Q4 2019 Earnings Call
Also note that the date, but this conference call. Its February 27, 2020, and any forward looking statements that we make today are based on assumptions as existing.
We undertake no obligation to update each forward looking statements I will now turn call over Tonight.
Actually and thanks to those on the call. This afternoon.
Please turn to slide three for my opening remarks.
For the fourth quarter matches performance from its trade lanes came in as expected, but the consolidated results came in below our expectation.
Our China service outperformed a year ago period, which included the exceptionally strong seasonal demand driven by the U.S., China tariffs situation.
We saw modest rebound in our Hawaii trade Lane service. After several quarters are weak performance and our logistic segment met our expectations and continued to execute well in the face a softer industry conditions within the transportation brokerage.
Despite solid contributions across most of our business lines and trade lanes. We came up short largely did were weaker than expected contribution from SSH key which I'll discuss later in the presentation.
Yeah, very busy 2019 with the delivery of two new vessels for our Hawaii Trade Lane service and renovation work at our sand island facility, including the installation of three new gantry Crane.
We also completed two scrubber installations with a third in progress at the end of the year.
We also opened up a new span Alaska Anchorage facility to replace two leased facilities.
To put this transition period into perspective since the beginning of 2019 to this earnings call. Dave we've placed over $600 million of assets into service disposed to three steam ships in an environment.
Our mentally responsible manner and stepped down into a nine ship fleet rotation for White service.
These efforts for years and to make.
For the full year 2019, we had solid contributions from our China at Alaska Trade Lane services and logistics had another good year, eliminating the outstanding performance in 2018.
Countering these favorable contributions were lower volumes in Hawaii trade Lane service at a lower contribution from our SSH key joint venture.
Turning to slide four.
We're in the final stretch of our major investment cycle and I want to continue to highlight for you our current priorities.
Starting with our Hawaii fleet renewal Lurlene was delivered in late December and placed into service in early January.
John or entering service, our Hawaii fleet rotation stepped down from 10 ships to nine ships that Sony and construction is progressing well and the vessel is scheduled to be delivered in the fourth quarter of this year.
Next to our sand Island terminal renovation project during the fourth quarter, we demolished three existing cranes and began modifications on three other cranes that will remain in use.
The first phase of the renovation will be completed this year. The second phase will begin towards the end of this year.
We continue to prepare for the expansion into peers 51, a and B next door when Pasha moves to the New Cup couple Lama facility across the harbor.
[noise] Mattson was fully compliant with IMO 2020 on January Onest.
As of today three vessels are back in service with scrubbers and the fourth vessel in this.
The fourth vessel in the six vessel Scrubber program is in Drydock now.
Our scrubber program is on track to be complete by the end of 2020.
Given the good economics and operational performance, we will continue to evaluate scrubbers on our new Hawaii vessels, but as I've said before we always want to be in a position that maximizes optionality for us to find the lowest cost long term solutions that make sense for mattson and our customers.
As we ended 2019, our leverage Covenant was below 3.5 times, we continue to expect our leverage to peak in the first quarter after which we will use our significant cash flow to de lever the balance sheet to mid to low twos.
We're committed to maintaining investment grade credit metrics and sustaining our low cost balance sheet, which we view as a competitive advantage.
With our debt, peaking our focus remains on prioritizing organic growth opportunities.
We are actively involved in the planning phases on a number of projects to leverage the combined services of Ocean transportation and logistics.
We will discuss these opportunities in more detail when they come to fruition.
Please turn to slide five.
Before I discuss our trade Lane services I want to spend a few moments on cobot 19, and the anticipated and potential impacts it may have on our businesses.
The situation is highly dynamic in our view today could change materially positively or negatively as situation continues to unfold.
With that said the most MPD immediate indirect impact to our business is expected to be in a long duration of the post lunar new year low.
Traditionally we see little activity for a couple of weeks post lunar new year. This year with the extension of the lunar new year by week factories idled for additional weeks and supply chains temporarily disrupted we expect the low to last longer our customers are working hard to get factories reopened and the next.
Couple of weeks and we anticipate a gradual rise in production throughout March.
But it's currently difficult to predict when factories will be back at a 100% and when the logistics infrastructure will be back to full strength.
Our manufacturing customers in particular are currently facing three operational issues a shortage of labor.
Low or no inventory of parts and the lack of factory deport logistic services. This is on top of course of their own efforts to protect our personnel from the virus.
Therefore, we do expect the elongated post lunar new year low to negatively affect our CLX service Matson logistics supply chain services International intermodal volume and the volumes that SSH key in the first half of the year with the vast majority the financial impact in the first quarter.
Specifically the negative impact will consist of less volume and lower average freight rates for our CLX service.
Lower volume from international carriers at SSH key terminals.
Lower revenue for our supply chain services business in China, and lower international intermodal volume.
However, when the cargo does come back we think supply chains will be behind the curve and companies will need to use expedited freight services like the CLX service to get back on track.
It's hard to know how orderly or chaotic the recovery will be throughout the rest of the year, but we feel confident CLX is well positioned for the volume recovery.
With respect to our 2020 outlook, we expect cobot 19 to negatively impact madsen's businesses in the first half of the year with a vast majority of the impact in the first quarter.
While it's difficult to predict with precision the financial impact of Cobot 19, we expect the following based on information currently available to us today.
For the full year 2020, we estimate the negative impact to be approximately $15 million to our consolidated operating income and EBITDA.
The vast majority of the 15 million dollar covert 19 financial impact is factored into the Ocean transportation operating income for the first quarter 2020.
The full year and first quarter 2020 outlook for logistics operating income includes a modest negative financial impact from Koeppen 19.
Joe will provide more information on the outlook later on in the end the call and we'll have more to report to you on our first quarter earnings call.
Now onto our trade lanes services.
Turning to our Hawaii service on slide six.
Hawaii container volume for the fourth quarter increased 1.1% year over year due to positive container market growth.
For the full year 2019 negative container market growth led to a 1.4% year over year decline in our container volume as we noted in our second quarter earnings call. We saw our retail retail customers adjust their inventories to the slowing economy as aggregate consumption flattened a combination of.
Factors and including muted population growth.
Lower aggregate and per visitor expenditures in a more gradual shift within construction from condos to master plan communities.
So presented headwinds for growth during the year.
For 2020.
We expect volume to be higher compared to the level achieved in 2019 as some of the headwinds I just touched upon ease and economic conditions within the state remain favorable.
Slide seven summarizes you heroes latest economic forecast I will briefly through some of the key economic factors.
Modest GDP growth is expected over the next couple of years with growth stabilizing in 2020 around 1%.
Population growth is expected to be muted after a couple of years of negative growth.
The unemployment rate in Hawaii is forecast to increase although to remain low by historical and national standards.
Visitor traffic is forecast to hit a new record this year. Despite the negative effects of Covidien 18, which you hero is forecasting to impact traffic in the first half of your but recover and fully in the third quarter.
Growth in real visitor expenditures expected to remain flattish. Despite the increase in visitor traffic lastly, construction activity remains a bright spot in the economic picture as there is a good pipeline of residential and nonresidential projects that could sustain a high level of activity for at least the next couple of years.
Our view is that economic slowdown in Hawaii that emerged in 2019 will continue to persist, but recent increases in key economic factors such as construction growth activity and visitor traffic are expected to support continued GDP growth.
Moving onto our China service on slide eight.
Maximize volume in the fourth quarter, 2019 was 4.3% higher year over year, primarily due to larger vessel capacity deployed in the trade rain.
Coupled with strong demand for our differentiated service.
Average freight rates in the quarter were modestly lower than those achieved in the fourth quarter 2008 team.
As a reminder, in the fourth quarter last year the company experienced unusually strong performance as a result of us China trade situation.
For the full year 2019 container volume increased 3.9% year over year, primarily due to stronger volume post lunar new year and to a lesser extent larger vessel capacity deployed in this trade lane.
From a rate perspective, the full year 2019, we achieved a sizable rate premium relative to the Scf hi, reflecting back on 2019 exceeding the 2018 volume level and approaching the 2018 freight rates both of which were positively impacted in the.
Second half of 2018 by the US China trade situation is a testament to the CLX is differentiated service, we continue to win business from deferred airfreight and to benefit from deeper penetration into our customer supply chains by our logistics group.
Turning to our 2020 outlook, we expect our CLX service to face challenging conditions in the first half of the year as a result of Covance 19, but we currently expect to service to operate as usual and the second half of the year and to be comparable to the strong performance. We achieved in the second half 2019.
Therefore for the full year, we expect volumes to be modestly lower than the prior year and we expect average freight rates to approximate the levels achieved in 2019.
Turning to slide nine.
In Guam Madsen's container volume in the fourth quarter 2019 decreased 7.7% year over year, primarily due to typhoon really volume in the year ago period.
For the full year 2019 container volume decreased 1.5% year over year due to the absence of typhoon relief volume.
Moving onto the full year 2020 outlook.
We expect volume to approximate the level achieved in 2019, as we expect the highly competitive environment with Hcl to remain.
As we've said before.
Our strategy is to continue to fight for every single container of our customers business given our long history in Guam with strong customer ties a shorter transit time and a much better on time performance record, we expect to retain an outsize share of that market.
Moving now to slide 10.
In Alaska Matsons container volume for the fourth quarter 2019 decreased 0.7% was slightly lower northbound volume and modestly higher southbound volume.
For the full year 2019, Matsons container volume increased 0.4% year over year, primarily due to higher northbound volume, partially offset by the absence of northbound volume related to the drydocking of a tote vessel in the year ago period and lower.
Yes.
Northbound volume benefited from the gradual economic recovery in the state.
For the full year 2020, we expect container volume to be modestly higher than the level achieved in 2018 with higher northbound volume, including volume related to a total drydocking in the first quarter of this year and slightly lower southbound volume compared to levels achieved in 2019.
Turning to the next slide 11.
The charts on the slide highlight recent forecasts of employment and population growth in Alaska.
Alaska's economy continues to recover gradually as the state sees its first employment gains in four years supported by a short term budget gap resolution in 2019 states fiscal situation.
Despite edcs forecast for continued losses in population in Anchorage, primarily area, primarily due to net migration to other areas in the state statewide population growth is anticipated to remain muted.
Overall, we're optimistic about the economic recovery in 2020, but are mindful of the impact of highly influential factors such as the volatility in oil prices and Alaska's long term solution to address the budget gap on the trajectory of the economy.
Turning next to slide 12, our terminal venture SSH key contributed $3 million in the fourth quarter 2019, compared to $8 million in the prior year period.
The decline year over year was primarily due to higher terminal operating costs and lower lift volume.
The decline in year over year volume as a function of stronger seasonal demand in the fourth quarter of 2018 as an effective the us China tariffs situation as well as the negative impact from a number of blank sailings in the Transpacific trade Lane in December 2019.
For the full year, 2019, SSL contributed $20.8 million or $16 million lower than last year.
The decrease was due to higher terminal operating cost and the absence of favorable items in the full year 2018, partially offset by higher lift volume.
As a reminder, in the second quarter of 2019.
Safety experienced additional expense related to the early adoption of a new lease accounting standard.
About a third of the year over year decline in that quarter is attributable to these lease related costs, most of which reversed in the second half of 2019.
With respect to the higher terminal operating cost during the year. The majority of those costs were largely attributable to the reorganization of the Seattle terminals, including the Onboarding of a new and eight terminal under SSH key.
This was a relatively complicated set of reorganization and involving a number of ocean carriers, some new equipment and the opening of a new terminal all walnut managing to maintain a high level of customer service.
For 2020, we expect SSH keys contribution to our Ocean transportation operating income to be lower than the level achieved in 2019 due to lower lift volume, primarily driven by the negative effects of Covance 19, partially offset by improved operating cost efficiencies.
Turning now to logistics on slide 13 operating income in the fourth quarter came in as expected at $7.6 million or $1.5 million lower than the result in a year ago period.
The decrease was primarily due to a lower contribution from transportation brokerage.
For the full year 2019, operating income increased $5.6 million to $38.3 million, primarily due to higher contributions from freight forwarding and transportation brokerage. This result is the highest ever for our logistics segment.
Every one of the business lines performed well during the year, despite some challenging year over year comparisons.
For the full year 2020, we expect logistics operating income to be lower than the level achieved in 2019. This outlook reflects a continuing soft truck pricing environment that will challenge transportation brokerage margin on a year over year basis, particularly in the first half of 2020.
The out the outlook also reflects the expected financial impact to our international intermodal and supply chain service businesses as a result of covert 19.
Slide 14 shows the operating income history, if the logistics segments since 2012.
Over the last few years, we've witnessed exceptional performance from all of the business lines within logistics, leading to our highest ever operating income and margin in 2019.
While we expect 2020 to present more challenging business conditions for all of the lines of business and segment operating income to be lower we expect logistics to continue to perform relatively well as a result of its diversified revenue streams.
Ill now turn the call over to Joel for a review of our financial performance and our outlook Joel Okay. Thanks, Matt turning to our financial results on Slide 15, I'll start with the fourth quarter results and then walk through the full year results.
Ocean Transportation operating income for the fourth quarter decreased 3.5 million year over year to 17.8 million.
The decrease was primarily due to a lower contribution from assets 18, higher terminal handling costs and the timing and fuel related surcharge collections.
Partially offset by higher contribution from the Hawaii in Alaska services.
The company's SSH key terminal joint venture investment contributed 3 million or 5 million less than the prior year period. The decrease was primarily due to higher terminal operating costs and lower lip volume.
Logistics operating income for the quarter was 7.6 million or 1.5 million lower than the prior year period. The decrease was due primarily to a lower contribution from transportation brokerage.
EBITDA for the quarter decreased 3.4 million year over year to 61 million due to lower consolidated operating income of 5.1 million.
Increase in other income point 4 million, partially offset by an increase of 2.1 million and depreciation and amortization, which includes drydocking amortization.
Interest expense for the quarter was 5.6 million and the effective tax rate in the quarter was 22.4%.
For the full year 2019 Ocean transportation operating income decreased 40.3 million year over year to 90.8 million.
The decrease is primarily due to higher terminal handling costs higher vessel operating costs, including the modeling lease expense and a lower contribution from SSH key.
Partially offset by higher contribution from the Alaska service.
The company's SSH key terminal joint venture investment contributed 20.8 million or $16 million less than in the full year 2018. The decrease was primarily due to higher terminal operating cost and the absence of favorable onetime items in 2018, partially offset by higher lift volume.
Logistics operating income for 2019 was 38.3 million or 5.6 million higher than in 2018.
The increase was due primarily to higher contributions from freight forwarding and transportation brokerage.
EBITDA for 2019 decreased 33 million year over year to 264.3 million due to lower consolidated operating income of 34.7 million a decrease in other income of 1.4 million, partially offset by an increase of 3.1 million and depreciation and amortization, which included.
Drydocking amortization.
Slide 16 shows how we allocated our to our trailing 12 months of cash flow generation.
For the LTM period, we generated cash flow from operations of 248.8 million borrowed 102 million on a net basis and receipt point 6 million from other cash flows from which we use 91.2 million on maintenance Capex and 219.1 million on new vessel Capex.
Yes, including capitalized interest in owners items, while returning 37.2 million to shareholders via dividends.
Turning to slide 17.
Our summary of our balance sheet, you will note that our total debt at the end of year was 958.4 million and our net debt to LTM EBITDA ratio was 3.5 times.
As a reminder, the EBITDA, we reported in our press release and in this presentation is different and lower than the EBITDA calculated under our debt agreements.
We continue to expect a quarterly leverage ratio into peak at the end of the first quarter. This year in the mid threes, which will be near or slightly higher than where it was at year end.
After peaking at this level, we will focus our strong cash flow generation on reducing leverage back towards our targeted level in a low twos.
On annual basis, we continue to expect about a half a turn reduction in a leverage ratio after the completion of our vessel program.
Lastly, we are continuing to look at debt capital structure financing alternatives, including tidal 11 to further optimize our balance sheet.
Turning to slide 18 for review of our new vessel payments.
For the full year 2019, we had new vessel cash capital expenditures of 203.5 million and capitalized interest of 15.6 million for total capitalize vessel construction expenditures of to 19.19.
The table on the right hand side in the slide shows the cumulative and remaining new vessel progress payments for 2020, we expect the remaining cash payments to be approximately 59 million, which is net of the $5.2 million of cash already in escrow on the balance sheet.
The picture on the spot as of the Macedonia on the building ways in San Diego at NASSCO.
Thats selling is currently 66% complete and we expect our delivery in the fourth quarter of this year.
With that let me now turn to slide 19 to discuss our full year in first quarter outlook.
For the full year 2020, we expect operating income for ocean transportation to be higher than the 90.8 million achieved in 2019.
For logistics, we expect operating income to be lower than the 30.3 million achieved in 2019 and overall, we expect consolidated operating income to be approximately $143 million.
We expect depreciation and amortization to approximate 135 million inclusive of 25 million for Drydocking amortization.
We expect EBITDA to be approximately 280 million.
We expect other income or expense to be approximately 2 million in income.
We expect interest expense to be approximately 33 million and finally for the year, we expect our effective tax rate to be approximately 26.0%.
I want to note that our full year outlook for 2020 reflects than previously mentioned approximately 30 million of incremental benefit from our vessel and infrastructure investments in 2020, when compared to 2019.
As Matt mentioned, we expect coded 19 to negatively impact a number of our businesses and we estimate the financial impact to operating income and EBITDA to be approximately $15 million.
Although our EBITDA outlook is higher our net income is that is expected to be flat year over year and I want to highlight two important drivers behind this first interest expense is expected to be approximately 10.5 million higher year over year and this increase is largely driven by the capitalize interest associated with the low.
Lean vessel moving onto the TNL. After she enters service the first week in January this year.
Secondly, the effective tax rate in 2019 benefited from a noncash tax expense reversal of 2.9 million.
Excluding these 2.9 million noncash tax expense reversal that 2019 effective tax rate would have been 26.0% and comparable to the effective tax rate in our 2020 outlook.
These two items in 2020 are expected to add up to an approximate negative 25 cents of earnings per share impact when compared to 2019.
Moving to the first quarter of 2020, we expect operating income for ocean transportation to be approximately breakeven.
For logistics, we expect operating income to be lower than 8.1 million achieved in 2019.
I want to point out a couple of things about our first quarter outlook first the vast majority of the estimated 15 million financial impact from Cobot 19 is expected to occur in the Ocean transportation segment during the first quarter and a modest amount of the estimated financial impact is expected to occur in the logistics segment during the first quarter.
Second with respect to year over year comparisons for Ocean transportation versus 29 team. We expect assets 80 equity income to be impacted negatively in the first quarter by approximately 2 million from the lease accounting adoption that occurred in 2019.
This year over year negative comparison for SSH keys expected to reverse in the second quarter and result in a positive year over year variance at that time.
With that I'll now turn the call back over to Matt.
Thanks Joel.
To conclude our prepared remarks, we're in the home stretch on both the new vessel build program for our Hawaii service and the first phase of they upgrade of our sand Island facility. When complete will have the most modern facilities in vessels in the trade lane to surface, Hawaii, and our touch points throughout the Pacific well into this century, we reach.
Many of intensely focused on cash flow generation and managing our leverage as we near our peak leverage at the end of this quarter.
We also remain committed to helping our customers in Asia on the US West coast in throughout our network managed through the supply chain disruptions caused by covert 19.
And with that I will turn the call back to the operator and ask for your questions operator.
Thank you at this time I would like to inform everyone in order to ask a question. Please press star one on your telephone keypad again does the star one to ask the question.
We have your first question from Jack Atkins from Stephens, Inc. Your line is open.
Hey, guys. Good afternoon, thanks for taking my questions.
Sure Jeff how are you, Jeff I'm doing great Matt. Thank you. Thanks, So I guess first a question for me will be on.
Just.
Cobot 19, and I guess, there are lot of unknowns here, clearly and I get that but I I, just we think about the impact.
This could have to your business in the second and third quarter as some of the backlog is it sort of cleared out there.
You know when I go back and look at the West Coast Port.
US shutdown that occurred in.
Slide 14 early 15 that that was up a pretty significant benefit to your to your business.
Is there the potential for that I guess, as we look out into sort of the displayed spring and summer and.
To what degree have you factored that into your guidance range.
Yes, that's it's a good question Jack and like you said, it's a dynamic situation.
As the every day, there's a new element to the story, but the way we approach. This Jack is.
That it was pretty clear what we saw in front of US which was a number of the international Ocean carriers that are canceling their sailings, that's going to hurt us essakane, we saw much slower than usual ramp up post lunar new year because of the factory shutdowns in the the curfew periods that occurred in China. So the question.
So we could see those negative impacts and retaliate those to be $15 million.
What we Didnt do Jack is to say.
How congested and disrupted is the supply chain going to be.
Once once the once we get passed this period and.
It is clear that we have our own dedicated assets network terminal.
We have an expedited service and when things come back we are hearing anecdotally from our customers that they are behind their supply chains are needing to be replenished and so we think that are differentiated service offering is going to be in high demand. Okay. So without it without a doubt.
But historically our.
CLX service has been relatively full after the four or five weeks.
Post lunar new year and that our full for the rest of the year. So.
Is there upside there is upside Jack did theres upside.
But primarily in the in the freight rates section because our volumes are relatively full as I mentioned to the extent, we get into a very disruptive situation. Our service offering will be even more differentiated in there could be upside, it's really difficult to predict whether we'll see a somewhat orderly recovery or.
Something where the wheels come off.
And in that latter case, we would definitely see upside that we've not built into our forecast here, but it kind of have to make a column on what's going to happen and it was difficult for us to do that and I guess and I guess just add to that in theory, if things start to recover sometime this spring.
That's going to correspond to win contract renegotiations are happening so I guess that could be a benefit as well not just on the spot side of your CLX business, but is there a chance of this could benefit your contractual rates as well just given how type things could be at that time or am I thinking about that correctly, yeah, I think too.
The extent that that there is insufficient capacity to carry the trade that is if the international Ocean carriers remain disciplined in that redeployment of additional capacity into the trade Lane.
It will help the market and that will also help our segment.
But we from a FICO or the annual contracted segment.
We're over we're managing freight off of our ship every week. So our discussions with those carriers are very different from the people with 18000 to use shifts that are trying to fill them anyway. So it's really going to be more spot market and us being selective about cargo and.
But I think your point is a good one which is it if the market become constrained I think both the annual contracted freight and the spot rate will both benefit from from this effect if it if it comes to pass.
Okay Thats helpful. One more question on the Transpacific, if I could you not Matt if you just sort of puts your your your head on as a market observer for a moment I mean I've got to think that this is really putting.
Quite a bit a strain on international Ocean carriers.
Who you're competing within in that in that trade Lane.
Then in the best of times operated very thin margins.
So I guess.
Hi, how are you thinking about the market in general as you just look through this year I mean could we see some carriers faced some.
Some pretty difficult financial situations here given the combination of of.
Of.
IMO 2020 AD and you know the krona virus hitting in the same time.
I think we could Jack I mean, I think the one of the open questions is for the international Ocean carriers that are they going to be able to recover the extra cost of the more expensive.
Low sulfur fuel.
Disruptions like this.
Our very problematic a number of the international Ocean carriers have very high debt levels and.
I wouldn't ticket.
Somebody with two clear Crystal ball to think the first quarter results for the international Ocean carriers are going to be very negative.
And to the extent that a very fast recovery does not materialize for them because of congestion or because of other factors.
Or slow down and overall demand I think it will it will turn out to be another challenging year for the international Ocean carriers and.
It could result in for example back on IMO and slow steaming all of this chaos and slowdown just sets madsen's CLX service.
Apart in terms of this unique service offering that we get but I would not want to be as CEO of an international Ocean carrier this year and put it that way no absolutely. When one one quick question and I'll turn it over its on its on Hawaii just to wrap up on my end here, but.
We saw Hawaii volumes turned positive for the first time in.
13 quarters data positive year over year growth.
In that and that Elaine do you feel like you've turned a corner there can you kind of talk about.
What's happening because it certainly feels like maybe we're back to slow growth mode, again, which is which is a positive.
Yes, I think Thats right Jack I mean, it as we've said we've been perplexed by the lack of growth in the market given the relatively strong economic fundamentals in this in the state of Hawaii.
And in talking with a number of our customers in Hawaii, That's a fourth trade lane and talking with the contractors that are building. These various projects people are pretty upbeat about this year and.
So I think we're feeling like we're hoping.
Although it's modest that we're going to see growth in the market. After a number of quarters as you rightly pointed out where the where the growth has been flatter disappointing. So I think we're feeling okay about where we are right now okay, Matt Joel Thanks, very much for the time.
Okay. Jack Thank you thanks Jack.
Your next question comes from the line, Steve O'hara from Sidoti Your line is open.
Hi, good afternoon.
Hi, Steve I see hi, just.
Quickly on the.
First quarter.
Breakeven for Ocean Transportation did you quantify how much of that is expected to come from lower SSH key versus.
Just.
Pure Ocean transportation.
Now, Steve we Didnt, what we did say it so the for the totaled 15 million impact uncoated 19, the vast majority vast majority of it would be Q1, and we'd be ocean transportation modest impact on logistics, but we didn't further break that down between assets 80, and our other businesses CLX et cetera.
Sure of that there will we do believe meaningful impact will occur at SXCP.
Okay, and I mean, I guess might.
Look at last year was the I think you guys put up.
I mean come about 9.4, but I think.
It was almost most of that or is 8 million or so.
So I mean, I guess it seems like.
Despite what seems like a pretty significant impact the maybe year over year decline isn't as bad as.
Maybe it.
Could be appeared to be.
You do for are you, saying for Kobe 19 by itself are you Mike I guess I mean, you look like you guys were almost breakeven within ocean transportation last year without it the.
And then with that safety this year I mean after expected volume to be down significantly at West Coast Port.
I would think that would be a pretty hit the operating income are the contribution.
There.
So I guess it just seems like.
Thank you.
Okay.
No. That's a piece of it now we do that number we do underneath all this importantly is the reaffirmation and we're seeing in of the $30 million a benefit from the new vessels. So for instance, this year's first quarter, we'll be in a non shipment volume versus 10 ship deployment. So the core profitability underneath this is improving its just been is being battery.
Around by some of these other factors like of at 19 so.
This years.
Numbers will be benefiting from certain of those positive trends from the investments.
Okay. Okay.
And in terms of but CLL.
Thank you guys were talking at a conference recently about.
We're still sailing with the CLX service.
Right now can you just talked about maybe what the conditions are like right now what capacity utilization is right now at about serves.
Yes, Steve This is Matt I can do that so I think.
Your first point there is right we unlike a lot of international areas to Doug void any of our sailings in part because it's part of an integrated network that requires it to be back on the west coast to load for our freight for Hawaii, and Guam, and and Okinawa. So we did not I think what we what we saw our.
A much lower than average post lunar new year freight volume as the factory shutdown I think what without getting too specific what I would say is.
That we're seeing every week, we're seeing increased demand as factories are reopening.
And I well I, just as a checkpoint.
This year were ER. This week, we're likely to see sailing utilization levels in the 60% to 70%.
But we're seeing week by week.
Improvements, we expect to see that continue to improve and is embedded in our thinking around the 15 million dollar first quarter impact to that together with SSH key together items that Joel I'll walk through but we're seeing strong week by week improvements and we expected to continue to go from here, we do know that that which is.
Moving in an environment is typically late and is typically very interested in trying to get onto the CLX service. So we continue to think that we're going to have.
We're going to have strong demand.
Okay, and then maybe just a follow up Jack's question.
It sounded to me like you Didnt have.
You know any real rate benefit.
Should one come to pass.
Baked into the full year guidance, assuming there's a things are a little chaotic after.
Things start to clear up is that fair I mean are you kind of assuming kind of flat year over year rate that a China.
And within that 80 or are you expecting kind of.
Some benefit but.
Maybe a muted benefit given you know there's so much uncertainty.
Yeah, I think the way I would describe that within this CLX our ocean trench of efficient segment is we feel that in 2018 in 2019, let's just call second half, which will start the freight rates our premium to the market have remained very strong.
And we expect that the second half of year, we're going to see freight rates like we've seen in 2018 in 2019, what we have not factored in is a.
It's a meltdown in our competitors transportation service offerings that would allow us to charge significantly more than what we've seen in normal orderly healthy premium market. So it could occur and if it if it does occur which we're not we did not forecast there could be some rate upside there but.
Our our ships are likely to be full whether it's an orderly market or a chaotic market.
Given our limited size ships.
Okay. Thank you very much.
Okay, Steve Thank you okay.
Your next question comes from the lineup Ben Nolan from Stifel. Your line is open.
Yes. This is Frank on T. on prevent.
Hi, Craig I Frank.
And so I know I'm first priorities for capital redeployment is obviously, finishing the Newbuild program and then reducing leverage over time.
But are there any kind of growth initiatives outside of the.
The fleet renewal program.
We saw last week Merced bought a warehouse in the West coast.
Is that something that would be interesting to mattson.
And the kind of tuck in acquisition.
Yeah. Thanks for the question Frank So.
The answer is the answer is we've been looking for organic growth opportunities across all of our trade lanes. So even though this vessel build programs and going on for three or four years, we've been continuing to look at ways to expand and leverage off our footprint today.
Into more business for our customers, whether that's in lower 48 or other location. So Alaska is a good example of that were together with our logistics business and Ocean transportation business, we're trying to originate resonate more freight from cradle to grave the oil and gas segments, a piece of that so and we've grown in the Pacific.
By adding some services off our hub and spoke operations and locations and the Pacific. So those kind of opportunities are going to continue to look for organically, but we also told investors, even though our leverage ratio has been increasing we've also been looking at M&A.
Actively and so if we saw good acquisitions that fit our strategic criteria. We would we would go forward with those and believe we can finance them. So really no change with all of that in our growth initiatives now that we're coming to the end of the the vessel don't program are still looking to grow in both those but those ways.
Okay. Yeah, that's helpful. Thanks.
Then I had to kind of follow up on the Hawaii trade Lane.
As Jack mentioned container volumes are pretty good.
The automobile took a bit of adept and I know that happens from quarter to quarter, but just.
Did you guys, you're talking about that a little bit is that just the seasonal or a timing decline or is there potential for further declines on on the automobile side.
Yes, so frankly the approach on out as you know you'll notice that.
As we as we go through quarterly explanations and puzzles auto volumes are listed but we don't often talk about auto volumes being the driver of our profitability.
Manny most of the while the cars fit into two or three different buckets to the manufactured cars that all the large.
Car companies.
Make retail sales in Hawaii, and we carry our share of those cars as does our principal competitor patient.
We also move.
No its military vehicles, we carry privately owned vehicles as people relocate to or from the state those are different segments of cars, we carry and I think from our perspective.
What we have been focused on is carrying profitable cars, so carry and cars that because of the competitive situation between ourselves and patient lot of the manufactured car prices have come down over over a number of years to a point, where there is not a lot of profitability in those and so what we're actively doing is carrying the right cars.
And making money on those cars rather than carrying lots of cars and so that has been our approach and that will remain our approach.
So.
Honestly there are there are lots of cars, where we spent.
A lot of activity.
And really make next to nothing on them. So you shouldn't assume that our profitability is down because we're carrying less cars were just trying to be more selective in the cars are Kerry.
None of that makes total sense.
Helpful. Thank very much that's all I have.
Okay. Frank Thank you. Thank you.
Again to ask a question. Please press star one on your Pulpo keypad again, that's a star one to ask a question.
We have your next question from Steve O'hara from Sidoti Your line is open.
Hi, Thanks for taking the follow up.
Just on Capex can you just talked about.
Maybe I missed the.
Slide deck, but keeps talking about capex maybe.
Outside of acquisitions, and things or let's say outside of the ship program for 2020 in 2021.
No I guess.
Outside of ships, including kind of the scrubbers and things of that nature, and sand island et cetera.
Sure. Thanks, Dave So big picture, we still believe our maintenance capex level absent any new vessel spend is around $50 million a year.
We will believe we will be higher than that here in 2020, and we haven't comment beyond but some of these projects will continue now explain.
The biggest items that will continue in 2020 or the other scrubbers. So each of those are.
Approximately $10 million prescribers will be three enacted this years thats, an additional $30 million and the other big pieces. What you mentioned in alluded to which is the infrastructure work of sand Island. So we installed the three trains last year in 2019 and now we're finishing the final work on the mainly the electrification in the power and backup.
Storage power for those cranes and that some of that's pretty significant investment as well and so that will that will continue in 2020, so mainly because the same allen work and and the scrubbers will be over the $50 million number in 2020, and then a little bit of that same downward will spill over into 2021, but we really should be glide path.
Thing down towards that 50 million dollar number in 2021 20, some through time and love more to say that say on the details there as we get closer to the ended the year [noise].
Okay, all right. Thank you very much.
Okay. Thanks, Steve.
I'm showing no further questions at this time I would now like turn the conference back to Mr., Matt tops surplus continue.
Thanks, operator, okay. That's it for us on our end.
Look forward to catching up with everyone on the first quarter call. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and how the wonderful day smell disconnect.
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