Kirby Corp (KEX) 2010 Q2 法說會逐字稿

Welcome to the Kirby Corporation's Second Quarter Earnings Results Conference Call. My name is Christine, and I will be your operator for today's conference.

At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Steve Holcomb, Vice President, Investor Relations. Mr. Holcomb, you may begin.

Thank you for joining us this morning. With me is Joe Pyne, Kirby's Chief Executive Officer, and David Grzebinski, our 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 website at KirbyCorp.com in the Investor Relations section under non-GAAP financial data.

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 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 Kirby's annual report on Form 10-K for the year ended December 31, 2009 filed with Securities and Exchange Commission.

I will now turn the call over to Joe.

Okay, thank you. Thank you, Steve.

Yesterday we reported 2010 second quarter net earnings at $0.54 a share compared to our 2009 second quarter net earnings of $0.63 per share. Our announced earnings guidance for the second quarter was $0.52 to $0.57 per share. For the first six months of 2010, we earned $1.00 per share compared to $1.15 per share same period the year before.

During the second quarter, Marine Transportation demand and barge utilization were in line with the first quarter, above the comparable levels in 2009 and above, frankly, what we anticipated at the beginning of this year.

Our barge utilization for the second quarter averaged in the mid to high 80% range, remaining above all four 2009 quarter levels, and we suspect our utilization level is on average better than the industry average. This improvement in demand and utilization was driven by modestly higher refinery and petrochemical outlet. Higher volumes were also driven by improved demand for export petrochemicals.

US petrochemicals continued to enjoy a [Peed Stock] advantage due to their relatively low natural gas costs compared to higher crude-based systems.

Increase in the second quarter Marine Transportation revenue was primarily due to higher diesel fuel prices, averaging 60% higher than the 2009 second quarter as the higher fuel price was passed to customers through fuel escalation and de-escalation [causes], which were embedded in our term agreements.

During the 2010 second quarter, the term contract portion of our revenue mix remained at 75%. That's 75% contracts, 25% in the spot market. Time charters represented a little better than 50% of total term contracts during the quarter. That compared to about the same number last quarter. While some customers have switched to spot affreightment agreements when their term time charter contracts expire, others have shortened their charter exposure as they're not ready to take longer-term position on equipment at this time.

With modestly improved volumes and resulting higher barge utilization rates during the first half of the year, pricing has stabilized. This is encouraging.

Unfortunately, there's still uncertainty with respect to the economy, sustainability of demand and equipment utilization, which is affecting the industry's appetite to test raising rates. Consequently, term contracts that were renewed during the second quarter were relatively flat with the first quarter renewals but decreased on average 10 to 12% when compared with term contract rate renewals second quarter of last year.

Spot contract rates for the second quarter, which include the price of fuel, were up 2 to 3% compared with the first quarter but down 10 to 15% when you compare them to the same period last year.

With respect to our annual renewals effective January 1, 2010, on our multi-year contracts -- these are contracts of over a year -- the escalators were essentially neutral, not positive or negative.

During the second quarter, our diesel engine service segment saw continued weak service and part sales and some pricing pressure principally in the high-speed market across marine markets, again, principally in the Gulf Coast area servicing the oil service business, as customers continued to defer major maintenance projects.

Our Gulf Coast high-speed market did see some modest benefit during the quarter from required repair service for customers' equipment involved in the Gulf Coast clean-up effort, but customers are generally just patching. They're not doing the kind of the long-term overhauls that really drive this business.

The medium-speed power generation market continued to remain stable, but our second quarter results were impacted by fewer generator engine set upgrade projects and lower direct part sales. Pricing in this business continues to remain stable.

Our medium-speed railroad business benefited from improved direct part sales as utilization levels for our railroad customers improved slightly over the first half of the year.

With respect to the BP oil spill and its effect on our transportation sector, it really has been minimal. We've cleaned oil from only one tow operating in the inland waterway system since the beginning of the spill, and in our offshore operations, at most we've sustained only minor increased transit times as we avoided oil slicks during Gulf crossings between Louisiana and Florida.

We are aware of several of our competitors using some inland tank barges in the clean-up efforts. This certainly has helped industry tank barge utilization during the quarter, but it hasn't been enough to improve pricing.

Our diesel engine service segment high-speed Gulf Coast operations, as I mentioned earlier, did benefit from required repairs to equipment used in the clean-up efforts.

However, the moratorium on the deepwater drilling will impact companies servicing the Gulf Coast oil and gas business. Currently, about 20 to 25% of our diesel engine service revenues are associated with the Gulf Coast oil and gas drilling business, including both shallow water and deepwater drilling.

At this point, it's very difficult to know the future financial impact of this moratorium or, frankly, the effect of new regulations on drilling operators and what that effect is going to mean for diesel engine service sector.

I'll come back at the end of our prepared remarks and talk about our forecast for the third quarter and the full-year outlook, but I'll now turn the call over to David.

Thank you, Joe.

Let me provide a few more details on the quarter.

Kirby's Marine Transportation revenue was 6% above and operating income 7% below the second quarter of 2009.

The segment's operating margin was 21.6% compared with 24.4% from the prior-year period. The lower margin reflected the impact of lower term and spot contract pricing throughout the last three quarters of 2009 and the first half of 2010. Higher fuel prices and increased delay days also impacted margins.

Partially offsetting this was the benefit of the ongoing cost reduction efforts and efficiency initiatives that we implemented throughout 2009 and the early part of 2010.

So year over year, pricing and margins are down, but pricing is stabilizing, as Joe mentioned, and margins have improved sequentially from the first quarter.

In the Diesel Engine Services business, revenue was 21% and operating income 45% below last year's second quarter. The operating margin was 9.5% compared with 13.6% reported in the second quarter of last year. The lower results in margins primarily affected the continued weak Gulf Coast oil service high-speed markets, as Joe mentioned, as customers defer major maintenance projects.

We were also affected by fewer engine generator set-up grades and lower direct part sales in the power generation market. The lower industry-wide business activity is placing some downward pressure on pricing. With the lower labor utilization, lower pricing, the results are impacting Diesel Engine Services operating margins.

We continued to generate significant cash during the second quarter. Our EBITDA was 73 million for the quarter, and for the first six months, we're at 139 million. At June 30, we had 141 million in cash and cash equivalents on the balance sheet.

Our capital spending for the first six months has totaled 68 million, which includes 35 million for new tank barge and towboat construction and 33 million primarily for capital upgrades to the existing fleet.

We did raise our capital spending guidance for 2010 to a range of 135 to 145 million, and this includes 70 million for new tank barge and towboat construction. The increased capital spending guidance was primarily due to expected prepayments for 2011 new barge construction. In June, we contracted for the construction of 25 new 30,000-barrel barges for delivery in 2011. Our current plans are not to expand the fleet and to use these new barges to replace older equipment, which we will remove from service.

New construction capital expenditures for 2011 are currently projected to be in the range of 50 to 60 million, and that's based on the current commitments and current steel prices and current delivery schedules.

During the first half of 2010, we took delivery of 29,000 -- 29 new 10,000-barrel tank barges, three 30,000-barrel barges, and five new 10,000-barrel chartered tank barges. This added 462,000 barrels of new capacity. However, offsetting that, during the first half, we retired 40 tank barges, which reduced our overall capacity by 643,000 barrels. So net-net, our capacity declined 181,000 barrels during the first half.

As of June 30, we operated 860 barges with a capacity of 16.5 million barrels, and this compares to our peak back in June of 2008 of 918 barges and a capacity of 17.5 million barrels.

For the remainder of 2010, we will take delivery of 24 new 10,000-barrel barges and three 30,000-barrel barges, which will add 336,000 barrels of new capacity. However, again, we continued and will continue to retire older tank barges from the fleet.

During June 20 of 2010 and through the day before yesterday, we purchased 171,000 shares of Kirby common stock at an average price of 39.30, and we did this under a 10b51 stock trading plan. The 10b51 program is applicable for our second, third, and year-end Kirby imposed blackout periods, and we currently have 1.2 -- 1,230,000 shares remaining under our previously authorized share repurchase authorization. However, in July of this year, the board approved an additional 2 million share repurchase authorization, and that brings our total repurchase authorization to 3,230,000 shares. I'll now turn the call back to Joe.

Okay, thank you, David.

Yesterday afternoon, we announced our 2010 third quarter guidance of $0.52 to $0.57 per share compared with $0.65 per share earned same period the year before.

For the year, we updated our guidance to $2.03 to $2.13.

Our low-end $0.52 per share third quarter guidance and the $2.03 per share, your guidance, assumes volumes and equipment utilization will remain stable with volumes and utilization during the first half of this year and term and spot contract rates will remain relatively flat.

The high end of our guidance, the $0.57 per share for the third quarter and the $2.13 for the year, assumes a modest improvement in volumes in the second half of the year and a continued reduction in the industry-wide excess tank barge capacity, leading to some improvement in pricing for both term and contract contracts.

Both our low-end and high-end guidance assumes our diesel engine service operation will continue to face challenges, particularly in that part of the business that services Gulf Coast oil business.

Now, our challenge is to move pricing. Frankly, it's not so much volumes; it's the price that we can charge to move those volumes that is the issue today. If utilization remains at current levels and the industry remains disciplined with respect to capacity and the market regains some confidence, pricing will occur. Confidence will be driven by seeing the economy stabilize during the second half of the year and when more clarity is seen with respect to the legislative and regulatory environment in Washington.

Kirby remains in excellent financial shape. We've taken a significant amount of cost out of our business. We have a very strong balance sheet, low debt levels, favorable interest rates, and cash on our balance sheet, which should continue throughout this year.

We remain in an excellent position to take advantage of both synergistic acquisitions should they become available and to repurchase our stock. We find ourselves in the enviable position of having a balance sheet fully capable of doing both, buying assets and buying stock.

Operator, we'll now open the call to questions.

Thank you. We will now begin the question-and-answer session. (Operator instructions)

The first question comes from Alex Brand from Stephens, Inc. Please go ahead.

Thanks, guys. Morning, Joe, David, and Steve.

Morning.

I guess, Joe, can you give us some color, particularly [the] market, I guess, is not happy with your guidance. In the top end coming down, what factored into that? I mean what did you see that changed in the quarter, and was it more about the diesel business being so weak, or did something change your outlook on the barge side, as well?

Well, the diesel business certainly played into it but also pricing. I think that we need some pricing to move the numbers materially, and although spot pricing is up a little bit, when you adjust it for fuel, it's still pretty anemic. I think that what's needed is the confidence that goes along with raising prices, and at least to this point, we haven't seen it.

Okay, and I guess part two or whatever, however I'm supposed to do this --

Yes, I don't think we declared the rules, so you get another question.

For my follow-up then, in this environment, obviously you want to put the balance sheet to work and you'd rather do it with acquisitions than stock buyback. Is this good? I mean is it now -- it's stabilized, but it's still not that great of an environment, but is that the right environment for acquisitions?

Alex, let me answer it this way. I think the environment is still good. If pricing improves, all boats are going to be lifted, but if it remains anemic, we think that the environment will, in fact, improve.

Now, what I did mention on the call in April is that based on just the fundamentals in the economy, it's hard to see that in the next several years we're going to go into a high-growth environment. I think people are projecting relatively modest growth. We think that is, in fact, conducive to acquisitions because it takes a lot of the fun out of the business, and this is a business where you focus on servicing your customers, being safe, and controlling your costs. That's hard work.

That was the environment that we saw in the kind of early to middle '90s, and we continue to believe that over the next couple of years that the business is going to consolidate and we're going to play a part in it.

Great, and great color, Joe. Thanks for your time.

Thank you.

The next question comes from Jon Chappell from JPMorgan. Please go ahead.

Thank you. Good morning, guys.

Morning.

Morning.

Joe, I want to ask you a bigger strategic question. You've done a lot of acquisitions over the last several years on the Diesel Engine Services side, and now it appears that that business has been exceptionally weak, six straight quarters of double-digit year-over-year top-line declines, seven straight quarters of double-digit year-over-year operating income declines.

Has something structurally changed with that business, or is this just a function of the slowdown in the broader economy, and is there a potential restructuring or way you're looking at this business differently going forward given the recent results?

Yes, I think that's a fair question, Jon. It certainly has been challenging. The moratorium on Gulf drilling is something that has to concern us, but even before that, there were declines, and the declines were principally in the high-speed business, which are more focused on the oil service business, so you really saw a deterioration in drilling that was occurring even before the moratorium.

What gave us hope was that most of our customers were forecasting increased levels of drilling in and around the Gulf Coast, principally because until the BP spill, the political environment was much more stable and the ability to make money drilling in the Gulf of Mexico was more predictable.

So the thought was that that part of the business would get stronger in the latter part of the year and continue to improve, which led us to assume that there really wasn't anything structurally going wrong; it was just really more of a matter of timing.

Having said that, the moratorium clearly changes that, and we have to kind of step back and say, "Where is that business going?"

One of the things that we are positioning ourselves to do, and we have done to a certain extent before, is to follow our customers overseas. That's going to be an important component to reverse the negative trends in that business.

We have already reduced the staffing in that business. We're down in excess of 20% in terms of headcount from the high several years ago.

But to get it going back on track, something has to happen in the oil service business. Either the moratorium gets lifted, we started drilling again, or we leverage our position in that business to move offshore.

Okay. My follow-up question then shifts back just to the broader balance sheet question. You mentioned earlier, and I think it was even before the first quarter conference call in April, that asset prices were probably still a little bit too high for your liking. They hadn't come down enough from the 2007/early 2008 peak given everything that happened in the business.

Given more the mixed economic data and maybe a little bit less near-term optimism, have asset prices corrected to the point where you think you're closer than you've been in the last couple of years?

Yes, I think so.

(Inaudible - multiple speakers)?

Yes, Jon, I think so, but I think we also said that companies that became available in this direct environment, a distressed environment, or the ones that don't have another choice. I mean you always want to sell in a favorable market and resist selling in a distressed market.

Having said that, it just takes time to have the industry realize that some of the really high prices paid for marine assets were poorly timed and not appropriate and that that is gone. That ability to sell at those levels is gone. It's not going to come back.

And I think that's happening, and I think that probably there's some buyer's remorse, frankly, with respect to some people that paid the prices that were paid several years ago and that ultimately you're going to get back to rational pricing levels that we're going to be able -- that we're going to get excited about.

Okay, very helpful. Thanks, Joe.

The next question comes from Jimmy Gibert from Rice Voelker LLC. Please go ahead.

Hi, Joe. Thanks for taking my questions.

Yes, morning, Jimmy.

I guess it's my impression that your customers were fairly positive in the last part of Q1 and early Q2 and it seems like they were fairly anxious to book freight. And I guess in the back end of Q2, that kind of slowed a bit. And I guess this is -- you know, you hear a lot about an inventory restocking effect. When you talk to your customers, is that the effect that you're seeing, and when do you think that cycle might restart again?

Jimmy, we're not -- we think inventories are still pretty low. I think our customers think they're low. We certainly didn't see in our utilization rates any market slowdown. I mean you'll have a week or two where it's a little slower than another week.

Right.

So I'm not sure we're seeing what you're alluding to, but let me make this point.

At least with respect to kind of the volumes that we're seeing, our problem isn't volume, it's price, and we're seeing enough volume. It's just being able to move rates that affect your bottom line, and we're having problems doing that.

Again, as I said in the call, that's going to come. It's going to come as you build confidence in the sustainability of all this. We're already -- I mean we already said we were surprised that the volumes were higher than projected at the beginning of the year. That's very favorable, but there's still this lingering doubt that the US economy although is better still has a way to go before it sees any strength.

Right, right, okay.

And then I know you guys watch your costs very carefully, and as you mentioned, you've taken your costs down quite a bit. Do you think there's more room to go on that front? Are there opportunities? I guess there always are opportunities, but how meaningful are they going forward?

Well, we think that we've done most of the significant cost-reduction initiatives based on the environment as we see it. You can take almost too much cost out of a business and lose the ability to respond to the market or compromise your service or safety levels, and we are certainly dead-set against that.

Having said that, you're always looking at what's happening in the market, and if we conclude that the market is going to deteriorate, then we'll fine-tune our cost plan.

Okay. Well, thanks a lot, guys. Good luck.

Our next question comes from Kevin Sterling from BB&T Capital Markets. Please go ahead.

Thank you. Good morning, gentlemen.

Good morning.

Good morning.

Joe, just kind of getting back to this cycle, have there been other times in your history when your utilization has exceeded the industry but there's not been a positive impact on pricing for you? Can you talk to me a little bit how this cycle might be a little different given that fact? Because usually when your utilization is above 85%, pricing's in your favor.

Yes, and it should be. I don't -- I can't remember in my working career an environment that had so much uncertainty in it. You know, there's certainly been other periods where you're concerned about going into a recession, but here we're reportedly coming out of a recession, but we're just looking at so many changes that we really don't understand the implications to and you have coming out of this recession very high unemployment.

All the traditional vehicles that were used to stimulate the economy have already been used. I don't want to play economist, but in kind of our simple world, the barge world, I think that the industry kind of looks at all this stuff and says, "We don't know what's going to happen," and when you don't have clarity with respect to what's going to happen, I think you tend to be more conservative.

I actually think it's as simple as that. I think if we could get some clarity with respect to what's going to happen if utilization rates remain at these levels, then we should get some pricing, and you're seeing that in other parts of the economy. It just hasn't gotten to us yet.

Now I'll also tell you that I think that at least with respect to Kirby, if you look at our performance over this period, it's been pretty stable.

And the other thing, just to remind the listeners, is that our operating margins are north of 20%, and that in itself probably is remarkable. You would typically see more stress with respect to operating margins. We've been able through cost controls and just working hard to service our customers in a really flat rate environment to continue to hold our margins up. So that -- to me, that's pretty positive. Last recession that we went into, the 2000 recession, I think the margins were down in the 14% range.

Right, okay. No, it's totally agreeing, and thank you for that color.

As a follow-up question, as we look at the industry there, you've been talking about the excess supply, and I think that's clearly a factor. Are you seeing industry participants retire older equipment, or are they trying to run their equipment longer? Is that exasperating the supply situation? And if that's the case because you guys have such a young fleet, I assume that gives you competitive advantage, as well.

Just what are you seeing in the industry in terms of guys trying to maybe run their equipment a little longer and really try to hold onto volumes?

Yes, our fleet actually, Jimmy, is about the industry average. Some of it's young, some of it's not so young, which is why we're continuing to build through this to make it younger.

I think that there are retirements occurring. There were retirements in 2009, which we can measure, and I would expect that that trend's going to continue, that the fleet's going to balance.

We're not that long when you think about it. If you assume -- Kevin, not Jimmy, sorry --

(Inaudible)

-- if you assume that let's say the industry average is about 80%, low 80s, then you've got two to three hundred barges that need to come out. That's not that many barges. It can happen pretty quickly.

So I'm not concerned about capacity so much. I mean I think capacity matters with pricing certainly. I think our problem is as much confidence that all this is sustainable, that the volumes are sustainable, and if we get over that, I think we can raise prices.

Okay. Joe, thank you so much for taking the time and the really good color. Thanks again.

Thank you, Kevin.

The next question comes from Ken Hoexter from Bank of America. Please go ahead.

Hi, guys. It's [Scott Weber] in for Ken.

Morning, Scott.

Morning, [John].

Joe, just following on your comments regarding the uncertainty in the environment, are you seeing contract customers positioning themselves differently in negotiations? And is there a big desire to shift towards spot-based pricing for the near term or over the next 12 to 24 months?

I think our customers are as confused as we are. We're not really seeing that. Our contract to spot mix has stayed at about 75%. I think it may work its way down a little bit maybe as the pricing cycle begins, but I don't think it will get below 70%. Time charters are still relatively high, about 50% of our business.

I don't think our customers really have any better clarity than we do. Their volumes are certainly better, which is encouraging, and they're doing better, which is also encouraging.

Okay, that's helpful, thanks.

And just looking on the diesel segment, was the increased Gulf activity and clean-out more of a net positive during the quarter? Did the moratorium really impact demand at all on a short-term basis during this 2Q?

No, I think -- it certainly was positive, but it did not offset what we'd normally see, which is major repair work. What you're saying is kind of patching and not let's take the vessel down and do a complete overhaul. Let's just keep it -- run a little bit and see what happens.

So you would expect a big catch-up once the moratorium lifts kind of?

Yes, I do. I do, yes. That should happen. The moratorium lifts, we put drilling rigs back to work, that should be positive, but depending on what kind of regulations are put out there, assuming they're not so onerous that it inhibits drilling, but my guess is that's probably going to help, too.

Okay, terrific. Thanks a lot.

Thanks, Scott.

The next question comes from Chaz Jones from Morgan Keegan. Please go ahead.

Yes, hey, good morning, Joe, David, and Steve.

Good morning.

Good morning.

Joe, I just wanted to go back to the question I guess Kevin kind of asked and make sure I'm reconciling everything. You're seeing industry utilizations at 80% --

Chaz, I'm not saying that. I'm just -- I'm saying that we suspect it is lower on average --

Okay.

-- than ours. I don't -- we don't --

You don't know an exact number?

No, no, because we're the only -- well, there's only two public companies --

Right.

-- and there's a lot of guesswork in this.

I guess -- and I get that. I know you don't have a crystal ball, but assuming that industry utilization is below where Kirby is and the outlook for the next couple years is this "slower growth environment," how long does it take to get two to three hundred barges of excess capacity out of the market assuming that's what we're working with here?

Yes, it shouldn't take that long because of the age profile of the fleet, and again, I think pricing is as much about confidence right now as it is about capacity. If you could tell the industry -- you, Chaz Jones, could tell the industry that we're in for modest growth the next two or three years, you know, 2, 3%, there's no risk, that all the bills that have been passed in Congress are going to affect us and that we're not going to -- there's no risk also of another recession, I think that you'd have pricing as we speak.

So when you say quickly, are you talking about two quarters, 12 months? And I'm not trying to pin you down on that. I guess it just -- it kind of leaves open a big window.

Yes, I think in one to two years is -- you can get there.

Okay. And then one quick follow-up. DFL, that seems to continue to be weak. I know it's not a huge impact on the overall results, but I guess (a) was that impacted at all from the spill? And do you still have any of the vessels that are out of the service there?

Well, that gets pulled around by the maintenance cycle, Chaz. That business is fine. It's healthy. It will contribute. But when you have a vessel in the shipyard -- there's only four vessels in that business -- then it's going to -- its results are going to be affected.

Is that vessel in the shipyard the entire year, or does it come back (inaudible)?

No, it comes back. We had a vessel in the second quarter. I think that for the most part in the third quarter we don't. They're all operating. Fourth quarter -- end of the fourth quarter, we have another one that comes in. But it's going to get pulled around by the maintenance cycle.

Right. Okay, great. Thanks for answering my questions.

Sure.

The last question comes from Steve O'Hara from Sidoti and Company. Please go ahead.

Hi. Good morning.

Morning.

Morning.

I was wondering, in terms of the -- I guess the uncertainty in the environment, I mean is there anything different in terms of what you're seeing going forward now versus, you know, other than the political environment and possibly in the Gulf? I mean is there anything on a macro level that is maybe more bearish than it was back in April?

Well, no, I would say that it is just kind of more of the same. You have continued action by the US Congress pushing stuff out, and I can't tell you if it's positive or negative. The Gulf Coast moratorium certainly is something that is new and not positive. So I would -- I don't think there's anything that makes us more bearish.

Remember, we forecasted this year at 1.85 to 2.20. We adjusted the forecast from $2.00 to $2.20, and now we're just fine-tuning it, $2.03 to $2.13, and we have put the parameters around where we think we're going to be based on principally pricing. And if we were to get pricing in the next month or so, we might well even exceed the $2.13.

But we put out our guidance as kind of our best estimate, and we can be wrong, but we've always taken the position that we think that the market deserves our perspective and then to try to color that perspective so that they kind of understand our thinking. That's what we have out there.

Okay. Yes, I guess kind of not necessarily that you guys are any more bearish, but I mean it seems like it's more based on the lack of visibility, and it seems like a lot of companies are fairly concerned about that, and it's not necessarily anything that's declining in the business. It's just that lack of visibility that's concerning them.

Yes, and as you suggest, we're certainly not alone. I think that most companies probably that you talk to express the same concern.

Absolutely. And then if this has been asked, I apologize, but I mean in terms of the industry and acting responsibly, I mean do you think they're acting responsibly in capacity at this time?

I would not want to make that a blanket statement. I mean some are, some aren't. I mean each company has their own view of the market and acts accordingly. In a market where there's a consensus that it's strengthening, then everybody's pushing rates. When you have an environment such as we're in now, it's all over the board.

Okay. And any -- not sure if you want to take a stab at this or not, but I mean anything you'd like to see out of Washington, you think, that will make things markedly better?

I'd like them just to go home.

I agree with you. I appreciate it.

Today's final question comes from Todd Maiden from RBC Capital Markets. Please go ahead.

Hi, guys. Just wanted to follow up. When you were talking about the Diesel Engine Services business, you'd mentioned that in past downturns you've -- it sounds like part of that business follows your customers overseas. Can you kind of follow us through what that entails, what you mean by that?

Yes, I wouldn't say in past downturns. What I said is that we do in the medium-speed business follow many of our customers overseas and do their maintenance. I mean, for example, it's not uncommon to find us in West Africa or New Zealand or Guam or some place like that, Latin America, working on their equipment.

With respect to the high-speed business, we really haven't had to do that, and I think that if this moratorium continues -- I'm not saying it's going to continue -- or if drilling activity in the Gulf is significantly diminished, then we need to figure out how we do more of that business in other parts of the world.

Okay. All right. And then your contract business is at 75%. Do you have a feel for what the rest of the industry looks like? You're at 75%. What are they? Do you know?

It's going to vary company to company.

Right, but do you have a feel for the remaining -- you know, for 3,100 vessels?

Yes, it's probably -- on average, it's probably in that area, on average.

Okay.

Some companies trying to have everything in the contract business almost regardless to rate, which is part of the problem in this kind of environment. They don't have the ability or the infrastructure to work equipment in the spot market efficiently, where we always have a spot exposure. We do that on purpose so that we have the ability to employ equipment that's not under contract.

Some companies have less of an ability so they try to contract up, and in doing so, they tend to push rates down. But if I had to guess, I'd say it's about what we have on average.

All right. Thank you.

Welcome.

There are no additional questions at this time. Please go ahead with any final remarks.

Thank you for your interest in Kirby Corporation and participating in our call. If you have any additional questions, you can give me a call. My direct dial number is 713-435-1135, and we wish you a good day.

Thank you for participating in today's Kirby Corporation Second Quarter Earnings Results Conference Call. This concludes the conference for today. You may all disconnect at this time.