well below the pre-pandemic high. UHERO is projecting Hawaii visitor arrivals for 2022 to be 87% of the pre-pandemic high in 2019, increasing to 93% in 2023. The strong recovery in Hawaii tourism industry has led to a rapid decline in the unemployment rate. In Alaska, we expect the Alaska economy to benefit from the resumption of summer tourism and increased energy-related exploration and production activity as a result of elevated oil prices. We continue to see further improvement in the unemployment rate from the pandemic highs. And in Guam, the economy continues to recover from the pandemic low despite the slow return of tourism. Tourism has increased since the beginning of the year, but it's still about 25% of the pre-pandemic level. We expect further improvement in tourism arrivals from Asia to support the local economy but the timing remains unclear. With our positive drivers supporting further growth in our core domestic markets, weakening economic conditions in the US and in global economies could negatively affect tourism and consumer spending. In addition, the combination of high inflation, higher interest rates, and lower personal income with the end of the pandemic era stimulus is likely having a negative impact on household income and consequently consumer goods demand. For example, in Hawaii and Guam, retail-related demand declined in the second quarter and the softness continued in July. Turning to logistics, we continue to see a solid level of activity across all business lines. Span-Alaska's business activities continue to track well with the performance in the Alaska trade land, and the trend in our supply chain business is consistent with the demand for our China service. Rail congestion, particularly on the U.S. West Coast, continues to be an issue for our transportation brokerage customers, and as a result, some of our customers are shifting modes from rail to truck to expedite the delivery of goods. Our warehousing unit remains busy, with inbound goods and transload volume exceeding outbound volume. Please turn to slide five. Demand for our differentiated expedited China service remains solid. While some supply chain infrastructure issues that we've mentioned on prior calls are slowly subsiding, other uncertainties remain. China's factory production continues to recover from the COVID-19 related supply chain challenges. Import commodities are making their way to the factories and the logistics of moving freight from the factory floor to the port have become more fluid. but as we've seen in the last two years, COVID-19 waves have the potential to disrupt this part of the supply chain. Port congestion on the U.S. West Coast has improved, and birth time waits are considerably less than at the beginning of the year, but container dwell times at the terminals remain elevated, partly due to ongoing rail congestion I just mentioned. In the last month or so, we've seen some customers opt to send U.S. cargo to the East Coast ports to manage risk during the peak season. The key uncertainties for them are the ongoing rail congestion and the potential for a West Coast labor slowdown as the contract between the PMA and the ILWU expired on July 1st. In recent weeks, we've seen a gradual decline in the Trans-Pacific freight indices from the highs experienced earlier this year. This indicates that rates have likely peaked for now. At this time, we expect an orderly marketplace for the remainder of the year with our vessels continuing to operate at or near capacity and earning a significant rate premium to the market and well above pre-pandemic rate levels. We're well positioned to help customers speed goods to market with the fastest and most reliable ocean services in the Trans-Pacific and unparalleled destination services on the US West Coast. As a result, we continue to expect to operate the CCX service through October peak season this year. Our CCX service, with Oakland as the first call, has addressed the need for our customers in the last 12 months to get freight to markets during a period of difficult congestion conditions at the Southern California ports. With congestion conditions expected to subside further, the need for this service beyond the October season is likely to diminish. However, if there's enough demand for the CCX post the October peak season, then we'll have the option to continue the service well into 2023. Please turn to slide six where I'll go through the current priorities. First and foremost, we're focused on maintaining vessel schedule integrity and providing high quality service for our ocean transportation and logistics customers as the environment continues to evolve. We continue to expect the post pandemic environment to be an evolving journey, and we will adapt like we have always done to support the lifeline communities that we serve. Second, we're focused on organic growth opportunities and long-term investments that leverage our existing operations. To this end, We're making good progress on the evaluation of the Alaska fleet replacement. We're currently leaning towards upsizing the CLX service with three new LNG-ready Aloha-class vessels. We expect to get a head start on funding the refleeting program on a tax-advantaged basis with a sizable cash deposit into the Capital Construction Fund before the end of the third quarter. Joel will go into more detail on the new vessels and the CCF in a few moments. Third, we want to maintain our investment-grade balance sheet. We view our balance sheet as a competitive advantage to capitalize on inorganic growth opportunities as they emerge and regardless of where we find them in the cycle. We will remain disciplined in evaluating acquisitions that meet the key criteria we've outlined previously on earnings calls and in my shareholder letters. And lastly, we're committed to returning capital to shareholders with excess cash flow, which we define as cash flow after funding our maintenance capital expenditures, long-term investments, and dividend. In the last 12 months, we've generated significant cash flow, which we have used to return over $450 million in capital to shareholders in the form of dividends and share repurchases. Going forward, we expect to be a steady buyer of shares. I will now go through the second quarter performance of our trade lanes, SSAT, and logistics. So please turn to the next slide. Hawaii container volume for the second quarter decreased 1.5% year over year, primarily due to lower retail-related demand. The Hawaii economy continued to show improvement in the quarter, supported by strong domestic tourist arrivals and modest improvement in international tourist trends. Moving to our China service on slide eight. Matson's volume in the second quarter 2022 was 11.7% higher year over year due to four more eastbound voyages than the prior year. Freight demand in the quarter was driven by e-commerce, garments, and other goods. Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index in the second quarter of 2022 and achieved average freight rates that were considerably higher than the year-ago period. Turning to slide 9, in Guam, Matson's container volume in the second quarter of 2022 decreased 7% year-over-year. The decrease is primarily due to lower retail-related demand. Moving now to slide 10, In Alaska, Massen's container volume for the second quarter 2022 increased 12.2% year-over-year. The increase was primarily due to higher northbound volume, primarily due to higher retail-related demand and an additional sailing, and higher seafood volume from the Alaska-Asia Express. Turning next to slide 11, our terminal venture SSAT contributed $24.7 million in the second quarter 2022 compared to $12.8 million in the prior year period. The higher contribution was primarily a result of higher other terminal revenue. Turning now to logistics on slide 12, operating income in the second quarter came in at $23.1 million or $10.2 million higher than the result in the year ago period. The increase is primarily due to higher contributions from all services as we continue to see favorable supply and demand fundamentals in our core markets. And with that, I will now turn the call over to Joel for a review of our financial performance.

Okay. Thanks, Matt. Please turn to slide 13 for a review of our second quarter results. For the second quarter, consolidated operating income increased $279.2 million year-over-year to $493.1 million, with higher contributions from ocean transportation and logistics of $269 million and $10.2 million, respectively. The increase in ocean transportation operating income in the second quarter was primarily due to considerably higher average freight rates and higher volume in China and a higher contribution from SSAT, partially offset by higher fuel-related expenses, net of fuel-related surcharge recovery, and higher operating costs and expenses primarily due to the CLX Plus and CCX services. As Matt noted, the increase in logistics operating income was primarily due to higher contributions from all services. Interest expense declined $1 million year over year due to lower outstanding debt. And lastly, the effective tax rate in the quarter was 22.4% compared to 22.6% in the year-ago period. Slide 14 shows how we allocated our traveling 12 months of cash flow generation. For the LTM period ending June 30, we generated cash flow from operations of $1.436 billion, from which we used $65 million to retire debt, $277.5 million on maintenance and other capex, including $99.5 million of early buyout and operating lease termination payments. $26.3 million on new vessel CapEx, including capitalized interest and owner's items, and $18.5 million on other cash outflows, while returning $457.5 million to shareholders via dividends and share repurchase. Please turn to slide 15 for a summary of our share repurchase program and balance sheet. During the second quarter, we repurchased approximately 1.6 million shares for a total cost of 138.1 million. Year to date, we have repurchased approximately 2.3 million shares for a total cost of 206.7 million. At the end of the second quarter, there were approximately 1.2 million shares remaining in the share repurchase program. Turning to our debt levels, our total debt at the end of the quarter was 596.6 million. Please turn to the next slide. This slide 16 summarizes the status of our key vessel capital expenditure projects. Starting with the refleeting of the vessels for the Alaska trade lane, we are leaning towards the option to construct three new LNG-ready Aloha-class vessels and move three older CLX vessels into the Alaska service. The estimated total cost for three LNG-ready Aloha-class vessels is approximately $1 billion before owner's items. This investment option would allow us to upsize the CLX service by approximately 500 containers of capacity for each of the three new vessels and expect this additional trade lane capacity to be a meaningful EVA dock contributor when the vessels are placed into service later this decade. As Matt mentioned earlier, we intend to contribute cash to the Capital Construction Fund, or CCF, for the new shipbuilding program before the end of the third quarter this year so that we can apply the deduction to our 2021 federal and state tax filings. We expect our CCF cash contribution to be approximately $500 million and lead to a refund of a significant portion of the $242 million in taxes paid last year in 2021. Going forward, we expect to continue to add cash to the CCF before and during construction on the vessels to take full advantage of the CCF tax benefits and lower our cash taxes. On LNG installation projects, the Daniel K Inouye and Mauna Kea remain on track for next year with the Daniel K Inouye scheduled to enter dry dock in the first quarter of 2023 and the Mauna Kea scheduled to enter dry dock in mid-year 2023. We continue to evaluate LNG installations on the Kamanahela, the Lerling, and the Matsonia, although no decisions have been made at this time. If we move forward on these LNG installations, then the Camana Gila would be the next vessel in line after the Mauna Kai, and that project would occur in 2024. Lastly, we are reiterating our CapEx range for 2022 of 160 to 180 million. With that, I'll now turn the call back over to Matt. Okay.

Thanks, Joel. The last two years have been anything but predictable as the pandemic challenged our industry and supply chains worldwide. We will continue to navigate our business through this evolving environment by doing what we've always done, and that is to maintain service reliability, provide high-quality customer service, and allocate your capital to its highest and best use to create value over the long term. And with that, I will turn the call back to the operator and ask for your questions. Thanks.

Thank you. Please stand by while we compile the Q&A roster. Now, first question coming from the lineup. Jack Atkins from Stevenson is open.

Okay, great. Good afternoon, and congrats on another great quarter, guys. Oh, thanks, Jack. So, I guess, Matt, if we could maybe start, I'd love to kind of get a little bit more color on July if it's possible. I'm guessing you don't want to give a lot of details just because, you know, it's still sort of, you know, early in the quarter. But, I mean, is there a way to maybe think about, july relative to you know are you seeing trends accelerate decelerate versus what you saw in the in the second quarter or maybe if you want to talk to it relative to normal seasonality i'm just sort of curious if you can kind of help us frame up you know what you're seeing in july because to your point things are pretty volatile out there yeah i mean i i do think things are changing and we called that out in our pre-release and and maybe we can add a little bit of color here jack to it i i think you know when you when you see the uh

the trans-Pacific markets. Maybe I could just talk in general about ship weights, just as one perspective. You'll recall in the fall of last year, we saw over 100 vessels waiting at anchor or offshore waiting to get into the ports of LA Long Beach. We still have about 100 ships that are awaiting anchor. There's 20-ish in LA Long Beach, but as we know, a lot of that congestion has moved around into different ports, like the Port of Savannah, New York, New Jersey, Houston, Vancouver, a little bit in Oakland. So we saw the same number of shifts, but just more distributed to different places. If we do channel checks, we see a lot of our customers, and these have been reported in their earnings calls, with relatively heavy levels of inventory. A number of our customers have implemented inventory control measures as they seek to work through some of the inventory. that they have in hand as the market has shifted. If you look at the fundamentals in the supply and demand across the Pacific, just kind of narrowing into our scope, I think what we've seen are that ships are full, that just about every ocean carrier are sailing from various Asia origins full of cargo. There has been movement downward in The spot rates in the Trans-Pacific, those have definitely come in in the last two to four weeks. I would say they're adjusting slowly, and they are moving, but there's no bottoming or falling off a cliff. We're seeing an overall, and the word we used was orderly. So, we're seeing rates decline from their peaks, but overall, we describe the market as orderly. The best way I can describe it, and to your point about July, the trends that we saw at the end of June and we're calling out are continuing into July.

Okay. All right. I got it. I guess maybe thinking about Trans-Pacific in general and the additional capacity that you've put in there, that you've chartered in there over the last couple of years, obviously very timely when you made those decisions. When we think about the cost structure of that additional capacity relative to rates. I wouldn't expect you to help us think through that on this call, but I guess if we were to see rates return, I think if we were to see rates return back more towards 2019 levels or even 2020 levels, would that additional capacity still be profitable?

Here's what I can say about that, Jack. First of all, the CLX Plus, the second string we introduced, we think is here to stay. We remain very confident that as the market normalizes, and we expected the market to normalize at some point, and barring any other further geopolitical or external shocks, we do see a normalization process is starting and will continue to occur. And again, just to repeat ourselves, we remain very confident in the market, the Trans-Pacific markets that we operate in Shanghai, Ningbo, into Southern California will support a second expedited service of the CLX caliber. And with regard to, we did make a call out on our CCX service, the third service. We expect it to remain busy through the peak season in October. We'll take a look and see how the market develops. This is an Oakland first call. Most of the market wants to go, especially due to the lack of congestion in L.A. Long Beach, for a direct call into those ports. So this service, if things remain in place, are likely to cause us to consider winding that down. But have it ready should there be any other dislocation. Or if we find ourselves in an environment where there continues to be elevated congestion, we could operate that well into 2023. So we have a lot of optionality here. With regard to the CLX, we remain very confident that we're going to continue to earn a significant premium over the market and for it to be profitable.

Okay. Okay, that's great. I guess shifting gears to the new Aloha-class vessels that you guys are moving forward with, is there any sense for a kind of rough timeline on when those ships would be delivered? You said later this decade. I'm sure there are a lot of – you know, potential variables there at this point, given how far out it is. But, you know, when would you expect those ships to be delivered to you guys?

Yeah, so we're in discussion with several shipyards at this point in time with regard to price and availability of slots and delivery dates. So we don't really have a good specific timeframe for you. But I would say probably sometime in the second half, early part of the second half of the decade, 26, 27. Those are the kind of – timeframes that we're looking at. And of course, they'll be delivered if we give all three to a single yard, which is most likely the outcome, they'll be delivered sequentially. So that'll happen over a couple of year period.

Okay, that's great. One more question for me, and I'll jump back in queue and hand it over to Ben. But as it relates to scrubber installation, is there a way to maybe think about what percentage of your capacity or just your vessels at this point have scrubbers installed or will have scrubbers installed by, let's say, the end of next year?

Yeah, Jack, it's Joel. The ships that are LNG available, we're looking at the LNG installations, but of the remaining ships, almost all of them have scrubbers. Okay. So we are benefiting from the differential right now between low sulfur and high sulfur content fuel. Yeah, okay. Yeah.

Okay, that makes a lot of sense. Okay, those were very timely investments. So, great. Well, I'll hand it back. Thanks again for the time. Really appreciate it.

Okay, thanks, Jack. Thanks, Jack.

Thank you. Now, next question coming from the line up. Ben Olin with People. Your line is open.

Thanks. Hey, guys. I've got a couple. I wanted to start with going back to the Trans-Pacific, appreciating that rates are coming down for the market. But I am curious, you guys have a pretty differentiated service. Are you seeing sort of a linear pattern with respect to sort of how you think of your rates or given sort of the unique thing that you provide? Are you seeing any degree of maybe pricing support that the broader market might not be able to realize?

Yeah, I think it's a little of both, Ben. I mean, I think you know, having followed our story for a while, that the premium to the market expands and contracts in different market styles, so it never really remains completely fixed. I would say that as Trans-Pacific spot rates have come down, we're watching closely the spread and where we have held up, our rates have held stronger than the overall rates but we are not immune from taking rate adjustments as we need to and expect to remain competitive in the market with a significant premium to the overall market. So it isn't a fixed service, and it may also be that our CLX service may be able to bear a greater premium than one of our other services. So we look at it week to week, but we've been pleased with the overall pace, but we do expect our rates to go down in sympathy with the market, but at

significantly higher absolute levels of freight rates okay and and sort of in that same vein uh assuming that at some point the market um returns back to normalized levels in terms of freight rates do you think that structurally your pr your premium is any different than it used to be you know in that i mean well first of all i guess you have more more cargo to spread it around. But then the other hand, you also have many, many more customers. Do you think it's more defensible perhaps than pre-COVID?

Yeah, I do, Ben. I think what's happened here is that we have been able to stand out in an environment because of the collection of assets, important terminal operations, and the way we run our business and expanding through the pandemic. that the credibility of our brand with our customers both in the U.S. and the forwarders in China is never higher. It's been outstanding. We are the go-to when a piece of cargo has to go because of a late order or production problem or their business model can sustain a higher level of freight rates. It might be an air freight alternative. So there is no doubt in my mind that our brand has expanded and that I think will give us greater opportunities over time. But we also expect to live within cycles, and that will remain a fact of life. But I continue to believe, Ben, at this point, that the entire trade, and Matson included, is going to end up at a freight rate level that is higher than going into the pandemic. I think things have shaken out, and I continue to expect that rates will be higher than where we went into the cycle.

Okay, that's helpful. And then just a quick... A couple more, and we'll see if Jack has another one or not. But on SSAT, the number was down relative to first quarter, although I think volumes into the West Coast ports, if I'm not mistaken, were equally as good, maybe even a little higher. I'm curious what was a little bit different in terms of your contribution there.

You know, Jack, there are really two factors. There were some revenue and costs that fell from one quarter to another, then just in terms of timing of where they fell. But I'd also say that some of the congestion, particularly in Oakland, there hasn't been as much throughput here towards the latter part of the second quarter as there was in the first quarter. So there was some impact about our terminals being able to actually move the freight in a fluid way. So there's really a combination of those two things that led the Q2 to be coming down over Q1. If you look at kind of the average of those two, that's probably where the average would be for the whole six-month period.

Yeah, and Ben, let me just amplify one point Joel made, which is that what we've seen in the second quarter on the West Coast ports is significant increase in containers that are bound for the U.S. rail network. And in many cases, we have seen the two main Western Railroads have limited the amount of containers they're sending into the inland because, as has been reported, their inland terminals are jammed and they are not going to take on their railroad network additional rail containers that can't be discharged at their inland terminals. And so there has been a little change in the amount of cargo that has flown because of those factors that are actually continuing and expected to continue as we go into this year's peak season. Maybe a little too much inside baseball, but just to give you a context.

Yeah, I appreciate all the context I can get. The last one for me is I'm curious a little bit on SPAN. You know, SPAN Alaska, you guys did that acquisition a few years ago. It seems like it's worked out pretty well. But I haven't heard or haven't gotten as much color on the competitive landscape. I'm curious sort of if uh if that's a market you've been able to gain share organically and sort of how you're thinking about uh that that that business strategically and and uh you know from from where you sit now a few years later sure um on the competitive landscape then it hasn't changed much we've got um a small number of competitors they're good good strong competitors and

it's been a pretty disciplined market where we all compete on service and quality. And so the key for us and the reason acquisition made so much sense is we can integrate and between our ocean services and the span services really deliver more reliability and speed for our customers. That's how we try to compete. So market shares don't change dramatically. We haven't seen that, but it's just going out and just on the margin being quicker and better and more reliable than the competition. That's our strategy and and integrating two businesses together has worked out really well for us. So we're very happy with the acquisition. The team's doing a great job, and the focus on customers has been really good. So overall, that's kind of the dynamics that we see in that market, and it's what we expected when we bought the business.

All right, I appreciate it. I'll see if Jack's got another one. If not, I'm going to go ahead and queue up again, so we'll see.

Thank you, and as a reminder, too, So that's a question for Star 1-1. And we have a follow-up question from Jack Atkins from Stevens. Your line is open.

Okay, great. Appreciate Ben passing it over. Just a couple of additional questions on my end. There was some unrest, I guess, at the Port of Oakland. Was it last week or the week before around AB5? Some protests there. So I guess a two-part question. Matt, did that impact your operations at all? I know Oakland's an important port for you. And then secondly, you know, what are your thoughts on AB5? And, you know, does that create some additional kind of longer-term congestion problems, you know, with the West Coast ports? We'd love to kind of get your thoughts on that. I'm sure you've kind of thought through that to some degree.

Yeah, yeah. I have a couple in answer to your question. The first part, yes. So the port disruption that took place in Oakland – is now done. The protesters have dissipated and things are back to normal. We were impacted. There were a couple of days where the port was closed in its entirety and it started at one terminal in Oakland and kind of moved its way around. Individual terminals closed. Matson's was the last to close. but the protesters all gathered in front of our gate and we were closed for the day. We were able to work with the protesters to get some live cattle off the vessels because they needed food and water, but beyond that, really, cargo did not move. We were able to work with our customers to get some of their freight diverted down to Southern California to continue to meet their own sailing requirements, but we were impacted only really moderately, and that that cargo that was held back was picked up the following week. So it was really a relatively small item, although disruptive for us. As to the larger question, it's really a good question. You know, there is a role for an independent operator in the state of California. Those rules have been made more difficult by the imposition of AB5. Some of our trucking partners are suggesting that the truckers themselves move out of state if they want to continue to serve the market. We're waiting to see how this all shakes out. And so I would say we do support the idea of an independent operator within the bounds of the law. So we think there's a role for that in California, a continuing role for that.

Okay. Okay. Thanks for that, Matt. And I guess maybe one last question for me, which is kind of a bigger picture macro question, but I would just be curious as you and your team talk to your customers, what are they telling you about the direction of their business that make you kind of form an opinion about the health of the economy, whether it's in your Jones Act markets or just kind of in the broader U.S. economy? Are you feeling like things are accelerating? Are they decelerating somewhat? Just would be curious to kind of get your sense for what's going on just in the broader economy.

Yeah. I'll give you a few anecdotes. And right now, it tends to be rather industry-specific. So when we talk to our auto parts customers, they see things as booming and will continue to boom as, you know, the auto manufacturing segment, for example, has continued to have significant demand and held back by microchips and lots of other little items. So that's strong. If you look at garments, you hear a different story, which is that, and these are, again, reflected in some of the big box earnings calls that we heard, many of whom are our customers directly or indirectly through wholesalers, and they have implemented temporary inventory control mechanisms, purchase orders, are getting pushed out as those customers are getting a handle on working off surplus inventory. Warehouses are full. Customers are facing issues in picking up their freight because a lot of cargo had moved earlier and people wanted to make sure that they had adequate inventory. So I would say there's a little bit of an inventory hangover for the big box guys. We're still seeing, again, strong flows across the Pacific. All the ships are full. You know, we're getting into our peak season, so if I had to guess today, I'd say we'd have a moderate peak season, an orderly market, but there are challenges, and I think customers, our end customers themselves are being more cautious with respect to starting inventories and not getting, not making their situation further. You know, we can definitely feel anecdotally customers talking about concerns about that, but, you know, in logistics, we're seeing alternatively very strong activity across all of our domestic markets. So it's really a mixed bag, Jack, depending on who you're talking to. But I think the Fed's, you know, intended effect of trying to slow the economy, and we're all watching certain segments, of course, interest rates and housing market and others starting to have the effect that they're desiring but you know it's really hard to tell exactly and again customers are kind of all over the place at this point okay well I really appreciate the the insights man thanks thanks again okay thanks thank you and we have a follow-up question from Ben all you want us open all right I appreciate the little tether ball with Jack and I here

I wanted to really quickly ask about how you're thinking about the dividend. Obviously, you've been pretty active on the share repurchase program. That's causing the share to count to come down, which is helping less cash to flow through the dividend. I'm curious if you think that going forward, you've bumped it a couple of times, but do you think that there's more room to go in over the place at this point?

Okay. Well, I really appreciate the insights, Matt. Thanks again. Okay.

Thanks. Thank you. And we have a follow-up question from . All right.

I appreciate the little tether ball with Jack and I here. I wanted to really quickly ask about the – how you're thinking about the dividend. pretty active on the share repurchase program that's causing the shared account to come down which is helping less cash to flow through the dividend and curious if you think that going forward there's there's you've bumped it a couple of times but do you think that there's more room uh room to go and while still keeping it sustainable

Yeah, Ben. So the answer is we're going to take the same approach we've always taken, which is be judicious with the increase in dividend to make sure that we can pay for it and really de-risk ourselves to ever have to bring it down and increase it as we see increases in our free cash flow. So admittedly, in this environment, you know, performance has been really, really strong. We don't know what the next 12 or 24 months are going to look like. We still feel like there's going to be very strong cash flow, but it's not the exact environment right now to size it on a long-term basis, so we're taking a cautious approach. That's what we've always looked at. We just want to be very confident when we increase the dividend by any amount that it's going to be very, very sustainable and consistent in the future. We're really not going to change that approach. That doesn't answer your question about how much we might increase it in the future, but because we can't really answer that right now, but we'll take the same judicious approach is the best I can say about it.

Okay, I appreciate that. I'm not surprised that that's your answer. My last question, honestly, is you talked a little bit about the ILWU negotiations and then still not having been resolved and I know you might have better insight than I do on it, but it remains to be seen how it all plays out. I'm curious if your customers are starting to push a little bit harder to make sure that they're on your ships just in case there's a work slowdown or something else. Are you starting to see any change in customer behavior or anything of that sort as it relates to what could potentially happen on the West Coast?

Yeah. To me, the most prominent action that is taken is a lot of our customers had, over the last six months, directed cargo to other ports beyond those on the US West Coast. And that's why when we mentioned some of the congestion that's moved from LA Long Beach to other ports on the East Coast and in Vancouver and Houston and so on, is really a result of their planning around taking their imports and moving them to different distribution centers as a way to partially mitigate the risk of an impact on the U.S. West Coast. I would say most of our customers have done their planning, so we have not seen a dramatic increase immediately before the expiration of the contract in demand, on the margin perhaps, but we certainly haven't since to get on our vessel. It's more for the same reasons that people have used us for all the reasons that they use us, and we haven't seen a significant spike to this point.

Okay, and then I'll call this a follow-on to the last question. If there is a resolution, do you expect that there could be some of that trade or some of that volume that has shifted to wherever, Houston, Savannah, New York, wherever, Do you think it would come back? Is that sort of where the volume wants to flow? Or do you think that some of those trends have become a little bit more permanent?

Yeah, I think it's a little of both. I think what we will see when the contract is renewed and ratified by the membership, that we will see a return of 3%, 4%, 5% of that cargo that would want to naturally flow that direction But I would caution for some of the same reasons that, you know, in part it'll depend as much on whether that individual retailer has space in their warehouse network in Southern California versus other locations, and whether the Western Railroads are going to be able to handle the cargo that moves in their network in a timely fashion. So, you know, as we've said from the beginning, this is all connected, but I do, to answer your question directly, I do think there'll be some cargo that moves on the margin, but it'll really be you know, customer-by-customer specific based on looking at their own supply chains. That will define that.

All right. I appreciate it. Thanks, Ben.

Okay. Thanks very much, Ben.

Thank you, Ben.

And again, to ask a question, please. I am showing no further questions at this time. I would now like to send a call back over to Madcos for closing remarks.

Okay, well, thanks for tuning in today. We look forward to catching everyone on the third quarter call. Aloha.

Ladies and gentlemen, that's the conference for today. Thank you for your participation. You may now disconnect.