Matson, Inc. Price & Performance (MATX)

Please also note that the date of this conference call is February 25, 2025 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, Justin, and thanks to those on the call. Starting on Slide three, Mattoon had a very strong fourth quarter that exceeded our expectations. Capping off a strong year. For the fourth quarter, our China service was the primary driver of the year over year increase in ocean transportation operating income We saw seasonally stronger freight demand was significantly higher year over year freight rates for our CLX and MAX services. In logistics, operating income increased year over year primarily driven by a higher contribution from supply chain management. In the fourth quarter within Ocean Transportation, the SSAT joint venture recorded an impairment charge related to the write down of a terminal operating lease asset. Matson's share of this impairment charge was $18,400,000 resulted in a reduction in our fourth quarter diluted earnings per share of $0.42 For the full year 2024, our consolidated operating income increased year over year primarily driven by significantly higher freight rates in our China service.

The higher freight rates, which started in the middle of the second quarter and remained throughout the year, We're supported by a resilient U. S. Economy a stable consumer demand environment and coupled with tighter supply chain conditions. I'll now go through the fourth quarter and full year performance of our trade lanes, SSAT, and logistics. So please turn Hawaii container volume for the fourth quarter decreased 1.7% year over year due to lower general demand. For the full year 2024, container volume decreased 2.3% year over year, primarily due to lower general demand. For the full year 2025, we expect volume to be comparable to the level in 2024 reflecting modest economic growth in Hawaii, and stable market share. Please turn to Slide five. According to UHERO's December economic report, the Hawaii economy is expected to continue to grow slowly in 2025, supported by modest gains in tourism. A low unemployment rate and increased construction activity. But partially restrained by continued challenges in population growth and lower discretionary income from higher inflation and interest rates.

Growth in tourism is expected to be driven from our domestic visitors while international tourist arrivals remain challenged by a strong dollar. Maui tourism remained significantly below prior levels, and a full recovery in visitor traffic is expected to take years. Moving to our China service on Slide six. Matsen's volume in the fourth quarter of twenty twenty four was 7.2% higher year over year due to seasonally stronger freight demand. We also saw significantly higher freight rates year over year for both the CLX and MAX services. The elevated freight rates were supported by a resilient U. S. Economy and a stable consumer demand environment coupled with tighter supply chain conditions. For the full year 2024, container volume increased 2.4% year over year primarily due to seasonally stronger freight demand in the fourth quarter and one additional sailing compared to the prior year. Please turn to Slide seven.

The stronger seasonal demand we experienced in the fourth quarter was in part due to customers advancing freight ahead of a potential ILA disruption and proposed tariff increases. We also saw some customers in late December moving freight ahead of the earlier Lunar New Year. [indiscernible] During the post lunar New Year period in the first quarter of twenty twenty five, we saw a traditional low demand environment with the factories closed for a few weeks.

As such, we didn't sail the MAX service for three weeks and carried the combined frame package on the CLX. This is the same schedule we had in place for 2024 for this period of low demand. We expect the post lunar New Year period to show a traditional ramp up of demand for the remainder of the first quarter but volumes may be a bit softer than normal for the first few weeks due to the advancing of cargo we saw late in the fourth quarter. Please turn to the next slide. Where our China freight rates ultimately settle out in 2025 will depend on a number of macro factors including geopolitical conditions, supply chain activity, and The U. S. Economy. For example, chains. Both of which were major drivers in our elevated freight rates in 2024.

Although Phase one of the cease fire has begun, there's considerable uncertainty as to the duration of the ceasefire. There's also uncertainty about the timing the normalization of trade in the Red Sea and how this will affect global trade flows supply chain [indiscernible] The magnitude and product range of the proposed tariffs could have an impact on our freight demand for our services as the additional cost or absorbed throughout the supply chain by manufacturers, shippers, transportation providers, [indiscernible] and consumers. If the incremental tariff costs are significant, it is possible that some manufactured goods may migrate from China to other Asia origins. It's also possible that manufacturer goods currently shipped by air from China will become even more expensive and shippers may look to our expedited ocean services, which are significantly less expensive for only a few extra days of transit time. As of today, we haven't seen an impact yet on our rates for the 10% tariff which is on top of the 25% tariff in 2019. The impact to our China freight rates may ultimately depend on the level and scope of the tariffs, how much the tariffs may be absorbed by the supply chain and currency devaluations.

Versus passed on to U. S. Consumers. How other countries may respond to the tariffs and the potential impact on downstream supply chains and how much air cargo shifts from ocean to shipping a means to lower costs. And lastly, the health and trajectory of The U. S. Economy is an important pillar of support in the demand for our consumer goods. A recession or prolonged period of high interest rates and inflation negatively impact The U. S. Consumer and the appetite for consumer goods. Given these factors, we expect the elevated freight rates in our China service to continue into the first quarter of twenty twenty five. Beyond the first quarter, we expect freight rates will largely be driven by timing of trade flow normalization in the Red Sea Other geopolitical factors supply chain activity and the trajectory of The U. S. Economy. With respect to the impact of the Red Sea specifically, If trade conditions normalize by the middle of the year, we expect freight rates to moderate in the second half of the year. However, if the Red Sea remains disrupted through year end, we expect freight rates to remain elevated throughout the year. As I mentioned earlier, there are a number of uncertainties regarding tariffs.

U. S. Macroeconomic conditions and other factors that could ultimately impact our China freight rates. And it's too early to tell how these uncertainties may play out. Before moving on, I'd like to note that when comparing year over year freight rates in 2025, we began to see our freight rates rise significantly in the middle of the second quarter last year and remain elevated through the end of twenty twenty four So we will be lapping this significant positive step up. Please turn to the next slide. In Guam, Matson's container volume in the fourth quarter of twenty twenty four decreased 10% year over year.

The decrease was primarily due to lower demand from the retail and food and beverage segments. For the full year 2024, container volume decreased 6.5% year over year, primarily due to lower general demand. In the near term, we expect Guam's economy to grow modestly supported by low unemployment and an increase in construction activity. As such, for 2025, we expect container volume to be modestly higher than the level achieved last year In Alaska, Matson's container volume for the fourth quarter of twenty twenty four increased 1.1% year over year. The increase was due to higher northbound volume, partially offset by an additional sailing in the year ago period. For the full year, 2024, container volume increased 0.6% year over year due to higher general demand partially offset by one less northbound sailing. For the full year 2025, we expect Alaska volume to approximate the level achieved last year.

Please turn to Slide 11.

The Alaska economy continues to show good economic growth and improvement in key economic indicators despite flattish growth in population. In 2024, the state saw widespread job growth across almost every industry bringing job count in many industries above pre pandemic levels. For 2025, low unemployment, jobs growth and continued oil and gas production at activity are expected to support economic growth. Please turn to Slide 12. [indiscernible] In the fourth quarter, our SSAT terminal joint venture incurred a loss of $9,500,000 representing a year over year decrease The decrease was due to a $18,400,000 impairment charge related to the write down of a terminal operating lease asset. Partially offset by higher year over year [indiscernible] As you know, our SSAT JV operates eight marine terminals on The U. S. West Coast with two terminals in Long Beach, two in Oakland, three in Seattle, and one in Tacoma. We have previously mentioned that SSAT has surplus capacity in the Pacific Northwest. The impairment charge relates to the consolidation of SSAT's business to one less terminal in Seattle. We can't elaborate further on the situation, but Port Authority about consolidating into two terminals, [indiscernible] The impairment charge in and diluted earnings per share by $14,000,000 and $0.42 per share respectively.

For full year 2024, our SSAT terminal joint venture incurred a loss of $1,000,000 compared to income of $2,200,000 in the prior year.

The decrease was due to the same $18,400,000 in by higher lift volume. In 2025, we expect income from our SSAT terminal joint venture to approximate the level achieved in 2024 without taking into account the fourth quarter twenty twenty four impairment charge. The macro factors I commented on earlier on Slide eight could also have a negative impact on imports into The U. S. West Coast and lift volume at SSAT. Turning now to logistics on Slide 13.

Operating income in the fourth quarter came in at $10,100,000 or $1,200,000 higher than the operating results in the year ago period The increase was primarily due to a higher contribution from supply chain management. For the full year 2024, operating income was $50,400,000 reflecting a year over year increase of $2,400,000 The increase was primarily due to a higher contribution from supply chain management. For 2025, we expect operating income to be modestly lower than the level achieved achieved in 2024, reflecting challenging business conditions for transportation brokerage and the lower contribution from supply chain management. The factors I mentioned previously could also have a negative impact on volumes in our supply chain management business.

I'll now turn the call over to Joel for a review of our [indiscernible] Thanks, Matt. Please turn to Slide 14 for a review of our fourth quarter and full year 2024 results. For the fourth quarter, consolidated operating income increased $72,200,000 year over year to $147,500,000 with higher contribution [indiscernible] and $1,200,000 respectively. The increase in Ocean Transportation operating income in the fourth quarter was primarily due to significantly higher freight rates in China, the timing of fuel related surcharge collections and higher volume in China.

Partially offset by a lower contribution from SSAT and higher direct cargo expense primarily in the China service and higher general and administrative expenses.

As Matt noted, the decrease in FSAT equity income was due to the 18 point $400,000 impairment charge.

The increase in logistics operating income was primarily due to a higher contribution from supply chain management.

We had interest income of $10,300,000 in the quarter due to higher balances of cash and cash equivalents and deposits in the CCF as compared to the prior year. Interest expense in the quarter decreased $1,000,000 year over year due to the decline in outstanding debt in the past year. The effective tax rate in the quarter was 19.1% compared to 26% in the year ago period.

The effective tax rate was lower than our outlook of 22% due to discrete year end tax items. In the fourth quarter, net income and diluted earnings per share were $128,000,000 and $3.8 respectively. $18,400,000 impairment charge impacted our net income and diluted earnings per share by $14,000,000 and $0.42 per share respectively.

For the full year, consolidating operating income increased $208,500,000 year over year to $551,300,000 with higher contributions from and $2,400,000 respectively. The increase in Ocean Transportation operating income for the year was primarily due to significantly higher freight rates in China, higher freight rates in the domestic trade lanes and higher volume in China.

Partially offset by higher operating costs and higher general and administrative expenses.

The increase in logistics operating income was primarily due to higher contribution from supply chain management. Please turn to the next slide.

This slide shows how we allocated our trailing twelve months of cash flow generation. For the full year 2024, we generated cash flow from operations of a approximately $767,800,000 dollars from which we used $39,700,000 to retire debt dollars 214,500,000.0 Matson maintenance and other CapEx, $95,600,000 on new vessel CapEx including capitalized interest and owners items dollars 31,100,000.0 in cash to net of withdrawals from milestone payments, dollars 12,500,000.0 on other cash outflows, while returning approximately $243,900,000 to shareholders via dividends and share repurchase.

Please turn to Slide 16 for a summary of our share repurchase program and balance sheet. During the fourth quarter, we repurchased approximately 200,000.0 shares for a total cost of $31,800,000 For the full year 2024, we repurchased approximately 1,600,000.0 shares for a total cost of $199,100,000 Since we initiated our share repurchase program in August 2021, Through the end of twenty twenty four, we repurchased 11,200,000.0 shares or 25.7% of our then outstanding shares for a total cost of approximately $956,000,000 As we have said before, we are committed to returning excess capital and plan to continue to do so in the absence of any large organic or inorganic growth investment opportunities. Turning to our debt levels.

Our total debt at the end of the fourth quarter was $400,900,000 a reduction of $9,700,000 from the end of the third quarter. For the year, we reduced total debt by $39,700,000 Please turn to Slide 17. The table on this slide summarizes our $310,100,000 in capital expenditures in 2024. We had capitalized vessel construction which consisted of $89,600,000 in milestone payments and $6,000,000 in capitalized interest and other costs. Maintenance and other capital expenditures were 214,500,000.0 of which $90,500,000 was for the LNG installations on the Daniel K. Inouye and Kamanaheila, and the LNG installation and reengineering of the Monokai. Dollars 28,000,000 was for equipment to support network requirements and growth, dollars 14,700,000.0 was for the early lease buyouts of equipment and $81,300,000 was for other maintenance CapEx across a variety of projects. Please turn to the next slide.

The table that the top of Slide 18 shows the key capital expenditures planned over the next three years.

For 2025, we expect a total CapEx of $425,000,000 to $445,000,000 of which dollars $3.00 5,000,000 for new vessel construction expenditures including capitalized interest and owners items and $120,000,000 to $140,000,000 is from maintenance and other CapEx to support our vessels, shoreside operations and logistics business This includes approximately $20,000,000 in equipment lease buyouts. The timeline of our new build capital expenditures is different than what we had previously provided as we were recently notified by Hanwha Philly Ship Philly Shipyard that our new build program is facing a delay of approximately four months. As such, we are now expecting each of our three new Aloha class vessels be delivered in the first quarter of twenty twenty seven, the third quarter of twenty twenty seven and the second quarter of twenty twenty eight. The table on the bottom right of the slide shows the expected milestone payments by quarter in 2025. In the first quarter, we expect to pay approximately $65,000,000 in milestone payments with corporate cash. Post this use of corporate cash, we estimate approximately $103,000,000 remaining to satisfy the milestone payments not covered by the current balance of CCF deposits and treasury investments. Please note that this figure excludes all future interest income and accretion earned within the CCF which we expect to be a significant contributor over the next couple of years.

Before we move on, I'd like to touch upon U. S. Tariffs on steel imports as it relates to our new vessel project. There is still uncertainty about how any potential tariff changes may be implemented and what the impact may be to our overall project costs. And therefore, it is not possible today to estimate what impact steel tariffs changes may have on the total cost of our new vessels.

That said, direct steel purchases are a relatively small percentage of the overall $1,000,000,000 project cost for the three Aloha class vessels. Additionally, we have already completed all of the direct steel With that, let me now turn to Slide 19 and walk through our outlook for the first quarter and full year 2025. For the first quarter of twenty twenty five, we expect Ocean Transportation operating income to be meaningfully higher than the $27,600,000 achieved in the year ago period as we expect elevated freight rates in our China service to continue into the first quarter.

We expect logistics operating income in the first quarter to be modestly lower than the $9,300,000 achieved in the first quarter twenty four, As such, we expect consolidated operating income in the first quarter to be meaningfully higher than the prior year. For the full year 2025, we expect Ocean Transportation Operating Income To Be Largely Driven By The Timing Of Trade Flow Normalization In The Red Sea, other geopolitical factors, supply chain activity and the trajectory of The United States economy. Assuming trade conditions in the Red Sea normalized by the end of the first half of the year and there are no significant changes from today, we respect to other geopolitical factors, supply chain activity and the trajectory of The U. S. Economy, we expect full year 2025 ocean transportation operating income to be moderately lower than the $500,900,000 achieved in 2024. [indiscernible] through the year, and through year end and there are no significant changes from today, with respect to other geopolitical factors, supply chain activity and the trajectory of The U. S. Economy, expect full year 2025 ocean transportation operating income to approach the level achieved 2024. For logistics for the full year 2025, expect modestly lower operating income due to challenging business conditions for transportation brokerage and a lower contribution from supply chain management.

As such, we expect consolidated operating income for the full year 2025 to range from moderately lower and the $551,300,000 achieved in 2024 to approaching the level achieved last year.

In addition to this full year operating income outlook, we expect the following for the full year. Depreciation and amortization to approximately two to approximate $200,000,000 including interest income to be approximately 31,000,000 and interest expense to be approximately $7,000,000 other income to be approximately $9,000,000 and effective tax rate of approximately 22% and drydocking payments of approximately $40,000,000 Lastly, today's fourth quarter twenty twenty four earnings release will be the last time we report the volume of automobiles in our Hawaii trade lane as this metric is not a meaningful driver of the financial performance of our Ocean Transportation segment. I will now turn the call back over to Matt.

Thanks, Joel. Please turn to Slide 20 I'll go through some closing thoughts. 2024 proved once again that our China service delivers during periods of uncertainty.

Speed, reliability and service our core differentiators are highly sought after by shippers when supply chain disruptions occur. While true, it's only part of our story. Today, our China service appeals to an even broader set of nearly twenty years ago. As supply chains have become more complex, Customers have placed a greater emphasis on speed to market and Schedule Integrity. It is within this new paradigm that our China services remains unparalleled. Our CLX and MAX service continue to be the two fastest and most reliable transpacific transits which are complemented by unique destination services, for a seamless customer experience. We apply the same principles used in our domestic trade lanes that have been refined over decades. There will always be uncertainty across the global supply chain. And we're clearly facing significant uncertainties like the Red Sea and tariffs, we remain focused on what we can control. Will continue to be focused on maintaining vessel schedule integrity reliability of all of our logistics and ocean transportation operations and delivering high quality service, for all of our customers. We remain committed to look for ways to grow. Either organically or periodically through acquisition. Since we became public, we had a good track record of organic and inorganic growth.

And we've been nimble on growth opportunities during periods of uncertainty. And last, we expect to continue to return capital to shareholders through dividends and our share repurchase program. Our share repurchase program remains a core element of our capital allocation strategy and we expect to continue to be steady buyers of our shares. And with that, I will turn the call back to the operator. And ask for your questions.

Our first question comes from the line of Daniel Imbro from Stephens Inc. Your question please.

Okay, great. Thanks guys. This is Brady on for Daniel and thanks for taking our questions. I wanted to start on the outlook You noted in the slides you're expecting 1Q EBIT to be meaningfully higher than the previous year, but could you just help us kind of break out the drivers behind this outlook? Is that largely just a function of higher rates or are there certain cost initiatives you guys have executed on to improve the EBITDA outlook as well?

Yes, Brady, thank you for that question. So it's a variety of factors. So in our domestic trade lanes really steady performance. The way we describe it consistent with the outlook after we talked about those trade lanes. And logistics also steady performance, but a little bit more challenging environment. And then the one where there's a more significant change driving the outlook is in China. So last year, as we talked about, rates really moved in May and June. They've remained elevated since then. So as we come into the first quarter this year, we have higher, more elevated rates than we had last year. And that's the biggest piece driving the outlook towards that meaningfully higher outlook that we've given to the first quarter.

Okay, great. Thanks. It's That's helpful. Maybe just if I could follow-up there on the rate commentary. I think you touched on it a bit in your remarks that you're expecting elevated freight rates in your China service to continue in 1Q. But is there any way to help investors kind of level set how rates have trended sequentially? I mean, From what we can see, it seems like Trans Pacific rates are only slightly below 4Q levels so far. Is that the right way to think about how it's trended so far this year? Just any color there would be helpful. Thanks. Yes, Brady, this is Matt. Thanks for your question. I would say As we've experienced our freight rates sequentially, as Joel mentioned, starting in the second quarter and then extending through the end of calendar twenty twenty four. What typically happens to has happened in Mattson's rate levels Our rate levels remained relatively steady from the second third and fourth quarter towards the end of the fourth fourth quarter, we did step our rates down and reduced our peak season churn surcharges we have done every quarter for the last in that period for the last eighteen, nineteen years.

And our our levels have then been reset or the peak season surcharge substantially reduced or eliminated consistent with our historic practice, and remained relatively steady from that point on through. So, I would not spot rates on the SCFI when we remove the seasonal peak season surcharge. So I know that's not specific, but that's as specific as I can get.

Okay, got it. That's helpful. Maybe just as a final follow-up here on capital allocation, In the near term, it sounds like the primary focus is repurchases, but just taking a big step back, could you talk about some opportunities? What do you see out there in the market for additional services just kind of in the future? Any update there would be helpful.

Sure, Brady. So on the ocean transportation side, we've been open discussing that there's not that many opportunities that really fit our profile. So we expect on the ocean side there to be more of the organic growth opportunities or we leverage our existing [indiscernible] side, there's organic there's a combination of both organic and M and A type opportunities. So organic, we like to look at the same similar things, niche Niche ways for us to leverage off our existing businesses to grow with our customers in new geographies. Then on the M and A side, there's been a steady flow of acquisition opportunities we looked at for years The challenge is just finding those that really meet our strict criteria of niche defensible businesses that are differentiated good return on capital that fit our profile businesses today. So that's how we think about it and that's the range of alternatives that we look at.

Okay. Awesome, guys. Thanks for the time tonight. I'll leave it there.

Okay. Thanks, Brady. Thanks, Brady. Thank you. And our next question comes from the line of Jacob Black from Wolfe Research. Your question please.

Hey, Matt. Hey, Joel. Thanks for your time.

Yes.

Good afternoon.

Good afternoon. So a lot going on in the world right now. I guess, could we start maybe on the USTR proposed rule on China shipbuilding?

How are you viewing this as it relates to potential changes in the ocean industry and Matson's position [indiscernible] And I think a couple of the MAX vessels were built in China Would you expect to pay charges under this? [indiscernible] Yes. Thanks, Jake.

Yes, I agree with your sentiment that there's a lot going on at the moment. And I think this USTR proposal that dropped on Friday is one of a number of changes. I think I'll answer your question in two ways. The first is answer it more generally and then I'll answer it more specifically. But generally, our feeling is that we're in the early innings of a discussion to be had between The U. S. And Chinese governments. We saw the 10% rollout of the tariff and we see this USTR proposal as the next step in a discussion that it's going to have with China. There may be others that follow but it's all to set a stage to be consistent with President Trump's efforts to try to reset trade balances And I also think that whether it's in Europe or whether it's in other Asia origins, This is one of a number of steps that we think are going to come out over these next few months. So I think the short answer for our perspective is it's too early to tell. It's too early to tell exactly what tariffs are going to be implemented in China and in countries that compete with China, it's too early to tell.

What retaliatory tariffs if any rollout. So I would just say stay tuned. I would say more specifically to your questions about if this USTR proposal is enacted, Matson has a fleet of 30 vessels And of those 30 vessels, three of those are chartered foreign Chinese built ships that operate in our MAX service as you correctly point out. And one, we operate one Chinese built vessel we operate in our South Pacific So we have four vessels out of a total of 30 that are manufactured in China. And of course, we had three vessels, as you know, under [indiscernible] But let me just repeat what I said from the beginning. I think it's really these are opening salvos We're in the early innings. We could use different analogies, but we're we're watching this closely. I would also say, I've said it in my prepared comments, but I think it's important also to stay here. Matset has tended to do well in periods of disrupted supply chain environments. We continue to believe strongly and have heard from our customers loud and clear that operating R2 expedited China services in the way that we do given the continuing uncertainty for all parts So that's kind of the way we're thinking about it at this point.

Jake, Makes a lot of sense. Thanks. And maybe this stick with macro policies for now. Don't think you have a lot of exposure, direct exposure to the de minimis exemption, but to the extent you compete with airfreight are you thinking about any indirect impacts if this goes away? Yes. I mean, I think that the unanswered question we don't aren't directly impacted. I think the place that we tangentially could be impacted are two of the largest companies that are taking advantage of this de minimis exemption who are Timu and Shein they're today moving virtually 100% of their cargo, this is The U. S. Portion of their cargo via airfreight. And so it's a question either about the diminish de minimis or new tariffs does that create some of that cargo to migrate into a fast ocean product that could be an upside for those that operate in the expedited. None of that has been announced, but it's a neutral to we would look at it at this point.

Got it. Thanks. And then one on the guide for me. I guess it feels like if earnings are just moderately lower this year even in a Red Sea normalization scenario. You aren't really expecting earnings in the back half to return to 2023 levels So do you think that's pricing is just structurally higher for you now compared to pre Red Sea trends? Or is this more a reflection that it will take some time for O'Shea to Networks to normalize once these changes are made? Yes, Jake, it's it's really a reflection of a continued improvement in our rate and rates that we charge in those services and a lot of that has been finding more and more customers that convert from airfreight. And then the other piece is e commerce. So as the years passed and we look at this year 2025 compared to two years ago 2023, we just tend to have a higher mix of our overall demand coming from those segments that are willing to pay higher rates. So I guess you could call that a structural issue that we benefited from as those portions of our demand grow over time.

Yes, that's helpful. Thanks for your time guys.

Okay. Thanks, Jade. Thanks. First of all, good quarter, Anna. I did I did want to say, I appreciate that you guys did not take out the impairment charge. That level of transparency is not something that I see very often, but I think hats off to you for for being straight shooters on that. [indiscernible] My question really has to do a little bit with the guidance. And sort of thinking through financial impact of the Red Sea and whether it goes away or not and the implications for you guys. And I'm appreciating that you don't necessarily want to put numbers to it, but is it simply as straightforward as if the Red Sea opens up average voyage durations go down and international freight rates fall Is that Is that all that's being implied there? Or is there something else in the math? Yes, Ben. So it's as simple as you state. I mean, I think our thinking is we saw a reset up when the Red Sea absorbed that 2,000,000 TEU of capacity as the international ocean carriers adjust their deployments to accommodate for that longer transit. That when that ends, I say if and when or when that ends, then we'll see that capacity being freed up into these transportation networks and that on the margin could erase some of the rate increase we saw at the time.

It's a little difficult to put everything on a single factor given some of the trade reset that President Trump is seeking to roll out, where the world economy is, consumer demand and expectations of consumer confidence. So So obviously nothing is in a vacuum, but to us that seemed to be one singular event that could drive international ocean freight rates lower. And as you know, Ben, our pricing mechanisms are not directly tied the international ocean carriers, but move in sympathy with the rates. And so that's the thought process behind that. Got you. And as you explained in the last question, It sounds like structurally, even if there were a reset, you're not all of your business would reset effectively or it would be less impacted? That's correct. Appreciate that. My next question relates to the three new buildings in Philadelphia. Saw that there was a four month delay. First of all, any any color on why that is? But then secondly, do you feel pretty comfortable that that encapsulates the the whole risk of potential delays? And then also is there any beyond steel, is there any risk that there might be some other level of repricing if I don't know if wage inflation at the shipyard increases or something like that?

Just like And is there any recourse on your part for the fact that they're already late? Okay. Yes, good. This is Matt. I will take a crack at it and then I'm turn it over to Joel to mop up here for anything that I've missed. So I think the first thing I would say is there is a specific initiative. There is a five vessel project that was ahead of our project. And effectively, there was a delay in the construction of the last of the vessels. The engraving dock in which these vessels are constructed in Philly was effectively tied up with the last of these vessels And at this point, with this delay, and Hanwha looking carefully at other materials that are around it and their construction of the fourth and fifth. One of the earlier vessels is at an outfitting dock and is not in the critical path. This last one is the remaining, they believe, critical path items. So as to your question about the reason behind it, that's the Matson. They believe gives them some confidence that they're not aware of any other significant this point, which could cause further delays. But you rightly point out that there could be delays depending on other things.

But at this point, it's best It's Hanwha's best thinking that this will be around the delivery dates Although, as you know from our previous construction, these are not exact science And in the history of shipbuilding, whether things slip another quarter, that's that's not a significant surprise to us. I would say with regard to the delay, the primary impact to Matson would be the delay in getting the benefits of the additional capacity that comes with these larger vessels on our CLX service. And so it's just a delayed benefit or opportunity cost there. There are could there be further increases? We have a fixed price contract. There are some escalators for for steel cost. There are some liquidated damages But at the end of the day, none of those are significant drivers to us getting the benefit of our new ships. And we continue to feel reasonably confident in our ability to get these ships in '27 and 2028. And everything looks continues to look like a go other than the acknowledgment of a four month slip. And what did I miss, Joel? No, that's it. I mean, I think you guys have been part of your question was to the overall potential for cost inflators.

If you look at the overall program, it's $1,000,000,000 The piece of it that's tied to steel and the steel index change is a very, very small percentage of the overall $1,000,000,000 and it is a fixed price contract. There are some things that Matt alluded to that where the price can go up or down based upon different factors. But the bottom line is we don't expect the overall price tag to be material change in the $1,000,000,000 negotiated price. Yes. And then this is Matt again. One last comment.

Although with the existing tariffs and how they get rolled out, there remains some uncertainty just about how all that flows its way through. So we're not saying it's there's no impact, but what we're saying is a lot of the factors are pretty lined up at this point. Okay. I appreciate it. And then lastly, and I hate to ask this, but I've been asked already multiple times today.

Any changing in how you're thinking about Jones Act protection and support?

Yes. Thanks, Ben.

There really is no change to our thinking, which I'll articulate now, which is to say, we obviously have a change of [indiscernible] The Trump administration it was a supporter of the Jones Act in its last administration. We expect them to continue to be a supporter of the Jones Act, this America first strategy of the incoming administration is very consistent with the Jones Act. We continue to have wide bipartisan support in Congress. We have a number of President's cabinet on record incoming cabinet as strongly supporting the Jones Act. So at this point, while we acknowledge there's some uncertainty around tariffs and things that are going on, I think it continues to enjoy wide bipartisan All right. Appreciate that. And good quarter again. Thanks. For answering questions. Thanks Ben. Thanks Ben.

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Matt Cox for any further remarks. Okay.

Well, thanks for your participation in today's call. We'll look forward to catching up with everyone at the QQ Quarter one call. Thank you very much. Aloha.

Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day. [indiscernible]