Good morning and welcome to the Kirby Corporation 2017 Third Quarter Earnings Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Brian Carey, Kirby's Manager of Investor Relations and Corporate Finance. Please go ahead, sir.

Thank you, and good morning everyone, and we appreciate you joining us today. With me today are Joe Pyne, our Chairman; and David Grzebinski, Kirby's President and Chief Executive 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 third quarter earnings 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 third quarter earnings of $0.52 per share, including a net $0.03 per share of loss revenue and costs from the hurricanes we experienced in the quarter. Stewart & Stevenson, acquired on September 13, contributed $0.03 per share to the quarter as it saw elevated demand for rental generators in response of the storm and some pent-up demand for service work once facilities reopened. The third quarter results of $0.52 per share are within our guidance range of $0.40 to $0.55 per share. The 2016 third quarter results were $0.59 per share. After considering the impact of the storm and the addition of Stewart & Stevenson, the results in the quarter mirrored the underlying fundamentals we observed in the first half of this year. The inland marine tank barge market experienced an uptick in demand after Hurricane Harvey, as refineries and petrochemical plants returned to service, increasing inland barge utilization into the fourth quarter. It is too early to determine the duration of this recent increase, but it is continuing. The coastal markets continue to be challenging, as the market has absorbed new builds and the crude oil moves planned for these new builds have not materialized. We do believe that pricing at current levels, maintenance decisions and ballast water treatment decisions will force the rationalization in this fleet. The land-based distribution and services business experienced consistently strong service demand. We are seeing modest orders for new pressure pumping equipment and new products. We believe this cycle will be more ratable, helped by better capital discipline which forces much more rebuilding than just replacing. U.S. rig count stayed relatively flat during the quarter, as E&P companies are showing a preference for returns over just growth. Profitability of our customer base is improving, as demand for pressure pumping services remain tight from the backlog of completion activity. Stewart & Stevenson has quickly shown encouraging results in our brief period of ownership during the third quarter, as they mobilize their rental equipment fleet in response to hurricanes and have healthy demand for service work, part sales and the manufacture of pressure pumping equipment. In summary, our marine transportation markets continue to be challenging, but our ability to contain costs is helping hold profitability steady. Post Stewart & Stevenson, our balance sheet remains available for marine consolidation opportunities, as many industry participants are experiencing significant distress. Our land-based distribution and services businesses maintained the momentum built since the green shoots of recovery, which appeared third quarter of last year. With Stewart & Stevenson in the fold, we are seeing early benefits of its scale and scope of product offering to our distribution and services segment. I'll now turn the call over to David.

All right. Thank you, Joe, and good morning everyone. Thank you for joining us today. I'd like to start by commending the Kirby team, our customers and the communities affected by hurricanes, Harvey, Irma and Maria, for their tremendous resiliency and generous spirit in the face of these major storms. Hurricane Harvey was particularly devastating to many communities where we live and work, as the storm landed in the Corpus Christi area and moved east to Houston all the way through to Louisiana. It caused significant damage to western parts of the Intracoastal Waterway system and shut down many of our petrochemical and refining customers' facilities. Many of our employees were personally impacted by high floodwaters and property damage. Hurricanes Irma and Maria had a lesser impact than Harvey, but still disrupted our coastal marine operations and distribution and services businesses along the East Coast. Through it all, our operations and commercial teams operated safely and worked diligently and creatively to meet our customers' needs, as customers managed the disruption to their supply chains and brought their plants and refineries and facilities back online. So, thank you to all those involved in the recovery and response to the hurricanes. Let me now move on to a recap of our third quarter results. I'll conclude with an update on our guidance and then we'll go to Q&A. In the 2017 third quarter, marine transportation segment revenue declined $40 million or approximately 11%, and operating income declined $19.4 million or 35% as compared with the 2016 third quarter. The declines were mainly due to continued lower pricing in both marine markets and lower coastal marine utilization. The marine transportation segment's operating margin in the quarter was 11.3% compared to 15.4% in the 2016 third quarter. In the inland marine transportation market, the…

We will now begin the question-and-answer session. The first question comes from Jon Chappell of Evercore. Please go ahead.

Thank you. Good morning, guys.

Hey, good morning, Jon.

Congratulations on the Astros, great series.

Yeah. Thanks.

In terms of the community down there, too, I'm sure. First question, on the inland side. So, it's kind of a two-parter. Last quarter, I think Joe was talking about the pain threshold kind of getting there, where some of the, maybe, less well-capitalized companies are starting to bend a little bit. So the first part is, just a little boost in utilization to the mid-90s, is that kind of giving a reprieve to some of these guys and helping them to hold on and maybe pushing back some of the opportunities that you see there? And then also, speaking of pushing back, it seems like some of the petrochemical capacity that's supposed to come online is continuing to shift to the right whether that was Harvey-related or just kind of delays in that, and you spoke about the kind of lagged impact of pricing on the bottom line. Does this seem like that's more of a 2019 recovery as opposed to a mid-2018 recovery now?

Yeah. So let me take those in order, and I'll have Joe chime in on the pain threshold in particular and what we've seen in past cycles. The pain threshold continues because spot pricing is basically down near cash breakeven. So we may be busier, but pricing is still low. And for some carriers, it's unsustainably low. We have heard antidotes of companies in trouble. We heard of a repossession of some equipment from one of our smaller competitors here recently. So even though we're a little busier, it's still very painful. However, that said, if this demand continues and the market believes that it's going to be sustained there. It sure gets us a lot closer to the inflection point on pricing because, as you know, you've got to have the higher utilization and the belief that there is going to be sustained demand and then we'll be able to push pricing. So, there's still a lot of pain out there. And even though we're a little busier, it hasn't helped a whole lot for some of the competitors. But the encouraging thing is, if the demand stays up, it leads us to a better pricing environment sooner rather than later. I'll come back to the petrochemical shift in another question, but I'll ask Joe if he's got any comments on kind of the history.

David, I think you've answered Jon's question well. When will the market turn? Well, the market will turn as we come into balance and certainly the higher utilization after the storm and its prolonged utilization rates into the fourth quarter are encouraging. But you need – the market will need to have the sense that business is indeed going to get better and these utilization rates are going to be maintained before, I think, you see any inflection in pricing.

Yeah. Jon, I'll come back to your petrochemical shift question. And what I'm hearing from our customers is, still a lot of excitement about the build-out. I think what we're seeing – well, the hurricane didn't help at all, to be clear, disrupted not only the normal operations but the construction of a lot of plants and shut down a lot of things as you would expect. But what I think we're seeing is kind of that normal shift to the right in projects. They just tend to take longer than everyone's ambitious plants. I will say this. I recently had been with the CEO of a major chemical company and there is tremendous amount of excitement to continue these projects, and in fact even looking at adding some projects. So, I think we're seeing more projects added and almost none cancelled. We are seeing them pushed out. I think that's all positive because, as we talk about coming back in the balance here, our volumes typically grow with GDP and GDP is doing okay. And if you add a little bit more for chemicals, I think that helps soak up capacity as we move forward. So, we could have 2% to 5% kind of volume growth as we go forward into 2018. And then if you get supply contraction, which I fully expect, we haven't heard of any new building announced for 2018 thus far. And we know a lot of us are retiring, inland capacity, in particular. I think our forecast right now is that we'll retire by the end of the year 49 barges in total. I think we're actually in the high-40s right now what we retired through the third quarter. So with supply contraction, little demand in pickup and – if this utilization trend kind of stays where it's at, we could be a lot closer to that inflection point. That said, it's still very, very painful out there at these price levels.

Right. That's super helpful. Hopefully, my follow-up's a lot quicker than that, but I appreciate that insight. On the coastal side, as you mentioned in your comments, David, you've been able to kind of maintain this margin kind of negative mid-single digits and it seems like kind of temporary things like laying up equipment, et cetera. If this market deteriorates further most likely because of the continued onslaught of new capacity, is mid negative single digits still kind of the right way to think about it or potentially it kind of gets worse? Or if you kind of make a shift to more kind of fixed cost removal, could that even improve in the same type of utilization or even a lower utilization environment?

Yeah. I mean the short answer, the margin probably going to be in this range, it could go up and down. But let me just comment a little bit about the coastal market and kind of the trends. They are only, I think in our mind, about five pieces of equipment – new pieces of equipment to come into the market left. The bulk of the equipment has been delivered. We could be off one or two there, but the bulk of the new equipment has delivered. There's a few left to come in and scrapping is starting. So far this year, we have basically sold mostly the scrap four barges. So, we've taken out our capacity. I think other people are in the process of doing it. And as Joe mentioned in his opening comments, this ballast water treatment process that we're going to have to go through is going to require a lot of capital. And that's going to actually help accelerate some retirements, including for Kirby. So, I think the supply and demand situation is not going to get a lot worse from this point. We should see some demand growth just with GDP. On the – what we can control, we continue to look at cost and take it out. I wouldn't expect utilization to get any worse than where we're at now if anything. As we move into 2018, it could start getting a little better. But your assumption of margins in this range is probably a good one for the near term at least.

All right. Super helpful. Thanks, David. Thanks, Joe.

Thanks, Jon.

The next question comes from Jack Atkins with Stephens. Please go ahead.

Great. Good morning, guys. Thanks for the time.

Hey. Good morning, Jack.

David, I guess, just a follow up on the inland commentary and I appreciate all of that detail that you provided with Jon's question. But, I guess, just sort of thinking about how, I guess we're trending going into 2018 with pricing renewing in the third quarter, you're down in the mid- to high-single digits on the inland side. And you referenced the sort of the lag effect, given the contractual nature of that business. I guess, can you kind of, without providing 2018 guidance obviously, can you help us think through how we should be framing up the profitability trajectory of the marine segment kind of going into 2018? Because I would think that, as we push out that pricing recovery, we're really sort of probably pushing out any sort of recovery in the underlying profitability of that segment. But I would like to get your take on how you guys are thinking about that going into next year?

Yeah. No. It's a great question, Jack, because as you know – and we called it out in the script here, we did get a full-year effect, right? We're renewing. As you heard in our comments, contracts are down year-over-year. And then that translates into a full-year effect in 2018. So that is math, right? I think everybody kind of gets that math. That said, what we don't know is, when the inflections will happen and the magnitude of it. The earlier in the year, it happens, the better. We still have significant spot exposure and then contracts do renew throughout 2018. But your premise is spot on. We do have that full-year effect and it's the mathematics of these contract renewals.

And, Jack, also remember that 60% to 70% of our business is exposed to rate increases or decreases on a given year. Contracts will renew through the year, but you also have your spot exposure that reprices (34:35). As David suggested, depending on when the turn is, it could offset some of the deterioration that is occurring in 2017.

Okay. Okay. That's helpful. And then, I guess, just for my follow up with the distribution segment. Now that you have S&S in the fold, could you kind of give us just sort of some framework around how we should be thinking about the revenue run rate of that segment sort of going forward with Stewart & Stevenson and the legacy businesses combined now?

Yeah. Unfortunately, Jack, I'm not prepared to give you that revenue guidance. Yeah, I think what we've seen so far has just been very encouraging and that's all I can really – we're just not prepared to give you revenue guidance or margin guidance. But the early indications are, this is going to be what we expected. We're seeing great synergies as we put the organizations together. We had a great customer win here recently by being able to collaborate between the two organizations and now become one, and we're able to meet some customer needs that either organization couldn't have done on its own. So, we're very excited about the potential of the distribution and services business as we continue to integrate it. And you saw, there's some pleasant upside. I think, we all did not like the hurricanes at all. But if there is a silver lining, that rental fleet that they have was a nice addition. So yeah, it's a long way of saying, I'm not giving you an answer, but we like what we see so far.

Well, that's a very elegant way of saying it as well, David. So, thanks again for the time and talk to you soon.

All right. Take care.

The next question comes from Greg Lewis with Credit Suisse. Please go ahead. Gregory Lewis - Credit Suisse Securities (USA) LLC: Yeah. Hi. Thanks and good morning.

Hey. Good morning, Greg. Gregory Lewis - Credit Suisse Securities (USA) LLC: Could you talk a little bit about – I mean, clearly, we've seen Kirby's utilization was, pre-hurricane, it looked like it was firming. Out of the hurricane, it got even firmer. Is part of the issue with the ability to push pricing the fact that while Kirby's utilization is in that 90%-plus sweet spot that the rest of the industry just is that far behind?

Yeah. I think that's part of it. We don't know exactly where everybody's utilization is. Our sense is, it may be anywhere from a couple points lower, maybe in some cases 5%-plus. But that is absolutely part of it, Greg. But their utilization in general should be up like ours is, in terms of relative moves. If we're up about 5% utilization, I would think their relative utilization is up about 5%. So, it's very encouraging. I think part of the demand utilization or the demand that we're seeing is crude prices are a little higher, some of the end product pricing is a little higher. So there's a little more profitability out there for our customer base and the traders are making a little more money. We've got kind of a spread between WTI and Brent now that's actually helping some of the arbitrage plays out there. So, we'll see how long this demand holds. It's been encouraging so far. Clearly, some of it is temporary because there was a, with all the refineries down and some of the chemical plants down and certain maintenance activities that had to happen or recovery activities that had to happen, we had a pent-up demand. But we're seeing a little more than just hurricane fallout now. We're encouraged by it. Don't know if it'll hold, but we remain hopeful. If it does hold, it certainly gets us into a better possibility to raise prices. Gregory Lewis - Credit Suisse Securities (USA) LLC: Okay. Great. And then you actually led into my second question was around the Brent/WTI spread. I mean, it doesn't look like there's any benefit that is happening in the coastal market based on your commentary. But is there any benefit that we're seeing on the inland side at least?

Yeah. We've seen a little pickup in crude moves, particularly out of the operable locations, Utica and Marcellus. We've seen a nice little pickup, but it's not meaningful yet. But we were getting down at one point to a handful of barges and now that has gone the other way. And we have seen it and I think part of that is a higher absolute level. And then there's – with some of the by-products, I think there is an arbitrage going on between WTI and Brent. Now on the coastal market, at some point if that differential maintains itself, I would imagine on the East Coast that price differential plus transportation ought a start backing out some Brent. But to your point, we haven't really seen that yet, but you would expect that it may come if the differential holds for a while. Gregory Lewis - Credit Suisse Securities (USA) LLC: All right, fingers crossed. All right, guys, thanks for your time.

Hey. Thanks, Greg.

The next question comes from Kevin Sterling with Seaport Global Securities. Please go ahead.

Thank you. Good morning, gentlemen, and go Astros.

Yeah. Thanks, Kevin.

David, as a coastal business, do you think it's deteriorated a little more than you thought kind of utilization in the low-60s and just all the moves we're seeing more to spot market versus contract? I haven't seen it this bad, I'm just curious have you seen it this bad before? I'd love your thoughts around it.

Yeah. No. It has deteriorated more than we expected. And if you go back and you look back into the K-Sea timeframe, you go back and – this is below what they saw then. I think they got into the low-70s. There was a high-60s for one quarter, I think, back in K-Sea's public days. So this is pretty bad. I think – well, you know what happened, Kevin. It was lot of new builds. Lot of the new builds were in anticipation of crude moves and crude projects on the coasts that didn't materialize. There was supposed to be some crude by rail going to terminals on the water, and that was going to drive a number of coastwise moves. And a lot of those projects, I think our team Christian, Bill, have seen a list of about six projects or eight projects that were canceled that had significant crude volumes being moved by water. That's unfortunate. So, we had – demand didn't materialize as expected and the capacity came on. So, that has led to probably one of the worst markets in the coastwise business that I'm aware of. But I would say this. There's still a lot of old equipment out there. I think we're tracking over 30 barges that are over 30 years old and it will come out. In this market, it's starting to get very painful. And ballast water treatment – we're all going through our fleets and looking at our fleets and saying, okay, is this barge worth putting ballast water treatment system on it? And as you can imagine, the older the barge is, the more likely that the answer is, it's not worth it.

Yeah. So in the coastal market, I hear you on scrapping, and obviously if we get accelerate levels of the scrapping that will help. But do we need consolidation as well to really kind of get this market moving higher? Or do you think if we get meaningful scrapping then that will really kind of help turn the tide?

Well, I think it's really about scrapping because even if you get consolidation, you've got to take the capacity out. So, it's more about the scrapping of the older equipment. Consolidation always helps, but it's a pretty painful market. And as you heard us say time again that you almost have to be coming out of the market to get the consolidation done. Rarely happens kind of at the bottom.

Yeah. And last question here. David, you mentioned and I've heard kind of similar anecdotes that some of the inland players are obviously really struggling and things like that. You mentioned, repossession of some equipment on the inland side. Do you know if that equipment was sold back into the market or was it scrapped kind of keeping on the scrapping theme?

Yeah. Bill knows the details of where the equipment ended up, but it may have been sold to – somebody may try and put it to work, but it would probably land at a very low value and some of it may end up being scrapped anyway. Look, it's tough. It's tough on the whole industry. There's some wage cuts going on out there. There's certainly lay-offs in the industry. And these prices are just unsustainable there. In some cases, some deals are being done at below cash cost which is, as you know, not a good plan for the long-run business. So, the pain continues. And out of all this, there should be some opportunities for Kirby, to be sure.

Yeah. The low value of equipment, is that just keeping banks from maybe taking repossession of that equipment, just because they have taken such a huge write-down on our loans? Do you think that's part of the issue?

Yeah. I absolutely believe that's part of the issue. The banks don't really want the equipment either, right?

Right.

So when you got a bunch of equipment out, what are the banks going to do with it? I'd say, it's just sloppy.

Yeah.

Yeah. I think some of this is getting sorted out now. We're at the part of the cycle that banks and operators are making decisions with respect to their sustainability. So, I think you need to give it another six months before we truly understand what's going to happen.

Got you. Got you. Well, Joe and David, I really appreciated you insights as always. Thank you so much for your time this morning.

Thanks, Kevin

The next question comes from Ken Hoexter with Merrill Lynch. Please go ahead. Ken Hoexter - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Great. Good morning.

Hey, good morning. Ken Hoexter - Merrill Lynch, Pierce, Fenner & Smith, Inc.: I just want to revisit the contract pricing for a quick second, just to understand your – I guess, your more immediate fear. I think the last two quarters we've actually seen margins maybe pick up slightly on the inland or fairly stable. But is this kind of an acceleration of the pricing decline on the contract side that you're talking about? Because I want understand as you look to fourth quarter, I know you said seasonally, typically the weakest, but I want to understand kind of the magnitude maybe near term in terms of how quickly we should expect maybe some pressure on those margins? Or is this just kind of what you're talking about into 2018?

Yeah. No. The margin question here – margin comments were really about into 2018 as we get the full-year effect. I would say, our margins did pick up a little bit in the third quarter on the inland side, principally because we got some cost recoveries there that – when we're not moving and we get the cost recoveries, the revenues are a little lower, but the recovery still happens. So, that helps the margins a little bit. I think what we're talking about mostly here is, as these contracts have rolled over, as you've heard, down quite a bit from a year ago, we get the full-year effect of that going into 2018. That was principally our comment, Ken. Ken Hoexter - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Okay. Dave, on the S&S deal, I guess, two parts to the question. But one, can you – I know you said you can't talk about revenue growth for 2018, but can you talk about the seasonality in the business, how we should think about that as you look into the fourth quarter? And maybe within that, can you talk about the rationale? How do you want investors to focus on you, now that you've acquired S&S and integrated it? Is it one consolidated kind of entity? Or are you moving more toward oil services or is it transportation? Just how should we kind of look at what the service target is?

Yeah. Good question, Ken. I would say this. I don't think there's a lot of seasonality in the distribution and services business. Yeah, there may be a little bit. We do take care of some pleasure crafts in Florida, for example, and there maybe some seasonality there. But when you put it altogether, I don't think there's much at all seasonality for the distribution and services business. But, as you know, about 80% of the revenues are land-based in that business. So a good portion of that is oilfield service related. But there is also an on-highway portion and a rental portion and other ancillary industrial equipment, whether it's standby generation, power, et cetera, we service. As I just mentioned, the pleasure boat market in Florida, that's a big part of it. That's a $100 million business there. Up in the Northeast, we have kind of an on-highway service business there. So it's not just oil service to be clear, but certainly there is a significant exposure to the oil service. As you could hear, frac spreads and remanufacturing is a healthy part of the growth that we've seen in the rebound. You had seen that with United before obviously. I would say, we're going to treat this as just one business. We'll talk about it as one single business, because we're integrating everything as you might imagine. There's some branch integration that we've got to do, certainly back-office integration. The sales team is already working very well together and trying to jointly attack opportunities out in the marketplace and service of customers, where – because the joint capability of Kirby now is stronger, so we're able to take bigger orders and meet shorter-time delivery requirements. So, it's very encouraging. In terms of how to think about it with respect to Kirby, look, it's going to be a big business. It's $1.5 billion probably revenue business and the marine business is probably that same order of magnitude. As you know, the marine business tends to have better margins over time through the cycle. But we'll try and give you as best we can in our calls, in our commentaries, in our guidance how best we think about those businesses. But they're both going to be significant going forward. Ken Hoexter - Merrill Lynch, Pierce, Fenner & Smith, Inc.: That's great insight. If I could just get a quick soft ball for you though. You bought a bunch of vessels and then you retired a bunch of inland vessels, and it seems like you netted out the one change. I presume this was a younger, more profitable fleet. I guess, is that a simple answer as to why...

Yeah, some of it. Yeah, there were four very young 30,000 barrel barges in that, but there were some pressure equipment. So we've retired kind of the equipment that was surplus which is older 30,000 barrel barges and some older tens, and we bought some young – four young 30,000 barrel barges, and then we bought – the rest of the purchase was pressure equipment which is very specialized. And the pressure market is kind of its own submarket, if you will, which – with these chemical plants coming on, in particular there's things like butane and butadiene moves and other pressure cargos, propylene and whatnot, that our customers are already starting to talk to us about, making sure they have pressure barges for those moves. Also with that transaction, we've got three new boats which were kind of younger, which are good to put in our fleet. Ken Hoexter - Merrill Lynch, Pierce, Fenner & Smith, Inc.: Thanks for your time (52:43) Appreciate it.

Thanks, again.

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

Hey, good morning, gentlemen. Thanks for squeezing me in.

Oh, you bet.

A bigger picture question on capital allocation. Just what absolute level of debt would you target? I mean, I know your metrics are good, but would you want to bring the $1 billion down to a certain number or some color there? That's my first question on capital allocation.

Sure. Look, we tend to take acquisitions and build when it makes sense. I think, as you've seen us do in the past, if and when we get some consolidation opportunities, and we think on the inland side they're sooner rather than later, we'll use our balance sheet and we'll lever up. I think we'd be comfortable getting up into the high-40%s and maybe for the right acquisition into the 50%s. And then, as we've done, we'll use our cash flow generation to pay down our debt quickly to get the balance sheet back into shape for the next opportunities. There's never an absolute target. I guess, theoretically, if you do that weighted average cost of capital you'd want a 40% to 45% debt to total capital, but that's really not the way we think about it. The way we think about it is, having balance sheet dry powder. So when the opportunities exist, we can move and we can move quickly. At 26% debt-to-total cap, we've got some dry powder and we'll remain hopeful to put that to work in the near term.

I would just add that the other thing that's important is to maintain our investment-grade rating, because cost to debt is a competitive advantage. We have been as high as 60% after the Hollywood Marine acquisition. I'm not suggesting that we go to that level, but we did that and still maintained the investment-grade rating. So there's plenty of capacity, 26% debt-to-total cap is very reasonable. And the balance sheet can support more debt if there's a good opportunity that's going to add value in the future.

Okay, good. And as a follow up, would it – should we be even thinking that coastwise acquisitions make sense relative to an incremental return on capital? Or do you feel that business might not offer a full-cycle return relative to making acquisitions in inland?

Yeah. No. Look, our first priority will probably be inland. It's about to come out of the cycle, that would be – the timing makes sense. I think as we've talked about, the coastwise business is probably in a little longer-term downturn. But, yeah, it all depends on what the opportunity is. But I would say our preference right at the moment is to consolidate the inland side. Yeah, I think that's where the real opportunities are in the near term.

No, that's helpful. I appreciate the color.

All right. Thanks, David.

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

Good morning.

Hi. Good morning, Bill.

Couples of things here, gentlemen. Can you bring us up to date on your CFO search, David? Kind of where that stands?

Sure. As you know, it takes a while. The hurricanes didn't help our search process. We've got a number of good candidates, a handful of good candidates, that we've been interviewing and we continue to narrow that field. And I'm hopeful that certainly by the end of the year, I'd like to have somebody on board.

Well, good luck to you on that. I know you'll get the kind of person you're looking for. Secondly, on the vessel personnel, on your barges, particularly the inland barges as this business picks up and with all the construction activity on the rebuilds and so forth going on down there in the Gulf States area, is that going to present any particular supply issues you think for personnel to work on your boats? Are you seeing anything, do you anticipate anything?

Yeah. Not as of yet. Well, frankly, some of our competitors have been laying off. But as you know, and at the root of your question, is when things start coming back, how quickly will we get tight is probably at the root of your question. We continue to use our training center, our team has been training people. But we're running pretty tight on staffing. We don't want to have too many people, because there's cost associated with that. But right now, I don't think there's an issue with staffing. As we rebound, I still think given the number of lay ups that occurred in the industry, I think we'd have time before we get crunched for qualified people.

Yeah. And Bill, as you know, we produce most of the people that we employ.

Brian, I know you do and I would just – that's kind of getting around to the kind of the quality of the candidate you're seeing today versus a while back. I mean, are you still getting the folks in there that you'd like to have come in to your training program?

Oh, yeah. Yeah, absolutely.

Yeah. I'll tell you where you're getting the trouble is, after like an event like Katrina where you have so much infrastructure disruption and you're using marine equipment to repair it, and the market immediately tightens up. That did not happen in Harvey. Harvey was a more water issue than a kind of infrastructure destruction issue. So, I think if you have more ratable demand, you can gear up your training efforts to produce the people that you need.

Are you seeing just the change quickly, but are you seeing the kind of labor force you need on the S&B side, on the work in your Stewart & Stevenson plants and Kirby plants, as the demand picks up for the frac and equipment and overhaul and so forth?

Yeah. No, that's a good question, Bill. We have been – we've ramped up several hundred people in our United organization and we're ramping up a little on the S&S organization now even as we speak. So far it's been pretty good, but it's starting to get tighter, is the short answer. There is a little more competition. As the oilfield has been rebounding here, it's starting to get a little tighter.

Well, thank you very much for your time and ...

All right, thanks, Bill.

The next question comes from Michael Webber with Wells Fargo. Please go ahead.

Hi. Good morning. Thanks for the time, guys.

Hey, good morning, Mike.

Hey, David, just wanted to follow up on the inland pricing. I know you've touched on it a couple of times already. But in the past, we've heard a fair amount about irrational pricing from certain players in the space. Curious to what degree you're still seeing that? And then specifically, to the extent that you can get color on it, has that been more on a spot or on a term basis? Specifically, we kind of thinking about if we do get some kind of a bump or the less rational players a bit more termed out at that point?

Yeah. Most of it's been in the spot market, to be honest. There has been a couple deals that have been termed up at these really ridiculous rates. But we're hearing anecdotes that some of the low pricers are pretty much booked up now. But it's a fluid situation. But I would say, most of that really low pricing is in the spot market and there are very few long-term contracts being done at that level. It just doesn't make sense. There are a few that are getting done at that level, but you've got to wonder whether that's a good long-term business decision. Clearly, Kirby doesn't like it and wouldn't do that kind of thing.

At this point, all pricing is irrational.

Yeah, right.

Just given the nature of some of those businesses I thought maybe they'd be reaching for some term, but it doesn't sound like it. As a follow-up on coastal and I know you've touched on obviously the state of that market, and I think I believe you got questions on ballast water treatment and I guess scrapping. If you look though at the actual special survey dates of most of the older ATB tonnage, that's not – most of them are 2019, 2020. And as you guys know well, obviously just because scrapping happens to make sense at the time on paper, there's usually a multiyear lag between when that actually happens versus when it starts making sense in a model. So, I guess my question is, there really, I mean, a realistic scenario or is it realistic to think that that coastal market could improve without that ultra old tonnage coming out of the market at the special survey date, which is 2019 and 2020?

Yeah. No, I think the capacity has got to come out. I do think it will come out probably ratably over the special survey dates, to be sure. But there are some older pieces that just can't even earn the cost of – their cash cost right now. And that may force a retirement before the special survey. So, it's not just the ballast water treatment situation, but we'll help drive it because if you're going to bring it into a shipyard, you don't want to spend that additional money. But there are some decisions that you won't even bring it in for the special survey shipyard. You'll just retire it, because it's older. Frankly, we've retired some very old equipment that we could have taken into the shipyard and extended its life. It just doesn't economic sense and so we're not going to do it. Working it 50% in the spot market at prices that barely cover your cash costs, it becomes pretty easy if you're thinking about a shipyard or even still running the equipment, does it make sense to keep a crew and fully engaged on that piece of equipment? So, I think you'll see equipment retired irrespective of the shipyard cycle. It'll just happen. There is 4.5 million to almost 5 million barrels of capacity that's well over 30 years old, that's just got to come out. Kirby has one. It's a 180,000 barrel one that's going to have to come out soon. And we're not going to extend the lives and that's irrespective of the ballast water treatment.

Okay. All right. That's all. Thanks, guys.

All right. Thank you, Mike.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Brian Carey, for any closing remarks.

Thank you very much for your interest today in Kirby Corporation and for participating in our call. If you have any additional questions or comments, please reach out to me at 713-435-1413. Thank you, and have a great day.

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