Good afternoon, ladies and gentlemen, and welcome to Matson's Third Quarter 2017 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Lee Fishman.

Thank you, Ruth. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Senior Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website www.matson.com under the Investor Relations tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides and this conference call. These risk factors are described in our press release and are more fully detailed under the caption Risk Factors on Pages 11 to 18 of our 2016 Form 10-K filed on February 21, 2017, and in our subsequent filings with the SEC. Please also note that the date of this conference call is November 2, 2017, 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, Lee, and thanks to those on the call this afternoon. Please turn to Slide 3 for a summary of our quarterly results. Matson's operating results outperformed our expectations due to stronger demand for our expedited China service, stronger southbound volume in Alaska, the timing of fuel surcharge collections and higher lift volume at our SSAT terminal joint venture. These stronger-than-expected contributions were moderated by the lower construction-related cargo to Hawaii and competitive pressures in Guam. In the third quarter of 2017, we earned net income of $34.1 million or $0.79 per share compared with $25.3 million or $0.59 per share in the year-ago period. We generated EBITDA of $96.2 million in the quarter versus $81.3 million in the third quarter of last year. I feel good about the strength of our recent results and business performance. As a result, we are raising our outlook for Matson's full year 2017 EBITDA to be moderately higher than the $290 million achieved in 2016. Joel will walk through the financials and outlook in detail later on in the call. Before moving on to the individual trade lanes, I wanted to highlight a couple of key announcements made in the quarter. First, we announced the launch of an Okinawa port of call as part of our China service, operating transit times from the U.S. West Coast up to four days faster than existing services in the market. This is an important development that leverages our Pacific network, and we are excited to provide this expedited service. Like a recently announced service upgrade to Kwajalein, our Okinawa service represents a further expansion of Matson support for the U.S. Department of Defense and its operations throughout the Pacific. We continue to look for further opportunities to build operating network for the Department of Defense in…

Thanks, Matt. Turning to our financial results on Slide 12. Third quarter Ocean Transportation operating income increased 26.4% year-over-year to $54.6 million. The increase was primarily due to higher average freight rates and container volume in China, favorable timing of fuel surcharge collections, higher Alaska container volume, higher freight rates in Hawaii and higher contribution from SSAT. Partially offsetting these favorable year-over-year comparisons were higher terminal handling expenses and lower container volume in Hawaii and Guam. The company's SSAT joint venture investment contribution increased by $3.9 million year-over-year due primarily to improved lift volume. Logistics operating income increased by $3.7 million year-over-year primarily due to the inclusion of Span Alaska's freight forwarding operations for the full quarter and higher intermodal volume. EBITDA increased 18.3% year-over-year to $96.2 million as a result of a $15.1 million increase in operating income offset by a slight reduction in depreciation and amortization. Turning to Slide 13 for a summary of our balance sheet. You will note that our total debt at the end of the quarter was $839.3 million, and our net debt-to-LTM EBITDA ratio was 2.7 times. Slide 14 shows a summary of the manner in which we allocated our cash flow generation. For the last 12 months, we generated cash flow from operations of approximately $217.3 million, undertook net borrowings of $27 million and withdrew $110.9 million from our capital construction fund from which we used approximately $288 million on maintenance CapEx and new vessel CapEx while also returning $52 million to shareholders via dividends and share repurchases. During the third quarter, we executed an open market share repurchases whereby we repurchased approximately 680,000 shares at an average repurchase price of $25.04 per share. As a reminder, our LTM maintenance CapEx has been higher than our normal range of $40 million to…

Thanks, Joel. While the competitive environment post-2020 in Hawaii remains unclear at the moment, I am 100% confident that the investments we're now making in new ships and infrastructure to grow our business and to fulfill our mission to move freight better than anyone. We also continue to return capital to shareholders in the form of dividends and share buybacks. Looking forward, I remain confident in our long-term prospects, strong cash flow generation that will lead to continued value creation for our shareholders. And with that concluding statement, I will turn the call back to the operator and ask for your questions.

[Operator Instructions] Your first question comes from Ben Nolan with Stifel.

The – I have a handful of questions and hopefully they'll go pretty quick. But one of the things is just for – I noticed that you said Alaska, in terms of the volume, should be relatively flat year-over-year. But it looks like thus far through the first three quarters, you're up pretty good. Is there a reason that 4Q should be materially less than what it was last year?

Ben, it's Matt. Not really. I mean, I think our view was that the seafood better-than-expected catch, it was one of the better harvests, are largely behind us now. I mean, we have seen northbound volumes continue to come in below the previous year given where the economy is. Most of the above-planned performance related to southbound seafood movements, and those are largely behind us now. So that was kind of the thinking at this point about we're going to end up at about at that level.

Okay. So were they a little later in the year last year, something like that, that would have sort of inflated last year's 4Q levels relative to this year's, the seafood...

Yes, so the reality is the seafood is eight or nine different species that move at different times of the year, and they're also influenced by the quotas that are granted to – in order to sustain certain levels – maintain levels of seafood. So there's a number of factors that are influenced by when certain species are caught and what the amount of each catch is. So those are all influenced in last year's versus this year's volumes.

Okay. All right. Fair enough. I just – I was trying to square the numbers. And now back to something that you'd mentioned on Hawaii in terms of the construction cycle shifting away from the high rises to more of the residential. In your experience, Matt, how – what is the – what's the normal cycle here? Like, how long does this take before you expect to see the residential construction begin to pick up where maybe the high rises left off?

Yes, I mean, every construction cycle in Hawaii over the last 50 years has taken kind of a different shape. So I would say this one, at least up to this point, has been Oahu centered and has been real – so what I mean by that is we haven't really seen much of the construction cycle in the Neighbor Islands unlike the last real estate cycle where we saw significant Neighbor Island single-family home and resort construction. That has largely been absent in this cycle. And I would also note that across very long cycles in Hawaii, because of the difficulty in permitting and efforts to restrain growth, you've seen a chronic shortage in primary housing primarily in Honolulu and Oahu, the primary commercial center in the state. So I think the view is that, for example, I would just mention anecdotally that Koa Ridge, which is one of the projects in West Oahu, has announced just coincidentally a groundbreaking ceremony today. That project has been on the books for over 15 years and went through a number – a series of legal challenges, went up to the Supreme Court several times. So these projects are very long and difficult to get across the finish line. Where we see ourselves now is that as we've seen an ebbing of the urban Kakaako downtown high-rise sector, those seem to be peaking out except – there's a couple that are still ongoing. We now expect, based on talking to developers who feel confident about ultimately the build-out of West Oahu and several of these projects that we've been mentioning, but it could – they think these things are not going to begin in earnest until maybe a couple of years from now. And I think that will – so we're sort of in this downshift, but the good news is we do see these projects continuing to contribute to the economy in Hawaii for perhaps up to a decade after that. So these are slow, kind of long moving projects. But both of the projects in West Oahu that we mentioned in previous calls appear to be moving and probably if not before the end of 2018 before we start to see things moving in measurable ways. But we're – so nonetheless, we're looking forward to those projects.

Okay. That's extremely helpful. And the last for me, I'll turn it over, you're now, I guess, sort of what, 1.5 months, a couple months into the Okinawa side of the business where you're doing some U.S. flag business, trying to, I guess, make up for – or go a little bit more head-to-head relative to Guam. What's been the traction so far? I mean, are you finding that you're quickly gaining ground and able to make up for what perhaps you've lost in Guam?

Yes, I mean, I think we've long had an aspiration of continuing to leverage our network in the Pacific generally, which is why we acquired Alaska, why we've expanded into the South Pacific. We've had a similar objective around continuing to grow and support of the U.S. Military. So Okinawa was an exciting add on for us. I would say we're off to a great start. We're moving cargo – more cargo, every single volume, and I would say that we are hitting our marks there. We're very pleased with the response we've gotten from both military, household shippers and the U.S. government. And I would say that – but to answer the second part of your question, it's not clear exactly whether this will or won't replace in its entirety the Guam contribution that we're losing. But nonetheless, these are incremental margins that are added back to our network and our overall results. So again, we're very pleased with where we are with Okinawa. There's a lot more room to grow. We also think that strategically, there will – as we've long talked about if you followed our story for a long time, Ben, which I know you have, there will be a movement of U.S. DoD forces in – the Marines specifically but others as well, from Okinawa to Guam, and we're positioning ourselves for the building of a new facility or series of facilities in Okinawa to replace the existing ones. And so we do see this as a, long term, a very attractive market. As candidly, we see the potential markets in Japan and Korea as important markets as the world remains an unsettled place.

Your next question comes from Steve O'Hara with Sidoti & Company.

Just two quick questions. In terms of SSAT, I mean, it's been up pretty good year-over-year in terms of the benefit you've seen from that for the JV. And I mean, my – is it something where you see more normalized growth from here maybe in terms of year-over-year dependent on volumes? Or these are maybe more upside going forward based on the business trends and the new contracts, et cetera?

Yes, Steve, as we mentioned with SSAT, it is so volume sensitive in terms of its contribution because largely we're – that joint venture is paying for access or leasing space and they have a largely fixed cost network. So the more volume they can put over these terminals, there's a huge margin contributor to the last bit of cargo that flows through the network. SSAT is the best marine operator on the West Coast. They have invested in automation. They manage labor well. They're very attuned to their ocean carrier customers. And as part of this consolidation of four alliances into three, there's also a general feeling among ocean carriers, or at least among a section of those ocean carriers, that it is no longer as strategic as it used to be to operate or to own their own marine terminal everywhere. And so there has been – as a resettling from these four alliances to three, SSAT was extremely well positioned in terms of its reputation and capabilities to be able to accommodate additional freight volumes. Those volumes are then turning into what will be, likely, the best year financially of the joint venture since its founding. So we're excited about that. And I think it also suggests that these volumes that are flowing through the terminal are largely going to stay. We – there could be further acquisition on the international ocean carriers. It's hard to predict if and when, but for now we feel very bullish about SSAT's position. It's unclear. Maybe we'll have a better perspective at our year-end earnings call about long-term potential. But what we're seeing is this year that most of this, if not all of this, cargo is likely to remain within the network, at least as we see it now. We'll have a more definitive view of this when we do our year-end earnings call, but we feel good about where it's positioned.

Okay. And then just on the volume slippage in Hawaii. I'm just – was the market down about the same rate? I mean, did you maybe give a little share back from some that you've gained a few years ago? Or do you think it's largely kind of market based?

Yes, I mean, we obviously looked at this very closely. This was not our expectation earlier in the year. We started to see softening in August, and it has remained relatively soft. Of course, we were very focused on determining what were the cause of the market. We've talked to hundreds of customers. We are also closely maintaining a view of where our share in the market is, but we see this as not a share issue. There've been – it's been a very relatively stable share quarter-over-quarter. We don't see any dramatic ups or downs in share. This is really a market and by far the largest segment was construction and construction-related materials in the market. And we continue – so it's somewhat unusual that we see the economy continuing to chug along. And I think given the difficulties of some of the Caribbean storms, there continues to be a demand for sun and surf product. And I think most people in the tourism industry here are feeling like this economy continues to perform at a pretty good level. Most of our customers are seeing difficulty in hiring people given the very low unemployment rate. Most of our customers are continuing to make money and doing relatively well. So it is a bit unusual that we're seeing. But clearly, we think that the shifting in the construction cycle is the largest single thing we can point a finger to. And we're not overly concerned about it. It's a transition that happens, but we continue to feel like our position and share is in terrific shape.

Your next question comes from Mike Webber with Wells Fargo.

Matt, before I delve into some of the competitive questions that I'm sure you're eagerly awaiting, I wanted to ask about the data you guys put on Slide 5. And Joel, I don't know if you go through it as well, but I keep staring at this construction job growth chart and the pretty massive revision. It's just kind of an odd chart, a bit of an outlier, I guess, relative to the rest of the data. Real permitting growth has always seem like it's correlated more tightly with your Hawaiian volume. But I'm just curious, does that jump out to you? And what do you make of the fact that they're now expecting positive job growth from – a construction job growth from, I guess, where we are today?

Mike, let me take the first crack at that and then I'll toss it over to Joel to give his perspective. I mean, I think what we are seeing was things were moving along in terms of freight volumes at a certain level. Obviously, we live in Honolulu. We watch as a lot of these high-rise projects were nearing their construction phase. As I mentioned, August was where we first started to see any meaningful reduction in construction-related shipments. And we noticed as – it seemed for a while we were putting up new construction cranes all the time, if you looked around the horizon. And then all of a sudden what we saw was the same number of construction cranes moving around different sites but we weren't growing from that baseline. And then lastly, we saw the removal of a number of these construction cranes, especially in urban Honolulu. And the West Oahu growth had not come in as quickly or as neatly right behind this construction activity, and obviously that's directly correlated to construction employment. So it kind of came upon us as we were looking at this downward or revised forecast about at the same time. So it wasn't previously forecast. I don't know the reasons, but I'm going to turn it over to Joel to see if he has any additional perspective.

Sure. Stephen – excuse me, Mike, from a data correlation perspective, we'd say our volumes in the short term when you look at year-over-year changes have always been most correlated with actual construction jobs. The building permit data has always had a lot of noise in it, Mike. And so the only issue at the construction job is that it's not a very good leading indicator. But in terms of current period, how much activity is actually happening in the business of construction, jobs is a really good measure and that does tend to most correlate with our short-term volumes. So just as Matt said, we weren't necessarily surprised to see this. It kind of played out as we saw cranes coming down and activity coming down in the Kakaako area this year. But I'm not surprised that this data is correlated to our most recent volume data when you look at it at a quarter-over-quarter basis.

Yes, just a striking revision and just more curious, if anything else, because I'm sure it's something you guys look at pretty frequently. I guess maybe moving on, and Matt, you did a good job addressing this in your prepared remarks and you guys are kind of very helpful to lay out all the data points and the progression in the last six months or so in terms of events in and around the Hawaiian trade. But if I just kind of back away from this and think about where we were six months ago when you guys had an unchallenged duopoly with a weak competitor, from there – four months ago, we've got spec orders, but there might not be a real player behind it. 2 months ago, okay, it's a real player in TOTE, but they can't get access to Hawaii. Then last month, it's a real player, they can get access, but it won't happen until 2020s and we're talking about kind of time line inconsistencies now. It certainly seems like you're either going to get a combined entity as a new competitor or just simply a third competitor eventually. I guess, one, Matt, when you assess the risks for your business, is it fair to say that this idea is a more significant real risk for you today than it was six months ago? And then kind of two, how do you begin to prepare for that?

Yes, let me answer your second question first. And I think one of the things, of course, that you would expect Matson to do is to say we have a plan, we have capital, we have terminal modernization, we have expansion, we have organic growth in various trade lanes. So we have all of our existing strategies that we think are going to deliver value, cash flow, earnings growth and hopefully, share price appreciation. And so we have an existing strategy. So one of the things we did, as you would imagine us to do, is to say which of our existing strategies are effected by an – competitive outcome in Hawaii, which is difficult for us to predict because the new story evolves and as you pointed out, other elements come in and out. So we spent some time looking at every one of our 30 strategies to determine if any needed to be modified as a result of a less certain Hawaii competitive environment. And it became clear to us, having gone through that process in detail, that every single one of the strategies that we have in place continue to be value-creating, continue to enhance Matson's positions in the market in which it operates. And we feel really good about our competitive situation in all the markets and the growth that we have in mind over the next few years, including post-2020 landing on a – in the Hawaii trade which may, and I'll comment further on that in a moment, be more competitive or maybe not. But what I would say is we have the most modern, lowest cost, most effective, most comprehensive market position in the Hawaii market. So regardless of the outcome, which is difficult for us to predict, we're in the best position…

Right. And I guess the question is not is it likely at this point. I guess the question is there was – is it more probable today than, say, six months ago? So if in the next board meeting, if you're asked, is this a more – is the risk around this scenario higher today than it was earlier in the year, what would the answer be?

Well, first of all, you're kind of asking me to speculate. Clearly, as more positions and people have come in to the market then the story is evolving. But as to whether it's more or less likely, to me it continues to seem far off in my mind, but we can't rule it out.

Okay. Fair enough. And I guess to follow up on that and I guess to follow up on the, I guess, the second part of that question in terms of what you can do to prepare for that, I think I've kind of asked or hinted at this maybe last quarter, but does the – given the cost of capital advantage that you all enjoy right now, and you mentioned the kind of – the unquestioned kind of dominant position in that market and the wherewithal to kind of, frankly, do things that most of your competitors can't, does the idea of vertical integration get any traction with you or your board? And maybe getting ahead of the scenarios where you're in a captive market and someone basically tries to hold you for ransom effectively, for lack of, I guess, a better term. Does that make sense?

Well, if you're asking by way of vertical integration whether or not we would be interested in owning a shipyard. Is that your question or...

Yes, pretty much, yes. Yes, much simpler way of putting it.

Yes, well, I can observe that – I can tell you with 100% certainty that we would never recommend to our board to get into that shipbuilding industry. So that is an even more difficult business than ours. So that would not be something we'd be interested in doing.

Your next question comes from Jack Atkins with Stephens.

So I guess for my first question, I guess this is for either Matt or Joel, you guys have given us a lot of helpful insight into sort of how we should think about the accretion of your new vessels sort of once they're fully delivered, and you guys have laid that out in the past fairly well. But I'm just trying to think about sort of in the intervening quarters, say, once that first vessel is delivered 3Q 2018, 4Q 2018, through the last vessel delivery early in 2020. How should we think about the accretion sort of coming into the model late next year and into 2019? Should that be sort of a ratable improvement in sort of the profitability of the business from those new vessels? Or are we going to need to wait until 2020 to see that? I'm just trying to think about as we're modeling out now in 2018 and into 2019 as people roll their 2019 models out, how we should be thinking about the potential accretion from those vessels in the intervening time between first delivery and last delivery, if that makes sense.

Sure. Jack, I'll take that. So from the new vessel perspective, the benefits of the vessels will more or less come in on a step function, 1, 2, 3, 4, as each of them are delivered. But that's only half – that's only one part of the equation. The other part of the equation is the retirement of our – of the seven existing steamships that we have. So there'll be benefits. As those are scrapped per our current plans as they move off the books and that remaining amortization expense of those vessels goes away, you're going to see some accretion benefits there in terms of our – on the D&A side. So – and those two things don't exactly sync up. So when we retire the seven vessels won't be as exactly the times obviously when the first, second, third and fourth ship come in place. So immediately, it's a little bit hard to sketch all that now, Jack. We'll be talking more about that in our 2018 outlook. And as we get closer to these deliveries and more definitive times of when we scrap the vessels, we'll give you all and The Street and investors more visibility in each of those. But I think overall right now between 2018, 2019 and '20, the biggest movements will be when those new vessels come. Each of the scrapping of vessels will be smaller movements. So that gives you a little bit of guidance at this point, but we'll get more granular as we get closer to those events.

Okay. That's helpful, Joel. And then – and just sort of thinking about the current deployment, could you just sort of remind us what the current sailing schedule looks like? Are you in a – are you guys in a 10-ship deployment? And could you kind of update us on the dry-docking schedule for 2018? I'm just sort of wondering when will you guys think about sort of being – when will you be able to [indiscernible] sort of a more efficient sailing schedule just given that the volume in Hawaii just continues to maybe underperform a little bit versus the initial plan earlier this year?

Sure. Current – we're just at the very end, Jack, thank you for that question, because we're at the very end of a heavy dry-docking 2016 and 2017. And in this cycle, our last dry-docking will end here in actually a couple weeks. And currently, we're in an 11-ship deployment. And so we'll be evaluating a 10-ship deployment once that dry-docking is complete, and then we can look at more or less a 10-ship type of deployment throughout 2018. We haven't exactly planned it out after that. We've got a general plan, but it is always dependent upon our Hawaii volumes at any given time. But if we're back into a 10-ship deployment, which we had moved to this past summer, then we would look to move into a 9-ship deployment at some point when the first couple vessels are delivered. The first one will be delivered in the third quarter of next year. And then looking at the back end of 2018 and 2019, we'll make decisions around 10-ship versus 9-ship deployment through that period of time depending upon our Hawaii business volumes at that time.

Okay. Okay. That's helpful, Joel. A couple of other questions here. We've sort of seen a little bit of a moderating of spot market pricing in the Transpacific lane here over the last, call it, month, 1.5 months as peak season sort of wade a little bit. Matt, could you maybe give us an update how you're thinking about supply-demand dynamics within just sort of the broader Transpacific market and sort of your outlook sort of going into bid season early next year? Just sort of curious how you're viewing the market after a pretty eventful 12 to 13 months following the Hanjin bankruptcy?

Yes, so I guess I will comment on the market generally and then, Jack, I'll talk a little bit about Matson's place in that broader market. So I think clearly, things are better for the international ocean carriers. They're announcing profits instead of losses, or most of them are, and it was an amazing period of consolidation as middle-sized carriers agreed to merge with larger – be acquired by the larger carriers. So I do think that, as we have mentioned, the reduction in the number of carriers, the reforming of the alliances, seems to be, we think, positive factors. We were a little concerned by the numbers of orders of these 20,000-plus TEU ship and series of them and a lot of the very largest carriers have ordered these new series for delivery over the next couple of years. That could undermine a full market recovery depending on how those assets are deployed and cascaded from the Asia-Europe trades into Transpacific and the north-south trades. So my guess at this point is things are better than the absolute worse they were a year or two ago, but probably not exactly where they want them to be. In the China trade – so I would think as we move into the slack season, I think we would see pricing continue to weaken in a more traditional sense in the cycle. So I think that's all kind of what we're seeing now. So far, carriers have not withdrawn capacity as we've gotten into the slack season. My expectation is they probably will do so, and we would expect freight rates to fall in a more historic cyclical pattern. So not much to say about that. Matson's service has been just absolutely remarkable in terms of actions that are taking place in…

Okay. Great. One last question and I'll turn it over. But just a question on the Logistics segment. Obviously, a very strong year this year. You've had strengthening in the underlying freight economy, which has been very encouraging. And then also, of course, the accretion from the Span acquisition, which has gone very well. But when I look at the fourth quarter guidance, or the implied guidance for the fourth quarter, it sort of as pointing to down operating income there in the 4Q. So just curious if you could maybe talk about, is that just a rounding issue there? Or is there maybe slowing down in the business? Just sort of curious to hear your thoughts on that. And then just sort of how you guys are viewing the strengthening freight markets and how they're going to impact your highway brokerage business and your intermodal business.

Yes, it's a good question, Jack, thanks. We – I think clearly given the scale that Span Alaska and that part of the business has driven a fair bit of our growth, I think if you look – if you put Span Alaska aside and look at our core Logistics business, I think we see some of the same market factors that we've seen in this quarter's earnings cycle across other carriers. We've seen pretty good volume growth, and we've seen margin pressure, as other carriers have seen and indicated in their quarterly results. We also do agree with others that see a firming of pricing and margin growth as supply for truck as – is going to be constrained given our service and the new regulations and so on and so forth going into next year. So we'll have a more fulsome view of that, but we'd like where Matson is. Matson Logistics, we feel good. Each of our lines of business that we don't announce separately are healthy, profitable and growing. Our focus now, as it has been for a while, Jack, as you know is to focus on the organic growth, and we're likely to continue to focus on organic growth. And we see terrific synergies between our Logistics business and in our ocean business working together. But we're looking forward to next year, and we think margins on the intermodal side and on the truckload side are going to be improving going into next year.

Okay. Great. And then just sort of fourth quarter, is it right to think that maybe the operating income in the fourth quarter in Logistics is a bit lower year-over-year? Just sort of what would be driving that?

Yes, I mean, I think we continue – we started the year at about a $20 million clip. We have seen a little bit of weakness in the Alaska economy, and we're seeing some expansion year-over-year on the rail and truck brokerage side. And so with regard to the fourth quarter, maybe I'll ask Joel to comment specifically on that question. Joel?

Sure. So Jack, so year-to-date, Logistics has done $16 million and we're saying about $20 million for the year, which would imply $4 million for that fourth quarter. And you're looking at last year's fourth quarter is $4.6 million. So you're pointing out to about a $0.6 million difference. And so what we said, we feel good about the business. There's nothing that we're pointing out that we think is going to be worse than last year. The trends that Matt just described, we feel good about where we're going to be. We don't expect them to be declining significantly. Could it be – obviously, embedded in our outlook, it could be a little bit less than $4.6 million. But we still feel good that business is on firm ground and performing well even when you look at a year-over-year basis.

Your next question comes from Ian Zaffino with Oppenheimer.

So question would be, I guess, if we could maybe use Guam as a case study here. Competition increased. How do you respond to the increase competition? And maybe this might also be kind of a game plan on how you might respond, think of the competition on the Hawaii route. You're typically defending your volumes. You're defending price. What's sort of the way you think about it and [indiscernible] and how do you just respond to it?

Yes, I mean, I'll speak a little bit about it. But obviously, I'm sure APL is listening in on this call, so I want to say hello to them as well. But I think the way we think about this, Ian, is if you look at history, you would see the Guam market for the last 50 or 60 years as 2-carrier market. Those services in the last 50, 60 years have been from the West Coast direct, and they have resulted in about a 50-50 share of the market over a long period of time. And you'll recall, I know, Ian, that five years ago or whatever, Horizon pulled out of the Guam market, citing financial difficulties, leaving the entire Guam market to Matson. We always, from the beginning, believed that it was just a temporary phenomenon. Somebody else would come in to the market, and in fact, they did. APL announced two years ago that they were entering the market, and we've been competing with them since then but with important differences. So the first being that their service is not a direct service. That is – that it doesn't go direct from the West Coast to Guam. But instead, it goes all the way to Asia and then is relayed from Japan or Korea into Guam, leaving us with a terrific – terrifically better service advantage. And so if you were to say historically the market was at 50-50 with very similar transit times, that our belief is however it ends up, Matson is going to end up with an outside share in the market owing primarily to our better transit. So – but with regard to the pricing and competitive actions, we've made clear we're going to fight for every single container. We're not conceding any…

The next question comes from Steve O'Hara with Sidoti & Company.

Just curious on the – as the ships are removed and I guess retired, would you expect there to be noncash charges from that? Or are they pretty close to where they should be in terms of D&A?

No, the old steamships, Steve, are pretty much fully depreciated from a useful life, but what's not fully depreciated is the amortization period from their last dry-docking. So – and that will wind down depending upon how much – exactly when they retired relative to when we scrap them how much is on the books from the last dry-docking. But it shouldn't be a very large economic event when each of the final steamships are scrapped, if that was your question.

Yes, no, that helps. And then just on the dry-docking itself, you said you expected 2018, I think, to be a lighter year. And I mean, if you look back, it looks like the average is around $20 million to $21 million. I mean, that's a pretty big swing from the $46 million, I think, you guys are looking for this year. With the new fleet or refreshed fleet, would it go back to that $21 million, $22 million? Or might it go lower? I mean, that would seem to have a pretty positive impact on operating income.

Yes, are you citing, Steve, the dry-dock payment numbers or the amortization numbers?

I think the amortization back in, I want to say, in 2015, it looks like $23 million; 2016, it was $38 million; 2014, it was $21 million.

Yes, right. The last three years were $21 million and $23 million and then last year, $39 million. So no, those won't revert back down to $23 million right away because embedded in those numbers is the payments that we've had through the heavy dry-dock years of 2016 and 2017, and the amount gets capitalized and depreciated over 2.5 years or five years depending upon each ship. So those numbers will not revert back down immediately to the 20, 23 levels, Stephen. But once we get the old steamships scrapped, we take delivery of the new four steam – the four vessels, the modern vessels, they won't have any dry-docking for the first five years. And so what you'll see by 2020 or 2021-ish, those numbers will come down but it won't be immediate in 2018 and 2019. And that's the kind of thinking at the other question that Jack Atkins asked earlier, we'll give more visibility as we get closer to these events, which are going to be important to track in 2018 and 2019 on a quarterly basis. We'll give some more updates on exactly what's happening with the run-off of the steamships and scrapping of those and the new vessels coming on board to help you and investors with those numbers.

I'm showing no further questions at this time. I would now like to turn the conference back to Matt Cox.

Well, thank you for participating with us today. Look forward to catching up with you on our year-end call. Aloha.