Kirby Corp (KEX) 2008 Q1 法說會逐字稿

Good morning. My name is Alicia, and I will be your conference operator today. At this time, I would like to welcome everybody to the Kirby Corporation First Quarter Earnings Conference Call. (Operator Instructions)

Thank you, Mr. Holcomb. You may begin your conference.

Thank you for joining us this morning. With me today is Berdon Lawrence, Kirby's Chairman, Joe Pyne, the President and Chief Executive Officer of Kirby, and Norman Nolen, our Executive Vice President and Chief Financial Officer.

During this conference 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 available on our web site at kirbycorp.com in the Investor Relations section under non-GAAP financial data.

Statements contained in this conference call, with respect to future or forward-looking statements, these statement reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risk 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 our annual report on Form 10-K for the year ended December 31, 2007, filed with the Securities and Exchange Commission.

I will now turn the call over to Joe.

Yes, thank you, Steven, and good morning. The 2008 first quarter was the 17th consecutive quarter that our earnings exceeded the same quarter the previous year. Late yesterday, we reported first quarter earnings of $0.68 per share, a 48% increase compared to the $0.46 per share reported the same period last year.

During the 2008 first quarter, this quarter, we continue to benefit from the employment of additional vessel personnel and the operation of additional towboats. We did experience a 15% increase in delay days in the 2008 first quarter compared to the same period the year before, as more severe weather conditions occurred along the Gulf Coast and in the Midwest, coupled with high water conditions on the Mississippi River and its tributaries principally in March, although those conditions continue today. High water conditions are throughout the Mississippi River System, and I'll come back to this and talk a little more about it later in the call.

Contracts renews during the first quarter increased year-over-year by high single to low double-digit percentages. Spot market rate increases were approximately mid single-digit percentages above the 2007 fourth quarter. And if you go back a year and look at the first quarter of 2007, spot rates are up about 15%.

Volumes for most of our term contract customers continued to hold up during the first quarter. 80% of our Marine Transportation revenue is currently under term contract, and 20% is in the spot market. This compares to a 75/25 contract/spot mix first quarter of 2007.

We did see some weakness in the refined products market during the quarter, and had several tows waiting on orders but being paid for under time charters. The refined products business is traditionally seasonal, and first quarter is a slower period typically for that market. We expect that we will begin to see more demand for refined products movements as we approach the summer.

Now, over the past year the number of time charter contracts has continued to increase as customers attempt to control capacity to ensure the availability of equipment. Today, approximately 57% of our contract business is under time charter. This increase in time charters has reduced the volatility in the financial results attributable to weather and navigational delays. While the 2008 first quarter reflected what I mentioned earlier, a 15% increase in delay days over the same period the year before, the increase in time charters most certainly dampened the negative financial impact of these delays.

Also, during the first quarter, we operated an average of 260 towboats, two more than the fourth quarter, and 12 more than the same period the year before. Charter horsepower availability continues to improve, and as I mentioned earlier, the crewing of our towboats is less of a challenge than it was in 2007.

Kirby's revenue during the quarter were also affected by the recovery of higher diesel fuel costs through contract escalation formulas. Now, all of Kirby's term affreightment contracts, and few of our time charter contracts, have fuel escalation clauses designed to recover increases in the cost of fuel. This fuel escalation -- these fuel escalation clauses recover the cost of fuel when fuel goes up and give back that cost when fuel prices decline. How well this works can vary, and it -- based on a number of things such as navigating conditions, tow sizes, the route that the trip is taking, and the loading and discharge port selected under the term contract.

In the first quarter of 2008, the net impact of all of this was a positive $0.02 to $0.03 per share. Our marine transportation segment operating margins was 21.3% during the quarter, and now that's up from 18.4% first quarter of '07. Continued strong demand, favorable contract and spot market rate increases of course increased efficiencies from what we talked about earlier in the crewing and horsepower area, and a greater time charter exposure all contributed to this higher margin.

Turning to these lines in segment per minute, the first quarter results reflected strong demand for services and parts in our medium-speed engine market. But, during the first quarter of each year, we typically get the benefit of increased seasonal work for Midwest and Great Lakes customers who, because the upper Mississippi River and the Great Lakes are essentially closed during the winter, take that opportunity to do their maintenance. And this year, we also had a large power generation project that was concluded during the quarter that helped the quarter.

We did see some seasonal softness, a softness that we anticipated in our diesel engine service to Gulf Coast high-speed oil service customers. The first quarter also reflected the acquisition of Saunders, which was made in July of 2007. This was an accretive acquisition.

Our diesel engine services first quarter operating margin improved to 16% compared to 15.2% the year before and 15.6% the quarter before. That's the fourth quarter last year. The higher margin reflects continued favorable markets, good labor utilization in the medium-speed business, and some service rate and part pricing increases.

I'll come back at the end of our prepared remarks and talk about the 2008 second quarter and of course the full-year outlook, and also address the high water conditions that we're experiencing on the Mississippi River system.

I'd like to now turn the call over the Norman to talk about the financial results.

Thanks, Joe.

As Joe said, we continue to benefit from overall favorable marine transportation and diesel engine services markets in the first quarter. Marine transportation revenues increased 25% over the first quarter of 2007, and were impacted by higher term and spot rates and the recovery of higher fuel and other operating costs through the contract rate escalations.

During 2007, our barge fleet was almost fully utilized and a 1% increase in ton-miles in the first quarter of 2008 over last year was primarily due to changes in our trip mix between the river system and the Gulf Intracoastal Waterway.

Our barge fleet's barrel capacity was unchanged from last year, but we operated 12 more boats than in the first quarter of 2007, which helped overcome 15% more navigation delays. Operating income for the marine transportation business increased 44%, and we reported a 21.3% operating margin in that segment.

The diesel engine services segment revenues increased 6%, and operating income increased 12% with a 16% operating margin.

As Joe stated, the medium-speed diesel repair market benefits from planned maintenance for Midwest customers whose equipment is normally less utilized during winter months. And as expected, seasonal softness negatively impacted our Gulf Coast high-speed market.

Kirby generated $85.5 million of EBITDA in the first quarter, a 33% increase over the first quarter of '07, and the EBITDA margin was 25.9% compared to 23.5% last year. The marine transportation EBITDA margin was 29.1%, up from 27.2% a year ago. And the diesel engine services EBITDA margin was 18.1%, up from 16.6% last year.

Capital spending for the 2008 first quarter totaled $48.8 million, which included $27.4 million for new barge and towboat construction, and $21.4 million primarily for upgrades to our existing fleet. We also purchased six agricultural chemical barges, which we had previously leased for $1.8 million during the quarter.

Our net-to-capitalization ratio dropped from 27.9% at December 31st to 26% at March 31st, '08. And our average cost of debt for the first quarter of 2008 was 5.4%. We had interest rate swaps and an interest rate collar, which hedges $200 million of our $283 million total outstanding debt as of March 31st, 2008. And finally, during the first quarter we purchased 80,500 shares of Kirby common stock at an average price of $39.45 cents per share.

I'll now turn the call over to Berdon.

Thank you, Norman.

During the 2008 first quarter, we took delivery of nine barges with a total capacity of 230,000 barrels and one 1,800 horsepower towboat, and also retired ten barges with a total capacity of 240,000 barrels. As of March 31, our fleet capacity remains at 17.3 million barrels, the same as December 31, 2007.

For the remainder of 2008, we anticipate the delivery of 17 barges with a capacity of 350,000 barrels, and four 1,800-horsepower towboats. The cost of the new equipment would be approximately $80 million. We expect the new capacity additions to increase our total fleet capacity by approximately 1% after consideration of anticipated requirements.

At our annual meeting this week, the Kirby shareholders elected two new directors to the Kirby Board, Rod Clark and Rick Stewart. Rod Clark served in various positions at Baker Hughes, including president and chief operating officer from 2004 until his retirement in January of this year. Rick Stewart served as president and chief executive officer of GE Aero Energy, a division of GE Energy, as an officer of General Electric Company from 1998 until his retirement in December 2007. We certainly welcome these gentlemen to our board and look forward to working with them in building value for our shareholders.

I'll now turn the call back to Joe.

Good. Thank you, Berdon.

Yesterday, we forecasted the second quarter with guidance of $0.69 to $0.74 per share. This is a 23% to 32% improvement compared to the $0.56 per share earned during the second quarter of 2007. This guidance includes a $0.02 to $0.03 adjustment for the additional cost in lost revenue anticipated by poorer operating conditions on the Mississippi River System. River conditions today match conditions of the 1993 flood, which was the last significant flood that we have experienced in the business.

For the 2008 year, we raised our guidance to $2.74 to $2.89 per share, up from the previous guidance of $2.55 to $2.70 and somewhere between a 20% and 26% improvement when you compare it to the $2.29 earned in 2007.

I can appreciate that Kirby's performance appears to be an exception as compared to most other transportation companies. Except for some weakness in the refined products area, we remain busy. And we do anticipate refined products to get stronger as we approach the summer.

We talked about the very negative news from many of the major news sources about the economy in our last conference call. We do continue to see the US chemical business holding up pretty well despite the economy. Now, certainly there is some weakness around parts of the chemical business which are closer to housing, but any excess barge capacity this has created is currently being absorbed.

Frankly, all we really know is what we see. If what you read every day about the economy is correct, our visibility has been reduced and our ability to forecast the future is certainly more challenging today than it was, let's say, last year.

We're comforted, however, by continued strong chemical movements by rail, a strong export market for chemicals and chemical products we think driven by the cheap dollar, and our own strong barge utilization rates.

Operator, we're now ready to open the conference call up for questions.

(OPERATOR INSTRUCTIONS) Our first question comes from the line of Jon Chappell from JPMorgan. Your line is open.

Thank you. Good morning, guys.

Good morning.

Joe, your closing remarks hit the nail right on the head. I'm trying to figure out the strength in this business with all the headlines that we're seeing. The question I had, and you briefly mentioned it, was the export market.

How -- I don't know if you can quantify this or not, but how much is the export market really helping your business and your utilization? And maybe the best way to quantify that is is there any percentage of business that exports are representing right now versus, say, over the five-year average?

Yes, Jon, I think exports for chemicals are certainly up over the last several years. Traditionally, the US chemical manufacturing complex exported between somewhere between 10 and --.

It's turned into a lecture, not a Q&A.

I'm sorry.

Yes, me too.

Yes, let me continue to answer your question, Jon -- that you typically get 10% to 12%, and we think that those levels today are about at that range. But, the thing that you don't know is how much of the US chemical production is going into things that we make that were previously imported or now exported. So, it's pretty complex.

And then, my one follow-up is related to the fuel surcharges -- or the escalators in the contract prices, rather. What percentage of your annual contract rollovers took place in the first quarter, and then what's the kind of breakdown over the next three quarters as we look for what's happened with the fuel prices over the last 12 months to continue to impact your contract pricing?

Yes, I'm going to answer that generally and not specifically with respect to quarter-to-quarter because it can move around some. But, about 60% of our business will come up for renewal this year, either contracts or, of course, spot business that is renewed on a trip-by-trip basis. And fuel will escalate or de-escalate based on diesel prices on a monthly or quarterly basis for all those contracts.

Okay. Thanks a lot, Joe.

Sure.

Next question comes from Alex Brand from Stephens. Your line is now open.

Thanks. Good morning, guys.

Morning.

Yes, good morning.

Joe, you'd mentioned in those closing remarks about the capacity that's being produced right now as being absorbed, but we are nowhere near the ramp-up that's being discussed for later this year and into '09. Do you have a feel for what that might ramp up to and where we might get past the point of sort of easily absorbing it? And I guess as part of that question, from a scrapping perspective, steel prices are way up, so is there more incentive to take barges out now than maybe there was?

Well, with respect to scrapping, that's hard to say. I'd be speculating. But, you typically do see scrap prices drive retirements when -- particularly when scrap prices are high.

Now, with respect to the capacity issue, we -- as you know, we discussed this in some detail on the first quarter conference call, and our conclusion is that capacity is always something to be concerned about. The industry is building additional capacity. How much actually gets delivered in any given year varies by a number of things. What -- I don't want to suggest that we're not concerned about it, sure we are, but this industry has to do a lot of replacement building. And I think it remains comforting that even with all the noise in the economy, that as capacity is added, we continue to absorb it.

Yes, I'm not going to predict because I don't think it's possible to predict when or if capacities are going to be an issue.

Okay. And with respect to your guidance, I think you've talked about how more time charters reduces the seasonality that we should think about when we're modeling. Can you -- and you also said Q2, you assumed the water level, the water conditions, were not ideal. Does the rest of your '08 guidance assume normal operating conditions?

Yes, it does, as best we can forecast it.

Okay, fair enough. Thanks a lot.

Okay. Thank you.

Next questions comes from the line of Natasha Boyden from Cantor Fitzgerald. Your line is open.

Thank you, operator. Good morning, gentlemen.

Good morning.

Morning.

I think you said during your call that 57% of your contracts were now under time charter, and -- but actually that helped you during the first quarter by reducing the volatility of your results due to the weather.

Question?

Hello? Can you hear me?

Yeah, I don't -- yes, Natasha, I do. We seem to be having some interference, so we'll just try to ignore it.

Okay.

Is that -- obviously, that -- as I said, that clearly helped. Is that something you now want to keep increasing as a sort of a long-term focus for the company? And if so, what kind of balance would be ideal for you in terms of long-term charters versus spot?

Yes, that's an excellent question. And I'm not sure I'm ready to answer that.

You can answer it? Okay.

Yes, there are advantages and disadvantages to time charter, frankly. Kirby has a fleet that's big enough where we can really take advantage of opportunities when the equipment isn't dedicated. So, there -- it -- there are kind of mixed -- it's mixed blessing. I mean, certainly the first quarter, you probably want everything time chartered because --.

Sure.

Of the weather impact on affreightment rates. And it also certainly is just -- given all the concern out there, there is some comfort in having time charters that are indifferent to volume swings.

Long-term, that's something we're going to have to think hard about.

Okay. I'm not going to push you for a number, because, like I say, you're probably not going to give me one anyway.

And then, really just sort of a follow on. Just looking at your balance sheets, very strong, it continues to be very strong and then your leverage is very low. Any thoughts on the use of capital? Any thoughts there?

Yes, we're continuing to look for acquisitions. We're continuing to pay debt down, which just further strengthens the balance sheet. So, when appropriate, we'll buy back our stock. At this point, we're not paying a dividend, but we certainly talk about it a lot. We're almost to the point where you can do almost everything.

Yeah.

With this strong of cash flow.

Okay. Yeah, is a dividend something -- I mean, Kirby's never really done a dividend pay. Is that something that, at this point given the strength of the balance sheet, that you would consider?

Well, we'll certainly consider -- not in a position to say whether we do it or not. But, it's certainly something that we'll consider.

Okay. Well, thanks very much, gentlemen.

Thank you.

Next question comes from John Barnes from BB&T Capital Markets. Your line is open.

Hey, good morning, guys.

Morning, John.

Joe, your comments about delay days and that type of thing in the second quarter, are you factoring in a similar amount to what you saw -- I think you said 15% increase in the first quarter. Are you modeling in -- I mean, is your guidance based on kind of a 15% increase in the second quarter as well, or is it something less than that?

Yes, that's a good question, John, because we tried to quantify it in terms of pennies. And what you'll -- what you typically see, of course, is much better weather conditions in the second quarter, but because -- and I think you'll continue to see that. But, what the river does to you is it slows transit times and it increases cost as it relates to power, additional power that you end up putting into your system to meet schedules and to also meet requirements for horsepower as you go in and out of the river through locks.

And I don't think that you're going to see that -- those slower trip times quantified in revenue impact. In fact, I know you aren't. So, what we did was try to put it in pennies. So, I mean, we certainly are forecasting less efficient operations, but I don't think that it's going to be measured so much in weather delays.

Okay. Very good.

And then, going back to the capacity discussion for just a minute, have you seen any material uptick in the amount of power capacity coming online? I hear all the discussion about the number of barges, but has there been any material uptick in the amount of power coming online?

There's some additional boats being built, which we think is -- again, is positive. Now, the challenge is how you're going to crew them. But, there is some additional power out there.

And there's a lot of old, old boats, too, that need to go away.

Yes, that's a good point, because we're looking some new regulations that will put some stress on older power.

Yes, but do you have a feel for the percentage of the fleet that would be under --?

No, you --.

That would fall under that?

You have a feel for the fleet that's going to be under stress. What you don't have a feel for is the willingness of operators to spend the money to comply with the new regulations.

And could you share at all as to what those new regulations look like?

Well, it's -- we're moving the towboat from a uninspected towboat to an inspected towboat.

Got you.

And -- .

--The Coast Guard.

Yes, the Coast Guard. And it's going to raise the bar. From a Kirby perspective, we're in great shape, but there are going to parts of the industry that are going to struggle meeting that new standard.

Okay. Very good. Nice quarter, guys. Thanks for your time.

Thank you.

Next question comes from Ken Hoexter from Merrill Lynch. Your line is open.

Great. Good morning. Berdon, Joe, and Norman.

On the diesel engine services side, are you noticing any kind of decreased demand with the economic sensitivity? Can you talk a bit about the sensitivity of that business?

Yes, we're -- Ken, we're really not. The decreased demand is in the high-speed area, and it's related to the Gulf oil service business. That was anticipated and it's mostly seasonal. And we anticipate that the second half of the year is going to be stronger.

Okay.

Last quarter, you said you kind of were targeting your fleet to grow 1% to 2% this year. I think in his comments, Berdon noted maybe just a percent increase in the fleet based on retirements and what you're buying. Is that -- are you downsizing your forecasts, or are you -- just how should I look at that comment?

Yes, I wouldn't read anything into that thinking. We're just further refining our forecast based on retirements, really.

Okay.

And then, on the -- lastly, on your contracts, the 80%. Can you comment how much is kind of take-or-pay now, and does that really begin to alleviate some of these delay days?

Yes, well, certainly almost 60% of it is take-or-pay. And there is another probably 5%, 10% of it that is consecutive voyage, where the customer is obligated to pay for the tow if -- even if he's not going to load it.

Okay.

That help?

And then -- well, yeah, and then -- just -- but, so the customer is obligated to pay for the tow if he doesn't float it, meaning that it does cover some of these delay days?

Well, no. The delay days, weather is going to be more mitigated by your time charters than your affreightment contracts. Now, we do have some protection with respect to ice conditions on the upper river system during the winter. And we have some lock protection where, if you get some significant locking delays for a number of reasons, you share those costs with your customers.

So, our affreightment contracts do help us there. But, where they don't help us is you get bad weather and you're not moving, the operating exposure is on you, where in a time charter, the customer is paying for the tow on a daily basis.

That's what I'm asking. So, the 60% that are take-or-pay are --.

Yes.

Kind of covered.

Yes, per -- well, all delays other than the ones that you impose on yourself like maintenance problems. If you got to take the barge or boat out for maintenance problems, the customers aren't -- the customer is not going to pay for that. But, for most everything else, yes, the customer pays for it on a daily basis.

Right. Thanks for the time, guys.

Yes.

Next question comes from the line of Chaz Jones from Morgan Keegan. Your line is open.

Yeah. Hey, good morning, guys. Nice quarter.

Oh, thank you, Chaz.

I wanted to circle back around on the guidance. I know in the fourth quarter call, you said that given some economic uncertainty that your baseline assumption as it related to pricing in the marine transportation business was kind of mid single digits. Has that changed at all with your increased guidance, Joe?

Yeah. No, we're still -- Chaz, we're still forecasting pricing guidance in that mid single digit going forward. Now, in the first quarter, we did maybe a little better than that. But, going forward, we're holding to that forecast.

Okay.

And then, maybe circle -- circling back around to the earlier comments on the export markets, maybe just bigger picture down the road, perhaps giving some circular trends with export commodities. Could you envision Kirby, perhaps at some point in the future, maybe entering the dry commodity business for an item such as coal if we continue to see strong export outlooks for those types of commodities?

Yes, they -- we think that the coal business is a very attractive business. You have contracts that are forecastable. And it appears that, certainly if the dollar remains weak, that you're going to have an export component to that. And we've already said that that's the most attractive part of that business. Of course, that's the part that everybody wants, too. So, it would take a special entry point.

I will comment on the dry cargo business in general. We're not in it, but frankly the fundamentals of that business look pretty good, given the demand for food products. I would think that for the foreseeable future, barring these anomalies that you have caused by weather and high river conditions, a very tough operating environment particularly for the dry cargo guys, that that business is actually going to be -- or should be pretty strong going forward.

Okay, great. That's helpful. Thanks, Joe.

Next question comes from Charles Rupinski from Maxim Group. Your line is open.

Good morning. Congratulations on the quarter.

Thank you.

I just had a quick question on your diesel repair business and margins. You did another great job of improving margins year-over-year. And I'm just curious as to sort of what inning we might be in that, as far as getting efficiencies and pricing, and if a lot further improvement would be dependant on more accretive acquisitions and efficiencies?

Well, what we've said about diesel engine margins is that we think that we can get those margins up into the high teen area. And that's going to be a function of continued improvement in the efficiency of our operation, which is more on the cost side, and pricing.

Acquisitions that we make going forward may or may not drive margins. I mean, let me give you an example. If we bought a diesel engine company that had a greater exposure to selling engines and engine packages, and we have bought some of that, that tends to drive margins down, but not in a negative way. I mean, if we do that, we'll have to come and explain it. But, because it's still good business, it still leads to more business servicing engines. And you have to -- we have a kind of a saying in that diesel engine group is you got to plant the trees to harvest them.

Okay.

So, you got to sell the engines to service them.

So, acquisitions -- my point is that acquisitions may help or it may bring margins down a little bit.

So, the thing about it is, through the same store margins versus acquisitions and think of it that way?

Yes, I think that's the fairer way to look at it. You know, that's really what you want us to do, is to make improvements and strengthen pricing to get -- .

Sure.

Margins up in the stuff that we already own.

Okay, great.

And just one follow up really quickly is just in general on the barge business, just overall cost inflation. Certainly we follow a lot of shipping companies in general that have been -- have issues with cooling costs and other costs. And I'm just curious if you're building in any inflation or what kind of inflation you'd be building into your thinking about the overall cost of -- operating costs?

Yes. Well, operating costs in the business have risen almost in all areas. I actually think that some of that pressure is going to be diminished going forward. The crewing issues are getting behind the industry, so you're -- I think you'll always see -- well, not always, but at least in our foreseeable future, we're forecasting crew increases to be above the cost of inflation. But, we're not going to see, we don't think -- hope we don't see in the near term these double-digit increases that we've experienced the last couple of years.

But -- and we think that, now, some of the pressure with respect to horsepower, and maybe even some of the pressure with respect to shipyards, is easing a little bit.

Okay, great. Well, thank you very much for your time.

Yes, thank you.

And just to add, the -- we've said this before. Don't underestimate the effects of those hurricanes in 2005 on our business.

Right.

And it's beginning -- we're beginning to get enough distance between 2005 and today where we're seeing that -- the pressures ease.

Well, great. Well, I'll keep that in my thinking. Thank you.

Next question comes from Jimmy [Gilbert] from Rice-Voelker. Your line is open.

Hey, Joe, it's Jimmy Gilbert.

Hey.

They're having trouble with my name.

We know it, though.

Okay, good.

Joe, you talked about new boats coming into the total fleet, but could you just talk again about the age of the fleet and your thoughts on scrapping that might have to go on?

Jimmy, with respect to the towboat?

No, I was talking about the tank barges.

Oh, barging. Well, yes, the average age of the fleet is in the mid-20s. About a third of it is 30 years or older. And the cost of maintaining a barge as it gets older gets increasingly more expensive. And the market, frankly, will be biased -- will -- or can get biased against barges that are certainly 40 years or older. So, we think that there's going to be lots of replacement tonnage that's going to be needed in the future.

And remember that in the 1980s, this industry built very, very little equipment. So, you have a big gap between that part of the fleet that's been built in the last 10 years and then that part of the fleet that's 30 years or older.

Okay.

Now, also I've gotten some information about scrapping for dry cargo barges. Like, for instance, we're hearing that for a jumbo hopper, you scrap that for $90,000. What do you -- and that's up substantially from, I guess, $35,000 in the beginning of '07. Then, I had some information that they were going for $60,000, and then just last week I heard $90,000. What are you hearing on scrapping proceeds for a 10,000 barrel or a 30,000 barrel barge?

Yes. Yes, I hadn't heard that the dry cargo barges were being scrapped for that. Yes, a 10,000 barrel barge is -- yes, if it's clean and gas-free is -- they have a little more steel than a hopper. So, it's going to go for a little more if it's scrap.

Right.

And, of course, a 30,000 barrel barge, even more. But, it -- frankly, the -- and we'll have to kind of do the analysis with new scrapping prices, but frankly in tank barging, you're -- you get more value, or at least have in the last couple of years, selling it into alternative services, like deck barges or spud barges, than you actually get from scrapping the barge. Now, maybe scrap prices have gotten to the point where your better value is just to scrap it.

Right. Well, you know, steel's through the roof.

But -- and also, look -- and Joe, you talked about the utilization -- or there was some talk about utilization. What's the rate of utilization you guys have right now, if you can say?

Well, it's in the middle 90s, which is about where it's been.

Okay. Well, it'd be tough to improve on that, I mean.

Yes. No, we're, most days, essentially booked.

All right. Well, I really appreciate it. Thanks a lot.

Okay. Thank you, Jimmy.

Next question comes from Daniel Burke from Johnson Rice. Your line is open.

Good morning, all.

Morning.

Morning.

Just a couple of market questions left in the tank barge business. So, in the refining side of the business, you mentioned improvement expected into Q2. Is that really just contingent on seeing a refining utilization uptick, or do you need to see sort of the regional differentials between product in the mid-continent and the Gulf Coast expand like they have the last couple years?

I think -- I actually think that the regional differences driving barging have less influence today than they did, let's say, three, four years ago. I think it's going to be driven by inventories and by just more refined products being made, which is driven by refinery utilization.

At this point in the gasoline markets, you've got a lot of areas that have to get rid of their gas for the winter and get on with the gas for the summer. There are actually mandated changes in that market that -- as I'm sure you know. And depending on the demand for refined products, you can get periods in the market where there's just less transportation demand out there until they can sell the gas that they frankly can't use when the chemistry of what they sell is mandated to change.

Sure. No, that's useful.

And then on the chemical side, a lot of the questions have dealt with, over the last couple of quarters, the demand side. But, you're potentially seeing some decent feedstock escalation now, maybe in the propylene, polypropylene chain. Any sign from your customers that they're seeing any level of margin squeeze, or is that sort of a global phenomenon on the feedstock side, so sort of a moot point?

Well, no. I think there's some margin squeeze. I think they're, in fact, talking about it. But, remember that we're sensitive to that, but our business is driven by volumes, not so much by margins.

And so you're not seeing any signals that volumes levels would decline, then?

No, we really aren't.

That's useful. Thank you for the comments.

Sure.

Next question comes from Ron [Laund from Wachovia. Your line is open.

Thank you. Could you give us some insight into how the acquisition of SeaMac by TEPCO might affect you or the industry and day rates?

Yes, I don't -- I really don't know how it's going to affect day rates other than just kind of speculation that -- which we could do. I guess our view of TEPCO's acquisition of both SeaMac and Horizon, they bought another one, too, is that the consolidation is positive. It continues to make the market, we think, more rational.

TEPCO paid a -- I would say a premium price for both those assets to get entry into the market. And certainly I don't think that they want prices to go down. And I think it's an indication, also, that they think that this business is going to continue to do pretty well.

And speculation on rates?

Well, I'm just really uncomfortable other than to say that I don't think they're eager to see them decline. I'm -- I think I'm -- I think we're getting on thin ice when we talk about where we think their rates are going to go.

Thank you.

Sir, at this time there are no further questions.

We certainly -- this is Steve Holcomb again. We appreciate your interest in Kirby, and for participating in our call. And if we -- if you do have any additional questions, please give me a call. My direct dial number is 713-435-1135.

And we wish you a good day.

This concludes today's conference call. You may now disconnect.