Q4 2024 Matson Inc Earnings Call

February 25, 2025

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 25 of our Form 10-K filed on February 23, 2024, and in our subsequent filings with the SEC.

Please also note that the date of this conference call is February 25th, 2025, 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.

I will now turn the call over to Matt.

Thanks Justin and thanks to those on the call.

starting on slide 3.

Matson had a very strong fourth quarter that exceeded our expectations, capping off a strong year.

For the fourth quarter, our China service was the primary driver of the year-over-year increase in ocean transportation operating income and consolidated operating income.

We saw seasonally stronger freight demand with significantly higher year-over-year freight rates for our CLX and MAX services.

In logistics, operating income increase year-over-year primarily driven by a higher contribution from supply chain management.

In the fourth quarter within Ocean Transportation, the SSAT joint venture recorded an impairment charge related to the write-down of a terminal operating lease asset.

Mattson: Mattson's share of this impairment charge was $18.4 million, which resulted in a reduction in our fourth quarter diluted earnings per share of 42 cents.

Mattson: For the full year 2024, our consolidated operating income increased year-over-year primarily driven by significantly higher freight rates in our China service.

Mattson: The higher freight rates, which started in the middle of the second quarter and remained throughout the year, were supported by a resilient U.S. economy, a stable consumer demand environment, and coupled with tighter supply chain conditions.

Mattson: I'll now go through the fourth quarter and full year performance of our trade lanes, SSAT, and logistics.

So, please turn to the next slide.

Mattson: Hawaii container volume for the fourth quarter decreased 1.7% year over year due to lower general demand.

Mattson: For the full year 2024, container volume decreased 2.3% year-over-year, primarily due to lower general demand.

Mattson: For the full year 2025, we expect volume to be comparable to the level in 2024, reflecting modest economic growth in Hawaii and stable market share.

Please turn to slide 5.

You Hero: According to You Hero's December economic report, the Hawaii economy is expected to continue to grow slowly in 2025, supported by modest gains in tourism, a low unemployment rate, and increased construction activity.

You Hero: but partially restrained by continued challenges in population growth and lower discretionary income from higher inflation and interest rates.

You Hero: Growth in tourism is expected to be driven from our domestic visitors while international tourist arrivals remain challenged by a strong dollar.

You Hero: Maui tourism remains significantly below prior levels and a full recovery in visitor traffic is expected to take years.

Moving to our China service on slide 6.

You Hero: Matson's volume in the fourth quarter of 2024 was 7.2% higher year-over-year due to seasonally stronger freight demand.

You Hero: We also saw significantly higher freight rates year over year for both the CLX and MAX services.

You Hero: The elevated freight rates were supported by a resilient U.S. economy and a stable consumer demand environment coupled with tighter supply chain conditions.

You Hero: For the full year 2024, container volume increased 2.4% year-over-year primarily due to seasonally stronger freight demand in the fourth quarter and one additional sailing compared to the prior year.

please turn to slide 7.

You Hero: The stronger seasonal demand we experienced in the fourth quarter was, in part, due to customers advancing freight ahead of a potential ILA disruption and proposed tariff increases.

You Hero: We also saw some customers in late December moving freight ahead of the earlier Lunar New Year this year.

You Hero: During the post-Lunar New Year period in the first quarter of 2025, we saw a traditional low-demand environment, but the factories closed for a few weeks.

You Hero: As such, we didn't sail the MAX service for three weeks and carried the combined frame package on the CLX. This is the same schedule we had in place for 2024 for this period of low demand.

You Hero: We expect the post-Lunar New Year period to show a traditional ramp-up of demand for the remainder of the first quarter, but volumes may be a bit softer than normal for the first few weeks due to the advancing of cargo we saw late in the fourth quarter.

Please turn to the next slide.

You Hero: Where our China freight rates ultimately settle out in 2025 will depend on a number of macro factors, including geopolitical conditions, supply chain activity, and the U.S. economy. For example,

You Hero: The Red Sea situation significantly reduced the supply of container vessels and impacted supply chains.

You Hero: both of which were major drivers in our elevated freight rates in 2024.

You Hero: Although phase one of the ceasefire has begun, there's considerable uncertainty as to the duration of the ceasefire.

You Hero: There's also uncertainty about the timing of the normalization of trade in the Red Sea and how this will affect global trade flows and supply chain activity.

You Hero: The magnitude and product range of the proposed tariffs could have an impact on our freight demand for our services, as the additional costs are absorbed throughout the supply chain by manufacturers, shippers, transportation providers, retailers, and consumers.

You Hero: If the incremental tariff costs are significant, it is possible that some manufactured goods may migrate from China to other Asia origins.

You Hero: It's also possible that manufactured goods currently shipped by air from China will become even more expensive, and shippers may look to our expedited ocean services, which are significantly less expensive for only a few extra days of transit time.

You Hero: As of today, we haven't seen an impact yet on our rates for the 10% tariff implemented three weeks ago, which is on top of the 25% tariff in 2019.

You Hero: The impact to our China freight rates may ultimately depend on the level and scope of the tariffs.

You Hero: How Much the Tariffs May Be Absorbed by the Supply Chain and Currency Devaluations

versus passed on to U.S. consumers.

You Hero: How other countries may respond to the tariffs and the potential impact on downstream supply chains, and how much air cargo shifts from ocean to shipping as a means to lower costs.

You Hero: And lastly, the health and trajectory of the U.S. economy is an important pillar of support in the demand for our consumer goods.

You Hero: A recession or prolonged period of high interest rates and inflation could negatively impact the U.S. consumer and the appetite for consumer goods.

given these factors.

You Hero: We expect the elevated freight rates in our China service to continue into the first quarter of 2025.

You Hero: Beyond the first quarter, we expect freight rates will largely be driven by the timing of trade flow normalization in the Red Sea.

You Hero: other geopolitical factors, supply chain activity, and the trajectory of the U.S. economy.

with respect to the impact of the Red Sea specifically.

You Hero: If trade conditions normalize by the middle of the year, we expect freight rates to moderate in the second half of the year. However, if the Red Sea remains disrupted through year-end, we expect freight rates to remain elevated throughout the year.

You Hero: As I mentioned earlier, there are a number of uncertainties regarding tariffs.

You Hero: Before moving on, I'd like to note that when comparing year-over-year freight rates in 2025, we began to see our freight rates rise significantly in the middle of the second quarter last year and remain elevated through the end of 2024. So we will be lapping this significant positive step up.

Please turn to the next slide.

You Hero: In Guam, Matson's container volume in the fourth quarter of 2024 decreased 10% year-over-year. The decrease was primarily due to lower demand from the retail and food and beverage segments.

You Hero: For the full year 2024, container volume decreased 6.5% year-over-year primarily due to lower general demand.

You Hero: In the near term, we expect Guam's economy to grow modestly supported by low unemployment and an increase in construction activity. As such, for 2025, we expect container volume to be modestly higher than the level achieved last year.

Please turn to the next slide.

You Hero: In Alaska, Matson's container volume for the fourth quarter of 2024 increased 1.1% year-over-year. The increase was due to higher northbound volume partially offset by an additional sailing in the year-ago period.

You Hero: For the full year 2024, container volume increased 0.6% year-over-year due to higher general demand partially offset by one less northbound sailing.

You Hero: For the full year 2025, we expect Alaska volume to approximate the level achieved last year.

please turn to slide 11.

You Hero: The Alaska economy continues to show good economic growth and improvement in key economic indicators despite flattest growth in population.

You Hero: In 2024, the state saw widespread job growth across almost every industry, bringing job count in many industries above pre-pandemic levels.

for 2025, Low Unemployment.

You Hero: Jobs growth and continued oil and gas production activity are expected to support economic growth.

please turn to slide 12

You Hero: In the fourth quarter, our SSAT Terminal Joint Venture incurred a loss of $9.5 million, representing a year-over-year decrease of $13.6 million.

You Hero: The decrease was due to a $18.4 million dollar impairment charge related to the write-down of a terminal operating lease asset, partially offset by higher year-over-year lift volume.

You Hero: As you know, our SSAT-JV operates eight marine terminals on the U.S. West Coast, with two terminals in Long Beach.

Two in Oakland.

three in Seattle and one in Tacoma.

You Hero: We have previously mentioned that SSAT has surplus capacity in the Pacific Northwest.

You Hero: The impairment charge relates to the consolidation of SSAT's business onto one less terminal in Seattle.

You Hero: We can't elaborate further on the situation with this terminal operating lease, as SSAT is in active negotiations with the Port Authority about consolidating into two terminals in Seattle.

You Hero: The impairment charge impacted fourth quarter 2024 net income and diluted earnings per share by $14 million and $0.42 per share, respectively.

You Hero: For full year 2024, our SSAT Terminal Joint Venture incurred a loss of $1 million.

compared to income of $2.2 million in the prior year.

You Hero: The decrease was due to the same $18.4 million dollar impairment charge, and again partially offset by higher lift volume.

You Hero: In 2025, we expect income from our SSAT Terminal Joint Venture to approximate the level achieved in 2024 without taking into account the fourth quarter 2024 impairment charge.

You Hero: The macro factors I commented on earlier on slide 8 could also have a negative impact on imports into the U.S. West Coast and lift volume at SSAT.

Turning now to logistics on slide 13.

You Hero: Operating income in the fourth quarter came in at 10.1 million dollars or 1.2 million dollars higher than the operating result in the year ago period.

You Hero: The increase was primarily due to a higher contribution from supply chain management.

You Hero: For the full year 2024, operating income was $50.4 million, reflecting a year-over-year increase of $2.4 million.

You Hero: The increase was primarily due to a higher contribution from supply chain management.

You Hero: For 2025, we expect operating income to be modestly lower than the level achieved in 2024, reflecting challenging business conditions for transportation brokerage and a lower contribution from supply chain management.

You Hero: The factors I mentioned previously could also have a negative impact on volumes in our supply chain management business.

Joel: I'll now turn the call over to Joel for a review of our financial performance. Joel.

Joel: Thanks, Matt. Please turn to slide 14 for a review of our fourth quarter and full year 2024 results.

Joel: For the fourth quarter, Consolidated Operating Income increased $72.2 million year-over-year to $147.5 million, with higher contributions from Ocean Transportation and Logistics of $71 million and $1.2 million, respectively.

Joel: The increase in ocean transportation operating income in the fourth quarter was primarily due to significantly higher freight rates in China,

Joel: the timing of fuel-related surcharge collections, and higher volume in China.

Joel: partially offset by a lower contribution from SSAT and higher direct cargo expense primarily in the China service and higher general and administrative expenses.

Speaker Change: As Matt noted, the decrease in SSAT equity income was due to the $18.4 million impairment charge.

Joel: The increase in logistics operating income was primarily due to a higher contribution from supply chain management.

Joel: We had interest income of $10.3 million in the quarter due to higher balances of cash and cash equivalents and deposits in the CCF as compared to the prior year.

Joel: Interest expense in the quarter decreased $1 million year-over-year due to the decline in outstanding debt in the past year.

Joel: The effective tax rate in the quarter was 19.1% compared to 26% in the year-ago period. The effective tax rate was lower than our outlook of 22% due to discrete year-end tax items.

Joel: In the fourth quarter, net income and diluted earnings per share were $128,003.80, respectively.

Joel: The $18.4 million impairment charge impacted our net income and diluted earnings per share by $14.0 million and $0.42 per share, respectively.

Joel: For the full year, Consolidating Opry Income increased $208.5 million year-over-year to $551.3 million with higher contributions from Ocean Transportation and Logistics of $206.1 million and $2.4 million respectively.

Joel: The increase in ocean transportation operating income for the year was primarily due to significantly higher freight rates in China, higher freight rates in the domestic trade lanes, and higher volume in China, partially offset by higher operating costs and higher general and administrative expenses.

Joel: The increase in logistics operating income was primarily due to a higher contribution from supply chain management.

Please turn to the next slide.

Joel: This slide shows how we allocated our trailing 12 months of cash flow generation.

Joel: For the full year 2024, we generated a cash flow from operations of approximately $767.8 million, from which we used $39.7 million to retire debt.

$214.5 million on maintenance and other catbacks.

Joel: 95.6 million on new vessel CapEx including capitalized interest in owners items

Joel: $31.1 million in cash deposits and interest income into the CCF net of withdrawals from milestone payments

12.5 million on other cash outflows

Joel: while returning approximately $243.9 million to shareholders via dividends and share repurchase.

Joel: Please turn to slide 16 for a summary of our share repurchase program and balance sheet.

Joel: During the fourth quarter, we repurchased approximately 0.2 million shares for a total cost of $31.8 million.

Joel: For the full year 2024, we repurchased approximately 1.6 million shares for a total cost of $199.1 million.

Since we initiated our Sherry Purchase Program in August 2021,

Joel: Through the end of 2024, we repurchased 11.2 million shares or 25.7% of our then-outstanding shares for a total cost of approximately $956 million.

Joel: As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities.

Joel: Turning to our debt levels, our total debt at the end of the fourth quarter was $400.9 million, a reduction of $9.7 million from the end of the third quarter.

For the year, we reduced total debt by $39.7 million.

Please turn to slide 17.

Joel: The table on this slide summarizes our $310.1 million in capital expenditures in 2024.

Joel: We had capitalized vessel construction expenditures on our new Aloha-class vessels of $95.6 million, which consisted of $89.6 million in milestone payments and $6 million in capitalized interest and other costs.

Joel: Maintenance and other capital expenditures were $214.5 million, of which $90.5 million was for the LNG installations on the Daniel K. Inouye and Kamanahila, and the LNG installation and reengineering of the Mauna Kai.

Joel: $28 million was for equipment to support network requirements and growth

Joel: $14.7 million was for the early lease buyouts of equipment and $81.3 million was for other maintenance CapEx across a variety of projects.

Please turn to the next slide.

Joel: The table at the top of slide 18 shows the key capital expenditures planned over the next three years.

Joel: For 2025, we expect a total capex of $425 to $445 million, of which $305 million for new vessel construction expenditures including capitalized interest and owner's items.

Joel: and $120 to $140 million is for maintenance and other CapEx to support our vessels, shore side operations, and logistics businesses.

This includes approximately $20 million in equipment lease buyouts.

Joel: The timeline of our new build capital expenditures is different than what we had previously provided as we were recently notified by Hanwha Philly Shipyard that our new build program is facing a delay of approximately four months.

Joel: As such, we are now expecting each of our three new Aloha-class vessels to be delivered in the first quarter of 2027, the third quarter of 2027, and the second quarter of 2028.

Joel: In the first quarter, we expect to pay approximately $65 million in milestone payments with corporate cash.

Joel: Post this use of corporate cash, we estimate approximately $103 million remaining to satisfy the milestone payments not covered by the current balance of CCF deposits and Treasury investments.

Joel: Please note that this figure excludes all future interest income and accretion earned within the CCF, which we expect to be a significant contributor over the next couple of years.

Joel: Before we move on, I'd like to touch upon U.S. tariffs on steel imports as it relates to our new vessel project.

Joel: There is still uncertainty about how any potential tariff changes may be implemented and what the impact may be to our overall project costs, and therefore it is not possible today to estimate what impact steel tariff changes may have on the total cost of our new vessels.

Joel: That said, direct steel purchases are a relatively small percentage of the overall $1 billion project cost for the three Aloha-class vessels.

Joel: Additionally, we have already completed all of the direct steel purchases for vessel number one and approximately 30% for vessel number two.

Joel: With that, let me now turn to slide 19 and walk through our outlook for the first quarter and full year 2025.

Joel: For the first quarter of 2025, we expect ocean transportation and operating income to be meaningfully higher than the $27.6 million achieved in the year-ago period as we expect elevated freight rates in our China service to continue into the first quarter.

Joel: We expect logistics operating income in the first quarter to be modestly lower than the $9.3 million achieved in the first quarter of 2024. As such, we expect consolidated operating income in the first quarter to be meaningfully higher than the prior year.

Joel: For the full year 2025, we expect ocean transportation operating income to be largely driven by the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity, and the trajectory of the United States economy.

Joel: Assuming trade conditions in the Red Sea normalize by the end of the first half of the year, and there are no significant changes from today with respect to other geopolitical factors, supply chain activity, and the trajectory of the U.S. economy,

Joel: We expect full year 2025 ocean transportation operating income to be moderately lower than the $500.9 million achieved in 2024.

However

Joel: If trade conditions in the Red Sea remain disrupted through the year,

and through year-end.

Joel: and there are no significant changes from today with respect to other geopolitical factors, supply chain activity, and the trajectory of the U.S. economy, we expect full year 2025 ocean transportation operating income to approach the level achieved in 2024.

Joel: For logistics for the full year 2025, we expect modestly lower operating income due to challenging business conditions for transportation brokerage and a lower contribution from supply chain management.

Joel: As such, we expect consolidating operating income for the full year 2025 to range from moderately lower than the $551.3 million achieved in 2024 to approaching the level achieved last year.

Joel: In addition to this full year operating income outlook, we expect the following for the full year.

Joel: Depreciation and amortization to approximate 200 million, including approximately 26 million for dry dock amortization.

Joel: interest income to be approximately 31 million and interest expense to be approximately 7 million other income to be approximately 9 million

Joel: an effective tax rate of approximately 22% and dry docking payments of approximately $40 million.

Joel: Lastly, today's fourth quarter 2024 earnings release will be the last time we report the volume of automobiles in our Hawaii trade lane, as this metric is not a meaningful driver of the financial performance of our ocean transportation segment.

I will now turn the call back over to Matt.

Matt: Thanks, Joel. Please turn to slide 20, where I'll go through some closing thoughts.

Matt: 2024 proved once again that our China service delivers during periods of uncertainty.

Matt: Speed, reliability, and service are core differentiators, are highly sought after by shippers when supply chain disruptions occur. While true, it's only part of our story.

Matt: Today, our China service appeals to an even broader set of customers than when we first started moving freight in the Trans-Pacific Trade Lane nearly 20 years ago.

Matt: As supply chains have become more complex, customers have placed a greater emphasis on speed to market and schedule integrity.

Matt: It is within this new paradigm that our China's services remains unparalleled.

Matt: Our CLX and MAX service continue to be the two fastest and most reliable transpacific transits which are complemented by unique destination services for a seamless customer experience.

Matt: We apply the same principles used in our domestic trade lanes that have been refined over decades.

There will always be uncertainty across the global supply chain.

Matt: and we're clearly facing significant uncertainties like the Red Sea and tariffs but we remain focused on what we can control. We will continue to be focused on maintaining vessel schedule integrity, reliability of all of our logistics and ocean transportation operations and delivering high-quality service for all of our customers.

Matt: We remain committed to look for ways to grow, either organically or periodically through acquisition.

Matt: Since we became public, we've had a good track record of organic and inorganic growth, and we've been nimble on growth opportunities during periods of uncertainty.

Matt: And last, we expect to continue to return capital to shareholders through dividends and our share repurchase program.

Matt: Our share repurchase program remains a core element of our capital allocation strategy. We expect to continue to be steady buyers of our shares.

Matt: And with that, I will turn the call back to the operator and ask for your questions.

Speaker Change: Certainly. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star one one. Our first question comes from the line of Daniel Imbrough from Steven's Inc. Your question, please.

Speaker Change: okay great thanks guys this is Brady on for Daniel and thanks for taking our questions

Speaker Change: I wanted to start on the outlook. You know, you noted in the slides you're expecting 1Q EBIT to be meaningfully higher than the previous year, but could you just help us kind of break out the drivers behind this outlook? Is that largely just a function of higher rates, or are there certain cost initiatives you guys have executed on to improve the EBIT outlook as well?

Speaker Change: Yeah, Brady, thank you for that question. So it's a variety of factors. So in our domestic trade lanes, really steady performance is the way we describe it, consistent with the outlook if we talked about those trade lanes.

Speaker Change: and then the one where there's a more significant change driving the outlook is in China.

Speaker Change: So last year, as we talked about, rates really moved in May and June, and they've remained elevated since then. So as we come into the first quarter this year, we have higher, more elevated rates than we had last year, and that's the biggest piece driving the outlook towards that meaningfully higher outlook that we've given for the first quarter.

Thank you.

Speaker Change: Okay, great. Thanks. That's helpful. Maybe just if I can follow up there on the rate commentary, you know, I think you touched on it a bit in your remarks that you're expecting elevated freight rates in your China service to continue in one queue.

Speaker Change: But is there any way to help investors kind of level set how rates...

Speaker Change: have trended sequentially. You know, from what we can see, it seems like trans-Pacific rates are only slightly below 4Q levels so far. Is that the right way to think about how it's trended so far this year? You know, just any color there would be helpful. Thanks.

Speaker Change: Yeah, Brady, this is Matt. Thanks for your question. I would say that.

Speaker Change: As we have experienced our freight rates sequentially, as Joel mentioned, starting in the second quarter and then extending through the end of...

calendar 2024.

What typically happens, has happened in Madsen's rate levels...

Our rate levels remained relatively steady.

Speaker Change: From the second, third, and fourth quarter, towards the end of the fourth quarter, we did step our rates down and reduced our peak season surcharge as we have done, you know, every quarter for the last, in that period for the last 18, 19 years. And our levels have then been reset or the peak season surcharge substantially reduced or eliminated consistent with our historic practice and remain relatively steady.

Speaker Change: from that point on through. So I would I would not think it would be a good indicator for you to be following some of the spot rates on the SCFI, but I would acknowledge that our rates did take a step down when we removed the seasonal peak season surcharge. So I know that's not specific, but that's as specific as I can get.

Speaker Change: Okay, got it. That's helpful. Maybe just as a final follow-up here on capital allocation, you know, in the near term it sounds like the primary focus is repurchases, but just, you know, taking a big step back, could you talk about some opportunities? What do you see out there in the market for additional services just kind of in the future? Any update there would be helpful.

Speaker Change: Sure, Brady. So on the ocean transportation side, we've been open discussing that there's not that many opportunities that really fit our profile, so we expect on the ocean side there to be more of the organic growth opportunities where we leverage our existing capabilities, network, brand, etc.

Speaker Change: And then on the logistics side, there's a combination of both organic and M&A type opportunities. So organic, we like to look at the same similar things. Niche ways for us to leverage off our existing businesses to grow with our customers in new geographies. But then on the M&A side, there's been a steady flow of acquisition opportunities we've looked at for years.

Speaker Change: The challenge is just finding those that really meet our strict criteria of niche, defensible businesses that are differentiated, good return on capital that fit our profile of businesses today. So that's how we think about it. That's the range of alternatives that we look at.

Speaker Change: Okay awesome guys thanks for the time tonight I'll leave it there. Okay thanks Brady. Thanks Brady.

Speaker Change: Thank you, and our next question comes from the line of Jacob Black from Wolf Research. Your question please.

Hey, Matt. Hey, Joel. Thanks for your time.

Yeah. Good afternoon. Good afternoon.

Speaker Change: So a lot going on in the world right now. I guess could we start maybe on the USTR proposed rule on China shipbuilding? How are you viewing this as it relates to potential changes in the ocean industry and Matson's positioning within it? And you know, I think a couple of the MAX vessels were built in China. Would you expect to pay charges under this proposed rule?

Speaker Change: answer it more generally and then I'll answer it more specifically, but generally our feeling is that we're in the early innings.

and we see this USTR

Speaker Change: proposal as the next step in a discussion that it's going to have with China. There may be others that follow but it's all to set a stage to be consistent with President Trump's efforts to try to reset trade balances and I also think that whether it's in Europe or whether it's in other Asia origins this is one of a number of steps that we we think are going to come out over

Speaker Change: countries that compete with China. It's too early to tell what retaliatory terrorists, if any, roll out. So I would just say stay tuned. I would say more specifically to your questions about

Speaker Change: If this USTR proposal is enacted, Matson has a fleet of 30 vessels, and of those 30 vessels Please see the complete disclaimer at https://sites.google.com

Three of those are chartered.

foreign Chinese built ships.

Speaker Change: that operate in our MAC service, as you correctly point out.

Speaker Change: that are manufactured in China and, of course, we have three vessels, as you know, under construction. Those are being built in U.S. yards. We have no vessels under construction in Chinese yards.

Speaker Change: But let me just repeat what I said from the beginning. I think it's really these are opening salvos were in the early innings. You know, we could use different analogies, but we're we're.

Speaker Change: We're we're watching this closely. I would also say I said it in my prepared comments But I think it's important also to stay here

Speaker Change: BATCIT has tended to do well in periods of disrupted supply chain environments.

Speaker Change: We continue to believe strongly, and I've heard from our customers loud and clear, that operating our two expedited China services in the way that we do, given the continuing uncertainty for all participants in the supply chain, puts us in a pretty good spot. So that's kind of the way we're thinking about it at this point.

Thank you.

Speaker Change: It makes a lot of sense. Thanks. And maybe this stick with macro policies for now. I don't think you have a lot of exposure, direct exposure to the de minimis exemption, but you know, to the extent you compete with air freight, are you thinking about any indirect impacts if this goes away?

Speaker Change: Yeah, I mean, I think the unanswered question, we don't aren't directly impacted. I think the place that we tangentially could be impacted are two of the largest.

Speaker Change: companies that are taking advantage of this minimus exemption, who are Timu and Sheen, they're today moving virtually 100% of their cargo, this is the U.S. portion of their cargo, via air freight.

Speaker Change: And so it's a question either about the de minimis or

Speaker Change: new tariffs, does that create some of that cargo to migrate into a fast ocean product? You know, that could be an upside for those that operate in the expedited. None of that has been announced, but it's a neutral to positive to us, I guess is how we would look at it at this point.

Speaker Change: And then one on the guide for me, I guess it feels like if earnings are just moderately lower this year, even in a Red Sea normalization scenario, you aren't really expecting earnings in the back half to return to 2023 levels.

Speaker Change: So, do you think that pricing is just structurally higher for you now compared to pre-Red Sea trends or is this more a reflection that it will take some time for ocean networks to normalize once these changes are made?

Speaker Change: Yeah, Jake, it's really a reflection of a continued improvement in our rate and rates that we charge in those services, and a lot of that has been.

finding more and more customers that convert from airfreight.

Speaker Change: and then the other piece is e-commerce. So as the years pass and we look at this year, 2025 compared to two years ago, 2023, we just tend to have a higher mix of our overall demand.

Speaker Change: coming from those segments that are willing to pay higher rates. So I guess you could call that a structural issue that we benefited from as those portions of our demand grow over time.

Thank you.

Speaker Change: Yeah, that's helpful. Thanks for your time, guys. Appreciate it. Okay. Thanks, Jake. Thanks.

Speaker Change: Thank you and our next question comes from the line of Ben Nolan from Stiefel your question please

Ben Nolan: All right, thank you. Hey, Matt and Joel, first of all, good quarter. And I did want to say I appreciate that you guys did not take out the impairment charge. That level of transparency is not something that I see very often, but I think hats off to you for doing that.

Speaker Change: for being straight shooters on that. My question really has to do a little bit with the guidance.

Speaker Change: and sort of thinking through the financial impact of the Red Sea.

Speaker Change: and whether it goes away or not and the implications for you guys. And appreciating that you don't necessarily want to put numbers to it, but is it simply as straightforward as if the Red Sea opens up,

Speaker Change: average voyage durations go down and and international freight rates fall is that is that all that's being implied there is there something else in the in the math

Speaker Change: Yeah, Ben, so it's as simple as you state. I mean I think our thinking is we saw a reset up

Speaker Change: when the Red Sea absorbed that, you know, 2 million TEU of capacity as the International Ocean Carriers adjusted their deployments to accommodate for that longer transit, that when that ends, I say if and when, or when that ends,

Speaker Change: then we'll see that that capacity being freed up into these transportation networks and that on the margin could erase some of...

Speaker Change: the rate increase we saw at the time. You know, it's a little difficult to put everything on a single factor, you know, given some of the trade resets that...

Speaker Change: President Trump is seeking to roll out where the world economy is

Speaker Change: consumer demand and expectations of, you know, consumer confidence. So, you know, obviously, nothing is in a vacuum. But to us, that seemed to be one singular event that could drive international ocean freight rates lower. And as you know, Ben, our pricing mechanisms are not directly tied

Speaker Change: to the International Ocean Carriers, but move in sympathy with the rapes. And so that's the thought process behind that.

Ben Nolan: Gotcha, and as you explained in the last question, it sounds like structurally even if there were a reset, not all of your business would reset effectively or it would be less impacted.

Ben Nolan: So I appreciate that My next question relates to the three new buildings in Philadelphia Saw that there was a four-month delay first of all any any color on why that is but then secondly

Do you feel pretty comfortable that that...

you know encapsulates the

Ben Nolan: The whole risk of potential delays and then also is there any beyond steel is there any risk that

Ben Nolan: There might be some other level of repricing if, I don't know, if wage inflation at the shipyard increases or something like that. And is there any recourse on your part for the fact that they're already late?

Ben Nolan: Okay, yeah, good. Thank you. This is Matt. I will take a crack at it and then I'm going to turn it over to Joel to mop up here for anything that I've missed. So I think the first thing I would say is there is a specific initiative. There is a five vessel project.

that was ahead of our project.

Ben Nolan: Effectively, there was a delay in the construction of the last of the vessels.

Ben Nolan: The graving dock in which these vessels are constructed in Philly

was effectively tied up with the last of these vessels.

Ben Nolan: And at this point, with this delay, and Hanwha, you know, looking carefully at, you know, other materials that are around it and their construction of the fourth and fifth.

Ben Nolan: was best thinking that this will be around the delivery dates, although as you know from our previous construction, these are not exact science. And in the history of shipbuilding, whether things flip another quarter, that's not a significant factor.

Ben Nolan: surprise to us. I would say with regard to the delay, the primary impact to Matson would be the delay in getting the benefits of the additional capacity that comes with these larger vessels on our CLX service.

Ben Nolan: and so it's just a delayed benefit or opportunity cost there.

There are...

Could there be further increases?

Speaker Change: We have a fixed price contract, there are some escalators for...

for steel cost.

Speaker Change: There are some liquidated damages, but at the end of the day, none of those are significant drivers to us getting the benefit of our new ships, and we continue to feel reasonably confident in our ability to get these ships in 27 and 28, and everything continues to look like a go, other than the acknowledgement of a four-month split.

Speaker Change: And what did I miss, Joel? No, that's it. I mean, I think you got, Ben, part of your question was to the overall potential for cost inflators.

Speaker Change: If you look at the overall program, it's worth a billion dollars.

Speaker Change: The piece of it that's tied to steel, the steel index change, is a very, very small percentage of the overall billion dollars.

Speaker Change: And it is a fixed price contract. There are some things that Matt alluded to that where the price can go up or down based upon different factors, but the bottom line is we don't expect the overall price tag to be a material change from the billion-dollar negotiated price. Yeah, and then this is Matt again, one last comment. Although, you know, with the existing tariffs.

Speaker Change: and how they get rolled out. You know, there remains some uncertainty just about how all that flows its way through. So we're not saying it's, there's no impact. But what we're saying is a lot of the factors are pretty lined up at this point.

Speaker Change: Okay, I appreciate it. And then lastly, and I hate to ask this but I've been asked already multiple times today, any changing in how you're thinking about Jones Act protection and support?

Yeah, thanks Ben.

The

Speaker Change: that the Trump administration and it was a supporter of the Jones Act in its last

Speaker Change: administration. We expect them to continue to be a supporter of the Jones Act. This America First.

Speaker Change: strategy of the incoming administration is very consistent with the Jones Act.

Speaker Change: We continue to have wide bipartisan support in Congress. We have...

president, a number of the president's

Speaker Change: cabinet on record, incoming cabinet as strongly supporting the Jones Act. So at this point, while we acknowledge there's some uncertainty around tariffs and things that are going on, I think it continues to enjoy wide bipartisan support and we don't see any changes to the Jones Act.

Speaker Change: All right, I appreciate that. And good quarter again. Thanks for answering questions. Thanks, Ben. Thanks, Ben.

Speaker Change: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks. Okay. Well, thanks for your participation in today's call. We'll look forward to catching up with everyone at the Q quarter one call. Thank you very much. Aloha.

Speaker Change: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Comics Chalice clock Venom Dice Thanks for watching!

**Guitar Music Playing**

The Beach Boys The Beach Boys The Beach Boys

Speaker Change: Thank you for standing by and welcome to the Matson fourth quarter 2024 financial results conference call. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone.

Speaker Change: If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Justin Schoenberg, Infested Relations. Please go ahead, sir.

Speaker Change: Thank you. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer and Joel Wine, Executive Vice President and Chief Financial Officer.

Speaker Change: Slides from this presentation are available for download at our website www.matson.com under the Investors tab.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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 25 of our Form 10-K, filed on February 23, 2024, and in our subsequent filings with the SEC.

Speaker Change: Please also note that the date of this conference call is February 25, 2025, 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.

I will now turn the call over to Matt.

Thanks, Justin, and thanks to those on the call.

Starting on slide 3.

Speaker Change: Mattson had a very strong fourth quarter that exceeded our expectations, capping off a strong year.

Speaker Change: For the fourth quarter, our China service was the primary driver of the year-over-year increase in ocean transportation operating income and consolidated operating income.

Speaker Change: We saw seasonally stronger freight demand with significantly higher year-over-year freight rates for our CLX and MAX services.

Speaker Change: In logistics, operating income increase year-over-year primarily driven by a higher contribution from supply chain management.

Speaker Change: In the fourth quarter within Ocean Transportation, the SSAT joint venture recorded an impairment charge related to the write-down of a terminal operating lease asset.

Speaker Change: Mattson's share of this impairment charge was $18.4 million, which resulted in a reduction in our fourth quarter diluted earnings per share of 42 cents.

Speaker Change: For the full year 2024, our consolidated operating income increased year-over-year primarily driven by significantly higher freight rates in our China service.

Speaker Change: The higher freight rates, which started in the middle of the second quarter and remained throughout the year, were supported by a resilient U.S. economy, a stable consumer demand environment, and coupled with tighter supply chain conditions.

Speaker Change: I'll now go through the fourth quarter and full year performance of our trade lanes, SSAT, and logistics.

So, please turn to the next slide.

Speaker Change: Hawaii container volume for the fourth quarter decreased 1.7 percent year over year due to lower general demand.

Speaker Change: For the full year 2024, container volume decreased 2.3% year-over-year, primarily due to lower general demand.

Speaker Change: For the full year 2025, we expect volume to be comparable to the level in 2024, reflecting modest economic growth in Hawaii and stable market share.

Please turn to slide 5.

You Hero: but partially restrained by continued challenges in population growth and lower discretionary income from higher inflation and interest rates.

You Hero: Maui tourism remains significantly below prior levels, and a full recovery in visitor traffic is expected to take years.

Moving to our China service on slide 6.

You Hero: Matson's volume in the fourth quarter of 2024 was 7.2% higher year-over-year due to seasonally stronger freight demand. We also saw significantly higher freight rates year-over-year for both the CLX and MAX services.

You Hero: The elevated freight rates were supported by a resilient U.S. economy and a stable consumer demand environment coupled with tighter supply chain conditions.

Please turn to slide 7.

You Hero: The stronger seasonal demand we experienced in the fourth quarter was, in part, due to customers advancing freight ahead of a potential ILA disruption and proposed tariff increases.

You Hero: We also saw some customers in late December moving freight ahead of the earlier Lunar New Year this year.

You Hero: During the post-Lunar New Year period in the first quarter of 2025, we saw a traditional low-demand environment, but the factories closed for a few weeks.

Please turn to the next slide.

You Hero: Where our China freight rates ultimately settle out in 2025 will depend on a number of macro factors including geopolitical conditions, supply chain activity, and the U.S. economy. For example,

You Hero: The Red Sea situation significantly reduced the supply of container vessels and impacted supply chains.

You Hero: both of which were major drivers in our elevated freight rates in 2024.

You Hero: Although phase one of the ceasefire has begun, there's considerable uncertainty as to the duration of the ceasefire.

You Hero: There's also uncertainty about the timing of the normalization of trade in the Red Sea and how this will affect global trade flows and supply chain activity.

You Hero: If the incremental tariff costs are significant, it is possible that some manufactured goods may migrate from China to other Asia origins.

You Hero: It is also possible that manufactured goods currently shipped by air from China will become even more expensive, and shippers may look to our expedited ocean services, which are significantly less expensive for only a few extra days of transit time.

You Hero: As of today, we haven't seen an impact yet on our rates for the 10% tariff implemented three weeks ago, which is on top of the 25% tariff in 2019.

You Hero: The impact to our China freight rates may ultimately depend on the level and scope of the tariffs.

You Hero: How Much the Tariffs May Be Absorbed by the Supply Chain and Currency Devaluations

versus passed on to U.S. consumers.

You Hero: How other countries may respond to the tariffs and the potential impact on downstream supply chains, and how much air cargo shifts from ocean to shipping as a means to lower costs.

You Hero: And lastly, the health and trajectory of the U.S. economy is an important pillar of support in the demand for our consumer goods.

You Hero: A recession or prolonged period of high interest rates and inflation could negatively impact the U.S. consumer and the appetite for consumer goods.

given these factors

You Hero: We expect the elevated freight rates in our China service to continue into the first quarter of 2025.

You Hero: Beyond the first quarter, we expect freight rates will largely be driven by the timing of trade flow normalization in the Red Sea.

You Hero: other geopolitical factors, supply chain activity, and the trajectory of the U.S. economy.

with respect to the impact of the Red Sea specifically.

You Hero: As I mentioned earlier, there are a number of uncertainties regarding tariffs, U.S. macroeconomic conditions, and other factors that could ultimately impact our China freight rates.

You Hero: and it's too early to tell how these uncertainties may play out.

Please turn to the next slide.

You Hero: For the full year 2024, container volume decreased 6.5% year-over-year, primarily due to lower general demand.

You Hero: In the near term, we expect Guam's economy to grow modestly, supported by low unemployment and an increase in construction activity.

You Hero: As such, for 2025, we expect container volume to be modestly higher than the level achieved last year.

Please turn to the next slide.

You Hero: In Alaska, Matson's container volume for the fourth quarter of 2024 increased 1.1 percent year-over-year. The increase was due to higher northbound volume partially offset by an additional sailing in the year-ago period.

You Hero: For the full year 2024, container volume increased 0.6% year-over-year due to higher general demand partially offset by one less northbound sailing.

You Hero: For the full year 2025, we expect Alaska volume to approximate the level achieved last year.

please turn to slide 11.

You Hero: The Alaska economy continues to show good economic growth and improvement in key economic indicators, despite flattish growth in population.

You Hero: In 2024, the state saw widespread job growth across almost every industry, bringing job count in many industries above pre-pandemic levels.

For 2025, low unemployment.

You Hero: Jobs growth and continued oil and gas production activity are expected to support economic growth.

please turn to slide 12

You Hero: In the fourth quarter, our SSAT terminal joint venture incurred a loss of $9.5 million, representing a year-over-year decrease of $13.6 million.

You Hero: The decrease was due to a $18.4 million dollar impairment charge related to the write-down of a terminal operating lease asset partially offset by higher year over year lift volume.

You Hero: As you know, our SSAT-JV operates eight marine terminals on the U.S. West Coast, with two terminals in Long Beach.

Two in Oakland.

three in Seattle and one in Tacoma.

You Hero: The impairment charge relates to the consolidation of SSAT's business onto one less terminal in Seattle.

You Hero: The impairment charge impacted fourth quarter 2024 net income and diluted earnings per share by 14 million dollars and 42 cents per share respectively.

You Hero: For full year 2024, our SSAT Terminal Joint Venture incurred a loss of $1 million.

compared to income of $2.2 million in the prior year.

You Hero: The decrease was due to the same $18.4 million dollar impairment charge, and again partially offset by higher lift volume.

You Hero: In 2025, we expect income from our SSAT Terminal Joint Venture to approximate the level achieved in 2024 without taking into account the fourth quarter 2024 impairment charge.

Speaker Change: The macro factors I commented on earlier on slide 8 could also have a negative impact on imports into the U.S. West Coast and lift volume at SSAT.

Speaker Change: Operating income in the fourth quarter came in at 10.1 million dollars or 1.2 million dollars higher than the operating result in the year ago period.

Speaker Change: The increase was primarily due to a higher contribution from supply chain management.

Speaker Change: For the full year, 2024, operating income was $50.4 million, reflecting a year-over-year increase of $2.4 million.

Speaker Change: The increase was primarily due to a higher contribution from supply chain management.

Speaker Change: For 2025, we expect operating income to be modestly lower than the level achieved in 2024, reflecting challenging business conditions for transportation brokerage and a lower contribution from supply chain management.

Speaker Change: The factors I mentioned previously could also have a negative impact on volumes in our supply chain management business.

Joel Wine: I'll now turn the call over to Joel for a review of our financial performance. Joel.

Joel Wine: Thanks Matt. Please turn to slide 14 for a review of our fourth quarter and full year 2024 results.

Joel Wine: For the fourth quarter, Consolidated Operating Income increased $72.2 million year-over-year to $147.5 million, with higher contributions from Ocean Transportation and Logistics of $71 million and $1.2 million, respectively.

Joel Wine: the timing of fuel-related surcharge collections, and higher volume in China.

Joel Wine: partially offset by a lower contribution from SSAT and higher direct cargo expense primarily in the China service and higher general and administrative expenses.

Joel Wine: As Matt noted, the decrease in SSAT equity income was due to the $18.4 million impairment charge.

Joel Wine: We had interest income of $10.3 million in the quarter due to higher balances of cash and cash equivalents and deposits in the CCF as compared to the prior year.

Joel Wine: Interest expense in the quarter decreased $1 million year-over-year due to the decline in outstanding debt in the past year.

Joel Wine: The effective tax rate in the quarter was 19.1% compared to 26% in the year-ago period.

Joel Wine: The effective tax rate was lower than our outlook of 22% due to discrete year-end tax items.

Joel Wine: In the fourth quarter, net income and diluted earnings per share were $128,003.80, respectively.

Joel Wine: For the full year, consolidating Opry income increased $208.5 million year-over-year to $551.3 million with higher contributions from ocean transportation and logistics of $206.1 million and $2.4 million respectively.

Joel Wine: The increase in ocean transportation operating income for the year was primarily due to significantly higher freight rates in China, higher freight rates in the domestic trade lanes, and higher volume in China, partially offset by higher operating costs and higher general and administrative expenses.

Joel Wine: The increase in logistics operating income was primarily due to a higher contribution from supply chain management.

Please turn to the next slide.

Joel Wine: This slide shows how we allocated our trailing 12 months of cash flow generation.

Joel Wine: For the full year 2024, we generated a cash flow from operations of approximately $767.8 million, from which we used $39.7 million to retire debt.

$214.5 million on maintenance and other cap backs.

Joel Wine: $95.6 million on new vessel CapEx, including capitalized interest in owners items.

Joel Wine: $31.1 million in cash deposits and interest income into the CCF net of withdrawals from milestone payments

$12.5 million on other cash outflows

Joel Wine: while returning approximately $243.9 million to shareholders via dividends and share repurchase.

Joel Wine: Please turn to slide 16 for a summary of our Share Your Purchase Program and Balance Sheet.

Joel Wine: During the fourth quarter, we repurchased approximately 0.2 million shares for a total cost of $31.8 million.

Joel Wine: For the full year 2024, we repurchased approximately 1.6 million shares for a total cost of $199.1 million.

Since we initiated our Shari Purchase Program in August 2021,

Joel Wine: Through the end of 2024, we repurchased 11.2 million shares or 25.7% of our then-outstanding shares for a total cost of approximately $956 million.

Joel Wine: As we have said before, we are committed to returning excess capital to shareholders and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities.

Joel Wine: Turning to our debt levels, our total debt at the end of the fourth quarter was $400.9 million, a reduction of $9.7 million from the end of the third quarter.

For the year, we reduced total debt by $39.7 million.

please turn to slide 17.

Joel Wine: The table on this slide summarizes our $310.1 million in capital expenditures in 2024.

Joel Wine: We had capitalized vessel construction expenditures on our new Aloha-class vessels of $95.6 million, which consisted of $89.6 million in milestone payments and $6 million in capitalized interest and other costs.

Joel Wine: Maintenance and other capital expenditures were $214.5 million, of which $90.5 million was for the LNG installations on the Daniel K. Inouye and Kamanahila, and the LNG installation and reengineering of the Mauna Kai.

Joel Wine: 28 million was for equipment to support network requirements and growth.

Joel Wine: $14.7 million was for the early lease buyouts of equipment and $81.3 million was for other maintenance CapEx across a variety of projects.

Please turn to the next slide.

Joel Wine: For 2025, we expect a total capex of $425 to $445 million, of which $305 million for new vessel construction expenditures including capitalized interest and owner's items.

Joel Wine: And $120 to $140 million is for maintenance and other CapEx to support our vessels, shore-side operations, and logistics businesses.

This includes approximately $20 million in equipment lease buyouts.

Joel Wine: The timeline of our new build capital expenditures is different than what we had previously provided as we were recently notified by Hanwha Philly Shipyard that our new build program is facing a delay of approximately four months.

Joel Wine: As such, we are now expecting each of our three new Aloha-class vessels to be delivered in the first quarter of 2027, the third quarter of 2027, and the second quarter of 2028.

Joel Wine: In the first quarter, we expect to pay approximately $65 million in milestone payments with corporate cash.

Joel Wine: Post this use of corporate cash, we estimate approximately $103 million remaining to satisfy the milestone payments not covered by the current balance of CCF deposits and treasury investments.

Joel Wine: Please note that this figure excludes all future interest income and accretion earned within the CCF, which we expect to be a significant contributor over the next couple of years.

Joel Wine: Before we move on, I'd like to touch upon U.S. tariffs on steel imports as it relates to our new vessel project.

Joel Wine: There is still uncertainty about how any potential tariff changes may be implemented and what the impact may be to our overall project costs, and therefore it is not possible today to estimate what impact steel tariff changes may have on the total cost of our new vessels.

Joel Wine: That said, direct steel purchases are a relatively small percentage of the overall $1 billion project cost for the three Aloha-class vessels.

Joel Wine: Additionally, we have already completed all of the direct steel purchases for vessel number one and approximately 30% for vessel number two.

Joel Wine: With that, let me now turn to slide 19 and walk through our outlook for the first quarter and full year 2025.

Joel Wine: For the first quarter of 2025, we expect ocean transportation and operating income to be meaningfully higher than the $27.6 million achieved in the year-ago period as we expect elevated freight rates in our China service to continue into the first quarter.

Joel Wine: We expect logistics operating income in the first quarter to be modestly lower than the $9.3 million achieved in the first quarter of 2024. As such, we expect consolidated operating income in the first quarter to be meaningfully higher than the prior year.

Joel Wine: For the full year 2025, we expect ocean transportation operating income to be largely driven by the timing of trade flow normalization in the Red Sea, other geopolitical factors, supply chain activity, and the trajectory of the United States economy.

Joel Wine: Assuming trade conditions in the Red Sea normalized by the end of the first half of the year, and there are no significant changes from today with respect to other geopolitical factors, supply chain activity, and the trajectory of the US economy,

Joel Wine: We expect full year 2025 ocean transportation operating income to be moderately lower than the $500.9 million achieved in 2024.

Joel Wine: and through year-end and there are no significant changes from today with respect to other geopolitical factors, supply chain activity and the trajectory of the U.S. economy, we expect full year 2025 ocean transportation operating income to approach the level achieved in 2024.

Joel Wine: For logistics for the full year 2025, we expect modestly lower operating income due to challenging business conditions for transportation brokerage and a lower contribution from supply chain management.

Joel Wine: As such, we expect consolidating operating income for the full year 2025 to range from moderately lower than the $551.3 million achieved in 2024 to approaching the level achieved last year.

Joel Wine: In addition to this full year operating income outlook, we expect the following for the full year.

Joel Wine: Depreciation and amortization to approximate 200 million, including approximately 26 million for dry dock amortization.

Joel Wine: interest income to be approximately 31 million and interest expense to be approximately 7 million

Other income to be approximately $9 million.

Joel Wine: an effective tax rate of approximately 22% and dry docking payments of approximately $40 million.

Joel Wine: Lastly, today's fourth quarter 2024 earnings release will be the last time we report the volume of automobiles in our Hawaii trade lane as this metric is not a meaningful driver of the financial performance of our ocean transportation segment.

I will now turn the call back over to Matt.

Thanks, Joel.

Matt Cox: Please turn to slide 20, where I'll go through some closing thoughts.

Matt Cox: 2024 proved once again that our China service delivers during periods of uncertainty.

Matt Cox: Speed, reliability, and service, our core differentiators, are highly sought after by shippers when supply chain disruptions occur. While true, it's only part of our story.

Matt Cox: Today, our China service appeals to an even broader set of customers than when we first started moving freight in the Trans-Pacific Trade Lane nearly 20 years ago.

Matt Cox: As supply chains have become more complex, customers have placed a greater emphasis on speed to market and schedule integrity.

Matt Cox: It is within this new paradigm that our China's services remains unparalleled.

Matt Cox: Our CLX and MAX service continue to be the two fastest and most reliable transpacific transits which are complemented by unique destination services for a seamless customer experience.

Matt Cox: We apply the same principles used in our domestic trade lanes that have been refined over decades.

There will always be uncertainty across the global supply chain.

Matt Cox: and we're clearly facing significant uncertainties like the Red Sea and tariffs but we remain focused on what we can control. We will continue to be focused on maintaining vessel schedule integrity, reliability of all of our logistics and ocean transportation operations and delivering high-quality service for all of our customers.

Matt Cox: We remain committed to look for ways to grow, either organically or periodically through acquisition.

Matt Cox: Since we became public, we've had a good track record of organic and inorganic growth, and we've been nimble on growth opportunities during periods of uncertainty.

Matt Cox: And last, we expect to continue to return capital to shareholders through dividends and our share repurchase program.

Matt Cox: Our share repurchase program remains a core element of our capital allocation strategy. We expect to continue to be steady buyers of our shares.

Matt Cox: and with that I will turn the call back to the operator and ask for your questions

Speaker Change: Okay, great. Thanks, guys. This is Brady on for Daniel, and thanks for taking our questions.

Speaker Change: Yeah, Brady, thank you for that question. So it's a variety of factors. So in our domestic trade lanes really steady performance is the way we describe it consistent with the outlook if we talked about those trade lanes.

Speaker Change: in Logistics, also steady performance but a little bit more challenging environment. And then the one where there's a more significant change driving the outlook is in China.

Speaker Change: driving the outlook towards that meaningfully higher outlook that we've given for the first quarter.

Speaker Change: Okay, great. Thanks. That's helpful. Maybe just if I could follow up there on the rate commentary. I think you touched on it a bit in your remarks that you're expecting elevated freight rates and you're trying to service to continue in one queue.

Speaker Change: But is there any way to help investors kind of level set how rates have trended sequentially? You know, from what we can see, it seems like Trans-Pacific rates are only slightly below 4Q levels so far. Is that the right way to think about how it's trended so far this year? You know, just any color there would be helpful. Thanks.

Matt Cox: Yeah, Brady, this is Matt. Thanks for your question. I would say that

Matt Cox: As we have experienced our freight rates sequentially, as Joel mentioned, starting in the second quarter and then extending through the end of

calendar 2024.

What typically happens, has happened in Madsen's rate levels...

Our rate levels remain relatively steady.

Matt Cox: from the second, third, and fourth quarter. Towards the end of the fourth quarter, we did step our rates down and reduced our peak season surcharges. We have done, you know, every quarter for the last, in that period for the last 18, 19 years. And our levels have then been reset or the peak season surcharge substantially reduced or eliminated consistent with our historic practice and remain relatively steady.

Matt Cox: from that point on through so I would I would not think it would be a good indicator for you to be following some of the spot rates on the SCFI but I would acknowledge that our rates did take a step down when we remove the seasonal peak season surcharge so I know that's not specific but that's as specific as I can get

Speaker Change: And then on the logistics side, there's a combination of both organic and M&A type opportunities. So organic, we like to look at the same similar things, niche ways for us to leverage off our existing businesses to grow with our customers and new geographies. But then on the M&A side, there's been a steady flow of acquisition opportunities we've looked at for years.

Speaker Change: The challenge is just finding those that really meet our strict criteria of niche, defensible businesses that are differentiated, good return on capital that fit our profile of businesses today. So, that's how we think about it. That's the range of alternatives that we look at.

Speaker Change: Okay, awesome guys. Thanks for the time tonight. I'll leave it there. Okay, thanks Brady. Thanks Brady.

Speaker Change: Thank you, and our next question comes from the line of Jacob Black from Wolfe Research. Your question please.

Hey Matt, hey Joel, thanks for your time.

Yeah. Good afternoon. Good afternoon.

Ben Nolan: So, a lot going on in the world right now. I guess, could we start maybe on the USTR proposed rule on China shipbuilding? How are you viewing this as it relates to potential changes in the ocean industry and Matson's positioning within it? And you know, I think a couple of the MAX vessels were built in China. Would you expect to pay charges under this proposed rule?

Ben Nolan: answer it more generally and then I'll answer it more specifically, but generally our feeling is that we're in the early innings.

Ben Nolan: of a discussion to be had between the U.S. and Chinese governments. You know, we saw the 10% rollout of the tariff.

Ben Nolan: proposal as the next step in a discussion that it's going to have with China. There may be others that follow but it's all to set a stage to be consistent with President Trump's efforts to try to reset trade balances and I also think that whether it's in Europe or whether it's in other Asia origins this is one of a number of steps that we we think are going to come out over these next few months. So I think the short answer for our perspective

Ben Nolan: countries that compete with China. It's too early to tell what retaliatory terrorists, if any, roll out. So I would just say stay tuned. I would say more specifically to your questions about

Speaker Change: If this USTR proposal is enacted, Mattson has a fleet of 30 vessels, and of those 30 vessels,

Three of those are chartered.

foreign Chinese built ships.

Speaker Change: that operate in our MAC service, as you correctly point out.

Speaker Change: that are manufactured in China. And of course, we have three vessels, as you know, under construction. Those are being built in U.S. yards. We have no vessels under construction in Chinese yards. But let me just repeat what I said from the beginning. I think it's really, these are opening salvos. We're in the early innings. You know, we could use different analogies, but we're

Speaker Change: We're we're watching this closely. I would also say I've said it in my prepared comments But I think it's important also to stay here

Speaker Change: Mattson has tended to do well in periods of disrupted supply chain environments.

Speaker Change: Makes a lot of sense, thanks. And maybe this stick with macro policies for now.

Speaker Change: I don't think you have a lot of direct exposure to the de minimis exemption, but to the extent you compete with air freight, are you thinking about any indirect impacts if this goes away?

Speaker Change: Yeah, I mean, I think the unanswered question, we don't aren't directly impacted. I think the place that we tangentially could be impacted are two of the largest.

Speaker Change: companies that are taking advantage of this minimus exemption who are Timu and Sheen, they're today moving virtually 100% of their cargo, this is the US portion of their cargo, via air freight.

Speaker Change: And so it's a question either about the de minimis or

in the back half to return to 2023 levels.

Speaker Change: Yeah, Jake, it's really a reflection of a continued improvement in our rate and rates that we charge in those services, and a lot of that has been finding more and more customers that convert from air freight.

Speaker Change: Yeah, that's helpful. Thanks for your time, guys. Appreciate it. Okay. Thanks, Jake. Thanks.

Speaker Change: Thank you and our next question comes from the line of Ben Nolan from Stiefel. Your question please.

Ben Nolan: All right, thank you. Hey Matt and Joel, first of all good quarter and I did I did want to say I appreciate that you guys did not take out the impairment charge. That level of transparency is not something that I see very often but I think hats off to you for...

Ben Nolan: for being straight shooters on that. My question really has to do a little bit with the guidance.

Ben Nolan: and sort of thinking through the financial impact of the Red Sea.

Ben Nolan: and whether it goes away or not and the implications for you guys. And I'm appreciating that you don't necessarily want to put numbers to it, but is it simply as straightforward as if the Red Sea opens up,

Ben Nolan: average voyage durations go down and and international freight rates fall is that is that all that's being implied there is there something else?

in the math.

Ben Nolan: Yeah, Ben, so it's as simple as you state. I mean, I think our thinking is we saw a reset up.

Ben Nolan: when the Red Sea absorbed that, you know, 2 million TEU of capacity as the International Ocean Carriers adjusted their deployments to accommodate for that longer transit, that when that ends, I say if and when, or when that ends,

Ben Nolan: then we'll see that that capacity being freed up into these transportation networks and that on the margin could erase some of...

the rate increase we saw at the time.

Speaker Change: President Trump is seeking to roll out where the world economy is

Speaker Change: consumer demand and expectations of, you know, consumer confidence. So, you know, obviously nothing is in a vacuum. But to us, that seemed to be one singular event that could drive international ocean freight rates lower. And as you know, Ben, our pricing mechanisms are not directly tied.

Speaker Change: to the International Ocean Carriers, but move in sympathy with the rapes. And so that's the thought process behind that.

Speaker Change: Gotcha, and as you explained in the last question, it sounds like structurally even if there were a reset, not all of your business would reset effectively or it would be less impacted.

Speaker Change: I appreciate that. My next question relates to the three new buildings in Philadelphia. I saw that there was a four-month delay. First of all, any color on why that is? But then secondly,

Do you feel pretty comfortable that that...

you know encapsulates the

Speaker Change: The whole risk of potential delays and then also is there any, beyond steel, is there any risk that there might be some other level of repricing if, I don't know, if wage inflation at the shipyard increases or something like that? And is there any recourse on your part for the fact that they're already late?

Speaker Change: Okay, yeah, good. This is Matt. I will take a crack at it and then I'm going to turn it over to Joel to mop up here for anything that I've missed. So I think the first thing I would say is there is a specific initiative. There was a five-vessel project

that was ahead of our project.

Speaker Change: Effectively, there was a delay in the construction of the last of the vessels.

Speaker Change: The graving dock in which these vessels are constructed in Philly was effectively tied up with the last of these vessels.

Speaker Change: And at this point, with this delay, and Hanwha, you know, looking carefully at, you know, other materials that are around it and their construction of the fourth and fifth.

Speaker Change: was best thinking that this will be around the delivery dates, although as you know from our previous construction, these are not exact science.

Speaker Change: And in the history of shipbuilding, you know, whether things slip another quarter, you know, that's that's not a significant

Speaker Change: surprise to us. I would say with regard to the delay, the primary impact to Mattson would be the delay in getting the benefits of the additional capacity that comes with these larger vessels on our CLX service.

Speaker Change: And so it's just a delayed benefit or opportunity cost there. There are, could there be further increases? We have a fixed price contract. There are some escalators for...

fuel for steel cost

Joel Wine: And what did I miss, Joel? No, that's it. I mean, you got, Ben, part of your question was to the overall potential for cost inflators.

Joel Wine: If you look at the overall program, it's worth a billion dollars.

Joel Wine: The piece of it that's tied to steel and the steel index change is a very, very small percentage of the overall billion dollars.

Joel Wine: It is a fixed price contract. There are some things that Matt alluded to where the price can go up or down based upon different factors.

Joel Wine: but the bottom line is we don't expect the overall price tag to be a material change from the billion dollar negotiated price. Yeah, and then this is Matt again, one last comment. Although, you know, with the existing tariffs and how they get rolled out, you know, there remains some uncertainty just about how all that flows its way through. So we're not saying there's no impact, but what we're saying is a lot of the factors are pretty lined up at this point.

Speaker Change: Okay, I appreciate it. And then lastly, and I hate to ask this, but I've been asked already multiple times today, any changing in how you're thinking about Jones Act protection and support?

Yeah, thanks Ben.

The

Speaker Change: that the Trump administration and it was a supporter of the Jones Act in its last

Speaker Change: administration. We expect them to continue to be a supporter of the Jones Act. This America First.

Speaker Change: strategy of the incoming administration is very consistent with the Jones Act.

We continue to have wide bipartisan support in Congress.

We have

Speaker Change: a number of the president's cabinet on record, incoming cabinet, as strongly supporting the Jones Act. So at this point, while we acknowledge there's some uncertainty around tariffs and things that are going on, I think it continues to enjoy wide bipartisan support and we don't see any changes to the Jones Act.

Ben Nolan: All right, I appreciate that and good quarter again. Thanks for answering questions. Thanks, Ben.

Thank you.

Speaker Change: Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks. Okay, well thanks for your participation in today's call. We'll look forward to catching up with everyone at the Q quarter one call. Thank you very much. Aloha.

Speaker Change: Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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