Good morning, and welcome to the Kirby Corporation Second Quarter 2017 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Carey. Please go ahead.

Good morning, everyone, and thank you for joining us. With me today are Joe Pyne, Kirby's Chairman, David Grzebinski, Kirby's President and Chief Executive Officer, and Andy Smith, Kirby's Executive Vice President and Chief Financial Officer. During this call, we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is included in our second quarter earning press release and is available on our website at kirbycorp.com in the Investor Relations section under Financial Highlights. Statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties. Our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2016, filed with the SEC. I'll now turn the call over to Joe.

Thank you, Brian, and good morning. Yesterday afternoon we announced 2017 second quarter earnings of $0.48 per share, including a $0.01 per share in acquisition cost for acquisition of Stewart & Stevenson. This is versus our guidance range of $0.40 to $0.55 per share. That compares with $0.72 per share reported for the 2016 second quarter. The results in the quarter reflect recent trends in all our business. The inland marine tank barge market continues to bounce along the bottom of what has been one of the worst markets for over thirty years, while the coastal market weakened further from the first quarter. The Marine Diesel Engine market was relatively steady, but had some weakness as a result of softer marine markets, including the dry cargo market. With respect to the Land-Based Diesel Engine business, we saw continued strong service demand producing results, which offset the additional weaknesses seen in our coastal business. U.S. rig count continued to rise during the quarter and it appears to have plateau recently

I think, operator, we may have lost Joe.

Yes.

All right. Sorry for the technical difficulties. We will give the call back to Joe in one moment.

We'll see if Joe shows up here in a second, otherwise this is David Grzebinski. I'll continue with some of the details of the quarter and recap our second quarter results in each of our markets and then turn the call over to Andy on financials. Following Andy's comments on the financials, we'll open up – well, I'll give an update on the outlook and then, we'll open it up to Q&A. In the Inland Marine Transportation market, our utilization ranged from mid-80% to high-80% level during the second quarter as operating conditions improved as a result of better weather, increasing our efficiency, and lowering utilization relative to the first quarter. Utilization declined in the quarter as a result of this improved operating efficiency, but also because of some decreased seasonal demand for the transportation of Ag - agricultural chemical products, as well as a return of the black oil fleet to its normal levels in the back half of the quarter as refinery turnaround activity in the Gulf Coast wrapped up. Pricing on term contracts that renewed during the second quarter was down in the mid single-digits, compared to the 2016 second quarter. Spot prices were essentially consistent with the 2017 first quarter. In our Coastal Marine Transportation sector, demand for the coastwise transportation of black oil and petrochemicals was relatively stable, compared to the 2017 first quarter and the 2016 second quarter. Demand in the refined petroleum products market was lower year-over-year, but flat sequentially. We expect to see an oversupply of tank barges and barrel capacity in the coastal barge market through year-end and few short-term demand catalysts to alter those fundamentals of the market. We continued to aggressively manage cost by temporarily idling equipment where it makes commercial sense including temporarily laying up barges. So coastal…

Thanks, David. In the 2017 first quarter, Marine Transportation segment revenue declined $47 million or 12% and operating income declined $37 million or 51%, as compared with the 2016 second quarter. The decline in revenue and operating income in the second quarter as compared to the prior year quarter was mainly due to continued lower inland marine pricing and coastal marine utilization. The Marine Transportation segment's operating margin was 10.8%, compared with 19.2% for the 2016 second quarter. The inland sector contributed slightly more than two-thirds of Marine Transportation revenue during the 2017 second quarter. Long-term inland marine transportation contracts, those contracts with a term of one year or longer in duration, contributed approximately 75% of revenue with 48% attributable to time charters and 52% from affreightment contracts. The Inland sector generated an operating margin in the mid-teens for the quarter. In the Coastal sector, many customers continued to source their barge needs in the spot market rather than renew existing term contracts. The percentage of coastal revenue under term contracts was consistent with the 2017 first quarter at approximately 80%, primarily as a result of lower utilization and revenue for spot equipment. The second quarter negative operating margin for the Coastal sector was in the low single-digits. In regards to our marine construction and retirement plans, we took delivery of one 30,000 barrel inland tank barge and retired 16 over the course of the second quarter. The net result was a decrease of 15 tank barges in our inland tank barge fleet for a total reduction of approximately 269,000 barrels of capacity. For the remaining six months of the year, we expect to fold in the nine pressure barges and four 30,000-barrel barges from the recently closed asset purchase, take delivery of four additional 30,000 barrel inland tank barges…

All right. Thank you, Andy. In our press release last night, we announced our 2017 third quarter guidance of $0.40 to $0.55 per share and narrowed our full year 2017 guidance to $1.80 to $2.10 and that's down from or narrowed from $1.70 to $2.20 per share. But it essentially leaves the midpoint unchanged. This does not include any impact from the acquisition of Stewart & Stevenson. But in brief, we are taking a more conservative stance on our annual guidance lowering our expectations on the Coastal Marine business given the realities of the market, tempering our inland pricing expectations, but offsetting this with strength in our land-based Diesel Engine Services market. In the Inland Marine Transportation market, we expect utilization in the mid 80% to low 90% range for the third quarter and full year, a range that assumes stable demand across the inland fleet. We look for delay days to remain low in the early part of the third quarter and gradually increase through the fourth quarter, as operating conditions deteriorate with weather and potentially a more active hurricane season compared with 2016. We are confident that supply and demand in the inland barge industry is moving towards balance. Though we hoped it would result in modest pricing gains in the second half of 2017, we are modifying our guidance to a more conservative expectation where pricing does not improve this year. As a result, the difference in the range in our updated guidance is dependent on tank barge utilization and contemplates flat pricing. The downturn in the Inland Marine market has been one of the worst in thirty years with pricing at unsustainably low levels. We will be active and disciplined as we assess opportunities to grow our Inland Marine franchise and emerge from this cycle more…

No, David, I would go further with Q&A. I think that we've covered the significant points.

All right. Operator, if you could open the call to questions and answers?

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Gregory Lewis of Credit Suisse. Please go ahead.

Yes, thank you and good morning, gentlemen.

Hey, good morning, Greg.

Okay. David, could you talk a little bit more about what you are seeing in Inland? Clearly, it sounds like you've thrown in the towel a little bit on pricing in the second half of 2017. And just really trying to understand what is happening there, as well as in the guidance, when you talk about flat pricing. It sounds like sort of the base case. What gives you comfort that? What we are going to be able to see flat pricing in the back half of the year?

Well, I think let me let me say this, that things are still going as we expected. Our utilization is running 85% to low 90s, in that range, which is good. We are seeing the chemical plants come along. So the demand continues to inch higher. So we are just bouncing along the bottom. We thought we'd just be prudent and say, hey, look it's going to take a little longer for pricing. But everything is lining up for an inflection. I think many of our competitors are struggling and we are seeing pricing - spot pricing that can dip down sometimes to cash flow breakeven, maybe a little above and that's just not sustainable. But, we thought we'd be prudent for the back half of the year and just say, maybe this extends a little longer, but everything is marching towards balance and an inflection point. I will remind you that in the last two cycles it’s the 2008, 2009 cycle and the 2000 to 2003 cycle, when we were in this utilization range 85% to 90% utilization range, we were able to get pricing increase. So I think it's just a temporary pause and we are getting closer and closer. It's just we felt it was prudent to go with a more conservative outlook on that for the back half of the year.

Okay. But it sounds like the trends are still there. And then, just on the coastal, I want to say earlier this year, it sounded like the goal was to sort of get margins to sort of like a breakeven. Has anything changed or have you seen anything that makes you – that makes the company think that's going to be, obviously, it's difficult, but I mean, what degree of confidence do we have that we could you maybe get those EBIT margins in coastal to kind of cash breakeven over the next, I don't know, two, three, four quarters?

Yes.

Well, hold on, just real quick, Greg. Just on an EBITDA basis, I think our margins are in the almost the mid-teens.

Sure. I was referring to EBIT.

Yes, so on a cash breakeven, you said - I just want to make sure, because you said cash breakeven?

Okay. I am sorry.

Yes. As Andy says, our EBITDA margins are around mid-teens, but our operating income, to your point, is at a loss. But in the first quarter we lost what is it, about, $5 million or so in the coastal business. In the second quarter, it was about $3.5 million in that business. We have been aggressively cutting costs and temporarily laid up a few boats and barges. It's just - it's a slog here. We've got too much equipment chasing business out there. We know there are some older equipment that has to come out. I think our last count there were 33 barges over 30 years old, which is going to take some time. I think the industry is feeling the pain. So that older equipment will come out. And as we've mentioned before, we've got ballast water treatment systems that have to be installed starting in 2018. And I think that will add to the impetus to retire some of this older equipment. In terms of our outlook for it, it's just been a slog. We're still going after costs aggressively. But we wanted to be realistic about how bad it could be.

Okay, all right guys. I’d say thank you very much for the time.

Thanks, Greg.

Thanks, Greg.

Our next call comes from Jon Chappell with Evercore. Please go ahead.

Thank you good morning guys.

Hey, Jon.

Hey, Jon.

David, I wanted to ask, Greg's first question maybe a little bit differently. So it seems like you are insinuating, maybe there is a little bit of a push back to the initial expectations on the timing of the inland recovery. But anecdotally, I mean we've kind of been hearing about some increased enquiry from the petrochemical side. So, first of all, is that wrong? And second of all, is maybe more conservative outlook more tied to maybe the capacity side of things? And has anything really changed on your outlook on capacity?

No, I think - that's a good question. On the supply side of the inland side, we have not seen the shipyard order book grow at all. And you typically you see it grow a little bit throughout the year. I think at the beginning of the year we said there were about forty barges going to be built in the inland side and the bulk of those would be for Marathon's building and for their own account. We haven't seen that changed. It's still forty barges. I think equipment is being retired. I know we've retired, what is it? 31 barges, Andy? And I think maybe the retirements have been a little slower than we might have expected, but that's really hard for us to gauge, because we don't have insight on who is retiring equipments. It's just hard to tell what people are doing. But demand continues to inch up. We are seeing the petrochemical plants come online and we are talking to customers about their future needs, which are growing. Even some of these ethane straight to ethylene to straight to polyethylene plants are building barge docks and they may have some pressure cargos or some other cargos that come out of those ethylene plants anyway. Not everything when you crack ethane, you still do get some other byproducts. Now it's not as much as if you are cracking heavier feed stocks, but there is still some incremental barge demand there. So, the good news is, we see that continuing. Utilization is actually okay. We are seeing a little pressure from, say, an undisciplined competitor, that's probably pushing prices down where they don't need to be. But everything is still marching towards balance. We are just being a little more conservative about that expectation.

Okay. And then, in that vein and also I thought it was quite noteworthy, both in your commentary and in the press release talking about your commitment to making the acquisitions at the right time, little bit maybe more upfront than in the past. So – but, I think you've said also in the past that no one really wants to sell at the bottom. So, I believe you've mentioned that like the best acquisition environment is when we are a little bit off the bottom. So if there is a six months delay or so into next year, is it realistic that consolidation in this industry is also push back to that 2018 timeframe? Or is the pressure point becoming so high that it may actually be accelerated a little bit?

Yes, nobody - to your point, nobody likes to sell at the bottom clearly. But, we've seen a number of people in the industry do some one-off asset sales. I mean, you saw us do one and there is some other one-off asset sales happening in the industry. And I think what that's about is, people managing kind of their debt burdens. And so it's becoming more acute for some players in terms of their financial position. So, some things may happen before we emerge from the bottom and we get the inflection point. But, by and large, nobody wants to sell at the bottom and you kind of need to come out of the bottom. But that said, it's active, there is a lot going on and there is a lot of pain in the industry right now. And we'll see it. But, you know this Jon, you've heard us say it, it's really hard to predict acquisitions. But this environment is probably the best we've seen in a long time. You may recall back in the 2008, 2009 timeframe, and Joe is on the line, he can add to this. But, Joe was on point saying, hey, we wish the downturn have been a little longer because - so we had more pain to get acquisitions done. I think, we've got that going on now. And it's plenty painful out there. So, I think we'll see some things happen. I don't know. Joe, you you're online. So you can add some more color there.

Well, I think the point we were making was that the 2008, 2009 recession was deep, but it was short. And you had some operators that were pressed, but then, the recovery kind of lifted all boats. With respect to the downturn, this time, it's been longer, it's been deep. You are seeing pricing at levels that we really haven't seen since the early 2000s and as they're just not sustainable. So, I think in the next three to six months, you may see some pressure. And in fact, with respect to some operators some intense pressure with their ability to kind of meet their obligations and that in itself may push or stimulate some consolidation opportunities that are a little different than the scenario of an operator that sells when the market starts improving, because in that scenario, they just don't have a choice.

Great. Okay. Well, I appreciate that. Thank you, Joe and thanks, David.

Thanks, Jon.

Our next call comes from Jack Atkins with Stephens. Please go ahead.

Hey, guys. Good morning. Thanks for taking my questions.

Hey, Jack.

Hey, Jack.

David, I guess, just to start for a moment to go back to the acquisition, the marine acquisition which you guys announced during the second quarter. Could you maybe comment on – on that? I think a specialized equipment that you purchased, sort of what that equipment does for you? Does it fill a niche in your asset portfolio? Just sort of a little bit more color on that, I think would be interesting.

Sure. Yes, so we've purchased nine pressure barges, four 30,000 barrel clean barges, and three essentially brand new towboats in that acquisition. The pressure barges, they fill a niche for us. We have a fairly large pressure barge fleet and some of these new chemical plants will have pressure type products coming out. So, this helps us. We've had a couple customers in particular that we do most of their business or if not all of their business that they have indicated the need for pressure barges. So that fits very well into our portfolio at a very good time. And, of course, the new horsepower or the new towboats, if you will, really fit nicely. We are able to retire some old equipment that we had planned on retiring anyway. So, for us, it was just one of those nice little bite size transactions that just fit perfectly into our needs.

Perfect. Okay, that’s helpful, David. Thank you. And then, sort of shifting gears to the Diesel Engine Services business for a moment, obviously, seeing a strong cyclical upturn in that business this year and that's very encouraging. I guess, as we kind of go through this earnings season, we've heard I think two or three oil and gas E&P companies start talking about cutting CapEx already. I am just sort of curious, given the short cycle nature of the fracking market, as you guys kind of look out, may be later to this year beyond into next year, are you worried that maybe we are starting to see a peak of a cycle for land-based equipment? Or do you think there is maybe some more legs to this, given how poorly treated that equipment has been over the last couple of years?

Well, I think, we'll see some legs with it, because it-s – because, just what you just said that there is a lot of equipment that's been ignored. And, I think we're in a horsepower shortage. And even if the rig counts kind of tempers itself like it feels like it's doing right now, there is - the number of ducks out there, the drilled and uncompleted wells is a huge backlog. So, I think it's got some legs or some staying power. And unlike past cycles, I don't think it's a sharp upturn, which is good. I think, we are seeing our customers in the industry be a little more capital disciplined, very thoughtful about remanufacturing and a mix of new and remanufacturing. I think it's a very healthy market from that perspective. Our customers, I think are being very thoughtful about how they deploy capital and how they use their equipment. I also comment, there has been two oil company execs, I think BP said, lower for the longer, and Shell just said today, lower forever, which I think, plays to the shale plays. If you think about all the big offshore fields and the price deck that's needed to justify big projects like that is higher than some of the shale plays and the shale opportunities in the U.S. have pretty decent breakeven prices. So, I think, we'll see a pretty long period where shale production in the United States is the global swing producer. And I think that's not months, that's years. So we are pretty optimistic about it. And we do like kind of the methodical discipline that we are seeing in the industry, particularly with our customer group.

Okay, great. Thanks again for the time.

Thanks, Jack.

Our next call comes from Michael Webber with Wells Fargo. Please go ahead.

Hey, good morning guys. How are you?

Hey, Michael.

David, I wanted to loop back to sorts to inland and I don't want to beat a dead horse here, because I know we did do questions on it. But the idea of the 2017 recovery or start of a recovery in pricing is a pretty big tenant to the story for the better part of last 12 to 18 months. I think if it warrants kind of going back and looking at it. I guess, the answers to the first two questions around why it seems like you guys are walking back the idea of a 2017 recovery. If the answer to those are that, utilization is trending like you thought, the demand is relatively strong and the supply mitigation is tough to see, but generally in line. Is the implication there that there was just a bit of a hope trade embedded in that expectation for a 2017 recovery? I am just saying, it doesn't quite add up, that if everything is kind of in line and you are backing up a recovery out of prudence. Does it imply there is a lack of prudence in the initial guidance? Or just are there something fundamentally missing from the mix that you had a reasonable expectation for kind of six to nine months ago?

No, I think, one, we are being a little more conservative here. But, also, we've had an undisciplined competitor in there that has - in an environment where we'd normally see pricing increases, this competitor is doing what we don't think, they should be doing and most of the industry doesn't. But it's the reality. And we just thought we'd be a little more prudent with that outlook.

Okay. So that competitor, undisciplined competitor have that pressure has continued throughout the better part of the year and that's kind of the element that was maybe missing or understated from the earlier guidance?

Yes. I think that's fair.

Okay, appreciate that. And just, as a follow-up on the coastal side, obviously it's a tough market and the floor on utilization the high 60%, I believe is a new low and probably kind of beyond your all control to a degree. I am curious, when you look at that mix, is there – unlike say, inland where there is a potential bump to a varying degree from pet chem on the coastal side, is it more realistic to expect a 2019 or 2020 year recovery there as opposed to 2018? And then, kind of as an aside, you've got loops now seeking contracts for long-term crude exports. Does that potentially push a recovery in the coastal market out even further or is it too early?

It's too early to call it. But 2019 is probably within the kind of range. There is just too much equipment that came on in the two 2 years, if you will. And it just takes a lot longer to get that older equipment out. And we are starting to see it. We saw some older equipment retire this quarter. But we are still just long equipment. We've also seen some, kind of, unusual maybe a stretch, but we've seen some refined products demand move around a bit. As you know, up in the northeast right now, the Europeans are dumping a lot of refined product into the Northeast. And, you've even seen the - a very rare thing with the Colonial Pipeline not being full. And I don't remember the last time I heard of Colonial Pipeline not being full. So we've seen a little bit of that demand kind of bobble around. I think, when you look at the fundamentals of why so much capacity got built, it was in some respects in anticipation of crude moves here domestically and that triggered some of that building and to your point that that crude is not there, and we've got the extra capacity. But, again, we've got thirty plus barges that need to retire. And I think, like Kirby is doing, we are looking at our old assets and retiring them and everybody is trying to stretch the life as long as they can and then retire it. But, in this market, you will take out old equipment.

Gotcha. Okay. That is helpful, David. Appreciate the time.

Okay, thank you Michael.

Our next question comes from Doug Mavrinac with Jefferies. Please go ahead.

Great. Thanks, operator. Good morning guys.

Hey, Doug.

David, I just had a - my first question is going to be a follow-up to Mike's question on the coastal side, but from a slightly different perspective. So, when you are looking at that market, you are potentially approaching what could be required to approach a more balanced supply/demand scenario. In your earlier comments, I think it was in response to a question that you had, you touched on the ballast water treatment mandate that's upcoming. And so, my question specifically is, how significant could that be, in terms of maybe, encouraging owners of tonnage, given how long the market is towards, maybe pursuing more retirements and capacity removal. So, can you touch on what the ballast water treatment mandate states? And how significant that could be in terms of playing a role in that regard?

Yes, essentially, as kind of a review for those on the phone that aren't familiar with the ballast water treatment rules, essentially, starting in 2018, every coastwise vessel that comes in for its major shipyard period has to add a ballast water treatment system. And if your – if you have an old 25 to 35 year old barge that needs that system, you are looking at a capital outlay of probably $1.5 million to $3 million. And that's a lot of money for an old barge, particularly in this market, where you are struggling to put it to work or keep it at work. So, it's just another headwind that operators will have to face. And when you bring an old barge into a shipyard, it's typically got more maintenance issues than, say, a newer barge for obvious reasons. So when you look at the cost of the shipyard and then add capital addition on top of it, you start looking at, well, gee, am I going to earn my return on that additional maintenance cost and an additional capital? And you say, well, I am not. So, let's not do it. Let's just go ahead and retire the barge. So that's kind of the thought process that happens. Kirby is going through that as well. We look at our old tonnage and we are essentially retiring some of it. I think many in the industry are doing it. And then, there is some other aspects to putting on ballast water treatment systems. They take up space on a vessel. So, if you've got a smaller barge, call it, an 80,000 barrel ATB barge, the real estate to put that ballast water treatment system on the barge is difficult. You may lose some cargo space, because you have to do it and that starts to work into the calculus as well. So, when you add it all up, it makes it difficult to extend the lives of barges that are older and we would expect that that helps trigger retirements.

Okay, gotcha. Thank you. Very helpful. And then, my follow-up, David, is on the M&A front. During or right after the S&S acquisition during the call that you guys hosted, post that announcement, I believe you mentioned that, you would be surprised if you didn't pursue another two or three acquisition target by year-end on the Marine Transportation side. And obviously, shortly thereafter, you announced that one acquisition of these 13 assets. So my question is, for the pending maybe one or two that we should expect by year end, should they look like that one that you announced in June? I.e., kind of a one-off? Or do you think that there are bigger fish to fry? There is an undisciplined competitor kind of make its way on to the list. So, what type of – what should our expectations to be I guess, in terms of additional acquisitions in the Marine Transportation side?

You've heard us say it. It's hard to predict acquisitions. It's all about the bid-offer spread and they've got to come together, right. And the process of the bid-offer spread coming together keeps working and they are coming together. It's just difficult to predict it. But, I can tell you, Doug, we are looking at multiple opportunities and they range the gamut from just small equipment pieces like we just did to the larger acquisitions and predicting those is difficult, as I'm sure you appreciate. We remain disciplined. As you know, we've always looked at things on a return on capital and make sure we can earn our return through a cycle. So, we are staying disciplined. And we think the opportunities out there, the opportunity set is growing not shrinking. And we are pretty excited about the possibilities, but predicting them and getting them done is just hard to do. We are working hard on them. But, as we said earlier, nobody wants to sell at the bottom. So you've got to work that angle. But we are actively working on both asset sales and whole company. So, we'll see.

So, just one kind of follow-up, or maybe a little more specific, David, would you still be surprised if you didn't do another one or two by year end?

Yes, it's hard to say.

Yes. I gotcha, okay. All right. That’s very helpful. Thank you, David.

Our next question comes from David Beard with Coker Palmer. Please go ahead.

Hey, good morning gentlemen.

Hey, David.

Two questions, first, a micro question. Should we assume the barge acquisition is in your guidance and S&S is not or how – just, how should we look at acquisitions relative to guidance?

Yes, the last small acquisition we did is in our guidance, but the S&S is not.

Okay. And then, relative to the inland barge industry. Or what’s your level of utilization do you think you could get some pricing, I mean, historically, it's been in the low 90s and if there is one competitor, where do you think their utilization is?

No, historically, and we probably ought to get Joe's wisdom and experience involved in this discussion, but historically, when you've been above 85% and the customers and the industry think it's going to stay there, we get pricing, so it's both the utilization and the mindset. And our utilization has stayed in the range where we would typically have gotten in the past price increases. And so, it's a bit frustrating. I think in the last five years, when we had crude by barge, people got used to utilization in the 90s – between 90 and 95, and I think - but maybe I’ve forgotten history a little bit. But a couple undisciplined competitors can impact the market and they are. But again, I don't believe this is sustainable. We know many, many is probably too much of a statement, but we know several competitors that are likely in financial stress right now. And so, this situation is not sustainable. I don't know, Joe, do you want to add any color to that or anymore insight? Maybe we lost. We have a technical problem again.

Mr. Pyne is still on the line. He may just not be at his phone.

Okay. All right. I mean, David, you get the idea. It’s - this is, again, typically, we should be able to push prices here. But it doesn't take too many people to spoil that ability. We do believe the particularly undisciplined competitor is in the same range as we are in terms of utilization. But they have just a little different mindset.

Interesting. Now, that’s very helpful. Appreciate the color, David. Thank you.

Thanks, David.

Our next question comes from Bill Baldwin with Baldwin Anthony Securities. Please go ahead.

Thank you. Good morning.

Hey, Bill.

Dave, regarding the coastal market, can you make any commentary as to what kind of influence, if any, you think the tankers like Kinder Morgan has been taking delivery of and so forth? Does that have any direct influence over the rate picture in your coastal business?

A little, Bill. We had – we lost one deal because of a MR tanker. But we were able to redeploy that equipment. One of our 185s got displaced by a MR tanker. 185 is, kind of our largest piece.

Right, right.

The MR tanker is, what, 330,000 barrels. So, they came down into our market and displaced one of our units. But we were able to grab another contract with another customer with that unit. So it has had some impact. But, I would say, it's only in the margin. Most of the MR tankers can't – well, the MR tankers can't get to most of the docks that we get to. You need barges smaller footprints to get to many of our customers' docks and terminals.

And on the water ballast system, David, you mentioned that some of these smaller barges would have a difficult time, you know, be problematic economically, whether they could do that or not. Will these water ballast systems, will they be from a regulatory standpoint, will these smaller barges, the 80,000 and lower be required to have those just like the larger barges will be?

Yes. If you have a ballast water treatment system you have to – or if you have a ballast water system on your barge, you need to put a treatment system on it. Now, on the smaller barges, what they may do is, go to permanent ballast, but permanent ballast adds weight to the barge permanently and that reduces the amount of product that you can carry. So there is always a trade-off. So you can put the system on, but that cost capital and real estate on the barge. So it's an engineering economic balance. And on a bigger barge, a 150,000 or a 100,000 barrel, you've got the real estate. You can do it. You probably don't lose any product carrying capability. But as you get down into the smaller barges, it gets tougher and it's a balance of, do you have the real estate or do you go to permanent ballast and give up a little cargo carrying capacity. So it – I think…

Is that going to be a source of incremental business for your Marine Diesel people to install these water ballast systems?

It is. We represent one of the key ballast water systems in our diesel business. And we have kind of the U.S.-wide franchise there and we've received a few orders. And you might imagine that, as we as Kirby, when we install one, we are using the system that our guys represent. So, yes, that will be incremental revenue for our Diesel Engine business.

Thank you

Okay, thanks Bill.

Our next call comes from Phoebe Clarke with Redwood Management – Capital Management. Please go ahead. Mrs. Clarke? Mrs. Clarke, perhaps your line is on mute.

Okay.

Okay, operator.

Doesn’t sound like she is there.

All right. Well then, this concludes our question-and-answer session. I would like to turn the conference back over to Brian Carey for any closing remarks.

Thanks everyone, for your interest in Kirby today and participating in the call. If you have any questions, please feel free to give me a call directly, 713-435-1413. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.