Good day, and thank you for standing by. Welcome to the Kirby Corporation 2025 Second Quarter Earnings Call. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your first speaker today, Kurt Niemietz, Vice President of Investor Relations and Treasurer. Please go ahead.

Good morning, and thank you for joining the Kirby Corporation 2025 Second Quarter Earnings Call. With me today are David Grzebinski, Kirby's Chief Executive Officer; Raj Kumar, Kirby's Executive Vice President and Chief Financial Officer; and Christian O'Neil, Kirby's President and Chief Operating Officer. A slide presentation for today's conference call as well as the earnings release, which was issued earlier today can be found on our website. During this call, we may refer to certain non-GAAP or adjusted financial measures. Reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures are included in our earnings press release and are also available on our website in the Investor Relations section. As a reminder, statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risks and uncertainties, and 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 latest Form 10-K filing and in our other filings made with the SEC from time to time. I will now turn the call over to David.

Thank you, Kurt, and good morning, everyone. Earlier today, we announced second quarter earnings per share of $1.67, a 17% increase year-over-year from $1.43 in the second quarter of 2024. Our second quarter performance reflected solid execution across both of our business segments and continued strength in our core markets, supported by healthy customer demand, disciplined pricing, and solid operational performance. Our teams continued to adapt and deliver strong results despite some navigational challenges in Marine and supply delays in distribution and services. Overall, our combined businesses did deliver another solid quarter. In Inland Marine Transportation, market conditions remained favorable during the second quarter. Customer activity was steady with barge utilization rates consistently in the low to mid-90% range, reflecting healthy demand across our core markets. Compared to the first quarter, weather conditions improved, but navigational and lock delays posed a modest headwind that challenged operational efficiency. Despite these headwinds, our teams executed well. On the pricing front, we saw continued gains in pricing. Spot market rates increased in the low single digits sequentially and in the mid-single digits year-over-year, supported by limited barge availability and firm customer demand. Term contract renewals also trended higher with low to mid-single digit increases compared to the prior year. The combination of improved pricing, disciplined execution, and resilient demand helped drive operating margins into the low 20% range despite the operational challenges. This performance underscores the strength of our Inland Marine business and our ability to deliver solid results in a dynamic environment. In Coastal Marine Transportation, market fundamentals remained strong throughout the second quarter. Barge utilization was consistently in the mid- to high 90% range and was supported by steady customer demand and limited supply of large capacity vessels. This supply-demand dynamic continued to drive meaningful pricing gains with term contract renewals increasing in the mid-20% range year-over-year, which is a clear indication of the market strength and our leading position in the market. Operationally, the quarter benefited from a reduction in planned shipyard maintenance, which had been a headwind in the prior periods. While some maintenance activity continued, its impact was less pronounced, allowing for improved asset availability and improved revenue generation. The combination of strong pricing, high utilization, and fewer planned shipyards contributed to solid financial performance, with operating margins reaching the high teens. Turning to Distribution and Services. Our teams delivered a strong second quarter, achieving year-over-year growth in both revenue and operating income with solid contributions across most of our end-markets. In Power Generation, revenues were up 31% year-over-year, driven by robust demand from data centers and industrial customers. The pace of inbound orders remained strong, further building our backlog and positioning us well for the second half of this year. We also secured additional project wins for backup and critical power applications, reinforcing our leadership in this space. In commercial and industrial markets, revenues rose 5% year-over-year, supported by steady marine repair activity and a modest recovery in on-highway services. These gains reflected both the resilience of our customer base and the effectiveness of our service network. Operating income increased 24% year-over-year, driven by favorable product mix and ongoing cost control initiatives. In oil and gas, we delivered a 180% plus year-over-year increase in operating income, even while revenues declined due to continued softness in conventional activity. This performance was driven by strong execution, disciplined cost management, and continued growth in e-frac equipment, which remains the lone bright spot in this challenged market. Overall, the segment performed well and demonstrated our ability to adapt to shifting demand dynamics and to capitalize on growth opportunities. We did deliver approximately 10% operating margins in the quarter. In summary, our second quarter results reflected continued strength in market fundamentals across both segments despite some navigational challenges and some supply delays. In Inland Marine, favorable market conditions supported higher rates and steady barge utilization. In coastal, industry-wide supply and demand dynamics remain constructive, enabling us to maintain high utilization and the ability to secure meaningful rate increases on term contract renewals. In Distribution and Services, robust demand for power generation, particularly from data centers and industrial customers, largely offset softness in oil and gas, allowing the segment to deliver solid financial performance in a mixed demand environment. We expect positive trends to remain as we move through the back half of this year. I'll talk more about our outlook later, but first, I'll turn the call over to Raj to discuss the second quarter segment results and balance sheet in more detail.

Thank you, David, and good morning, everyone. In the second quarter of 2025, Marine Transportation segment revenues were $493 million and operating income was $99 million with an operating margin of 20.1%. Total Marine revenues, Inland and Coastal together increased $7.8 million or 2% compared to the second quarter of 2024, and operating income increased $4.2 million or 4%. Sequentially, compared to the first quarter of 2025, total Marine revenues increased 3% and operating income increased 14%. As David mentioned, some navigational and lock delays impacted operations and efficiency in Inland. This was offset by solid underlying customer demand, improved pricing, and most importantly, execution. Looking at the Inland business in more detail. The Inland business contributed approximately 81% of segment revenue. Average barge utilization was in the low to mid-90% range for the quarter, which was in line with the utilization seen in the first quarter of 2025. Long-term Inland Marine transportation contracts, or those contracts with a term of 1 year or longer, contributed approximately 70% of revenue, with 60% from time charters and 40% from contracts of affreightment. Improved market conditions contributed to spot market rates increasing sequentially in the low single digits and in the mid-single-digit range year-over-year. Term contracts that renewed during the second quarter were up on average in the low to mid-single digits compared to the prior year. Compared to the second quarter of 2024, inland revenues increased 1%, primarily due to pricing, offsetting the negative impacts of navigational challenges. Sequentially, inland revenues increased 1% compared to the first quarter of 2025 due to better weather conditions. Inland operating margins were in the low 20% range. Now I'll move to the Coastal business. Coastal revenues increased 3% year-over-year and increased 14% sequentially due to the combined impact of pricing and fewer planned shipyards in the quarter. Overall, Coastal had an operating margin of high teens due to the improved pricing and continued cost leverage. The coastal business represented 19% of revenues for the Marine Transportation segment. Average coastal barge utilization was in the mid- to high 90% range, which is in line with the second quarter of 2024. During the quarter, the percentage of coastal revenue under term contracts was approximately 100%, of which approximately 100% were time charters. Renewals of term contracts were on average higher year-over-year in the mid-20% range. With respect to our tank barge fleet for both the inland and coastal businesses, we have provided a reconciliation of the changes in the second quarter as well as projections for 2025. This is included in our earnings call presentation posted on our website. At the end of the second quarter, the inland fleet had just over 1,100 barges, representing 24.5 million barrels of capacity. We expect to end 2025 with a total of 1,110 inland barges, representing 24.6 million barrels of capacity. Coastal Marine is expected to remain unchanged for the year. Now I'll review the performance of the Distribution and Services segment. Revenues for the second quarter of 2025 were $363 million, with operating income of $35 million and operating margin of 9.8%. Compared to the second quarter of 2024, the Distribution and Services segment saw revenue increase by $23 million or 7%, while operating income increased by $6 million or 20%. When compared to the first quarter of 2025, revenue increased by $53 million or 17% and operating income increased by $13 million or 57%. In Power Generation, revenue increased 31% year-over-year, driven by robust sales. Our orders from data centers and other industrial customers for power generation and backup power installation continue to grow. This contributed to a very healthy backlog of power generation projects. Compared to the first quarter of 2025, power generation revenues increased by 35% and operating income increased by 88%. Operating margins for power generation were in the mid- to high single digits. Power generation represented 39% of total segment revenues. On the commercial and industrial side, activity levels in marine repair remained strong while there was a modest recovery in our on-highway business. As a result, commercial and industrial revenues were up 5% year-over-year and operating income increased 24% year-over-year, driven by favorable product mix and ongoing cost savings initiatives. Commercial and industrial made up 48% of segment revenues with operating margins in the low double digits. Compared to the first quarter of 2025, commercial and industrial revenues increased by 8% on increased activity in marine repair and our on-highway businesses. Operating income was up 46% over the same period, driven by favorable product mix. In the oil and gas market, we continue to experience softness in conventional frac-related equipment as lower rig counts tempered demand for new engines, transmissions, and parts throughout the quarter. This decline in conventional activity was partially offset by ongoing deliveries of e-frac equipment, which remains a bright spot in the segment. As a result of this mixed demand environment, revenues declined 27% year-over-year, though they were up 8% sequentially. Importantly, despite the revenue decline, we achieved strong profitability gains with operating income increasing 43% sequentially and 182% year-over-year. These results were driven by continued growth in our e-frac business and the benefit of disciplined cost management initiatives. During the quarter, oil and gas represented 13% of total segment revenue, and the business delivered operating margins in the low double digits. Now, moving to the balance sheet. As of June 30, 2025, we had $68 million of cash and total debt of around $1.12 billion, and our debt-to-cap ratio remained at 24.8%, with our net debt-to-EBITDA being just under 1.4x. During the quarter, we had net cash from operating activities of $94 million. Second quarter cash flow from operations was impacted by a working capital build of approximately $83 million, driven by underlying growth in the business in advance of projects, especially in the power generation space. We expect to unwind some of this working capital as the year progresses. We used cash flow and cash on hand to fund $71 million of capital expenditures or CapEx, primarily related to maintenance of equipment. During the second quarter, we also used $31.2 million to repurchase stock at an average price of $94. As of June 30, 2025, we have total available liquidity of approximately $331.5 million. We remain on track to generate cash flow from operations of $620 million to $720 million on higher revenues and EBITDA for 2025. We still see some supply constraints posing some headwinds to managing working capital in the near term. Having said that, we expect to unwind this working capital as orders ship in 2025 and beyond. With respect to CapEx, we now expect capital spending to range between $260 million and $290 million for the year. Approximately $180 million to $210 million of CapEx is associated with marine maintenance and capital improvements to existing inland and coastal marine equipment and facility improvements. Approximately $80 million is associated with growth capital spending in both of our businesses. This is a slight decrease from previous expectations as the timing of certain growth initiatives has shifted a bit, allowing us to defer some CapEx into 2026. As always, we are committed to a balanced capital allocation approach. We will use this cash flow to opportunistically return capital to shareholders and continue to pursue long-term value-creating investment and acquisition opportunities. I will now turn the call back over to David to discuss the remainder of our outlook for 2025.

Thanks, Raj. We had a good first half of 2025. That said, the macro environment has become more complex. Recent shifts in trade policy have introduced additional uncertainty, influenced customer purchasing behavior, and contributed to softness in select end markets. These dynamics are beginning to affect trade flows in areas like chemicals and are also creating sourcing challenges in our power generation supply chain. We are closely monitoring the evolving macroeconomic and geopolitical landscape and their potential to impact our volumes. With that said, we still expect 15% to 25% year-over-year growth in earnings for all of 2025. However, if these trends persist, we could finish the year closer to the lower end of our guidance range with any movement towards the higher end of that range dependent on improvement in the macroeconomic conditions in the second half of this year. While we are taking a prudent view given the current environment, our core businesses remain strong, and we are well positioned to outperform if demand continues. Our structural advantages in marine and a growing backlog in power generation provide meaningful upside potential over time. Although the external environment has become less predictable, we remain confident in our ability to adapt, execute, and deliver results. We also commit to maintaining capital discipline. With a strong balance sheet and solid free cash flow generation, we are well positioned to invest strategically, whether through selective capital projects, acquisitions, or returning capital to our shareholders. This financial strength gives us the flexibility to navigate near-term uncertainty while staying focused on long-term value creation. Diving into the segments a bit. In Inland Marine, we anticipate constructive market dynamics due to limited new barge construction in the industry, but we are seeing some signs of price moderation at least for now. Term contract rates are expected to continue improving over the long term, driven by the slow pace of new build activity and tight vessel availability. However, spot market pricing may come under pressure in the near term if demand softness persists. Barge utilization, while still healthy, has moderated slightly entering the third quarter and is now expected to be in the low 90% range for the third quarter. Inflation remains a factor, particularly in labor and the industry-wide mariner shortage continues to constrain capacity growth. Overall, Inland revenues are expected to grow in the low to mid-single digits on a full-year basis, and operating margins are expected to remain in the low 20% range, assuming no major disruptions from tariffs or broader economic conditions. In coastal, market conditions remain robust, underpinned by limited large capacity vessels available across the industry. This constrained supply-side environment is driving pricing momentum and supporting higher term contract prices. Steady customer demand is expected to continue through the second half of the year, with our barge utilization in the mid- to high 90% range. We are seeing improved operating leverage as shipyard activity winds down. With essentially 100% of the coastal fleet on term contracts, we expect a meaningful step-up in both revenues and margins for the remainder of the year. That said, we remain mindful of ongoing inflationary pressures and labor constraints. For all of 2025, we expect revenues in coastal to increase in the high single to low double-digit range compared to 2024. We also expect coastal operating margins to improve to the mid- to high teens range on a full-year basis. In the Distribution and Services segment, results remain mixed across end markets as power generation continues to be a bright spot, fueled by strong sales and orders from data centers and industrial customers, which is helping to offset weakness in other areas. In commercial and industrial, the demand outlook in marine repair remains steady. The on-highway service and repair market, while still soft, is showing signs of bottoming out, with modest recovery expected in the second half of this year. In oil and gas, we expect revenues to be down in the high single to low double-digit range as the shift away from conventional frac to e-frac continues to take place and customers continue to maintain considerable capital discipline. Despite the revenue decline, profitability has improved, driven by disciplined cost management and an increase in e-frac deliveries. Overall, the company now expects total segment revenues to be flat to slightly up for the full year with operating margins in the high single digits. To conclude, we had a solid first half of 2025, and we have a favorable outlook for the remainder of the year. Our balance sheet is strong, and we expect to generate significant free cash flow this year. In the absence of any acquisitions, we would expect to use the majority of this free cash flow for share repurchases. With favorable market fundamentals continuing, we expect our businesses to deliver solid and improving financial results as we move forward through the remainder of this year. And as we look long term, we are confident in the strength of our core businesses and our long-term strategy. We intend to continue capitalizing on strong market fundamentals and driving shareholder value creation. Operator, this concludes our prepared remarks, and we are now ready to take questions.

Our first question comes from Daniel Imbro of Stephens Inc.

This is Reed Seay on for Daniel. I'd like to start on the Inland side of the business. Obviously, capacity continues to be in a great spot. That's been the case for a little here. But now that you're talking about softness in the spot market, I was just hoping you could delve a little bit more into the demand side of that business. Obviously, we know the macro headlines and everything, but just want to get more of your thoughts. And if you could update us on spot pricing in July as it compares to June.

Sure. Yes. Well, thanks for the question, Reed. Yes. Look, the second quarter was good. It was strong. We were in low to mid-90s in terms of utility. We saw margins on the Inland side up sequentially. But as we entered July, this chemical malaise is finally starting to catch up with us. Our chemical customers have been fighting a negative trend for at least the last year or so, but their volumes have held up. But starting in July, we've started to see that volume pull back. I'm sure you can listen to the major public chemical companies; their outlook and their results were pretty grim in some respects. So we've seen a little bit of that. I would caution and just say it is just a little. Our guidance for the third quarter is still around 90% utility. So it's not a huge pullback, but it's enough that we had to be a little more cautious. At Kirby, we're going to stay very disciplined on pricing. But with a little softness out there, we could see some pressure or moderation on spot pricing. That said, we did increase spot pricing in the second quarter and term pricing, both sequentially and year-over-year. But to give you a little more color, I'm going to turn it over to Christian on some of the details on some of the commodity moves, and he can give you a little more color.

Yes. Thanks, David. Reed, let me try to unpack a little bit of what we're seeing in July. Keep in mind that as we get into July, typically, we see a little bit of a seasonal slowdown in utility. This is a direct result of usually improving weather conditions, which creates a little more availability. So there is a seasonal piece to July being a little bit softer. We've seen that for a very long time. David talked about our chemical customers, well, they're in a challenging market. They're trying to navigate the geopolitical and macro issues and some of those uncertainties. It's created a lot of complexity for them. But the thesis that their Gulf Coast assets, the U.S. assets are the strongest in their portfolio continues. You saw some closures in Europe and some pain for them. They're just in a complex world right now in the macro chemical world and the exportation of some of the resin out of the Gulf. Keep in mind, the chemical business hasn't been that great for a while now. They've been in a downturn for at least a year. And we've had good solid results despite that kind of global chemical market. So the way I look at it is they're challenged by the macro. Any improvement in GDP, the macro housing starts, auto, any of that stuff kind of stabilizes I think it represents probably an opportunity for us. I'll pivot now to the refining side. I'm pleased to see that refinery utilization was strong. Run rates are strong, particularly in PADD III. However, the geopolitical environment and the tariff environment has impacted other refiners in PADD III, talking to our friends in the refining industry. They'll tell you that their crude slate has lightened up quite a bit in the last few quarters. That means some of that waterborne heavier crude oil, the mine in Mexican barrel, the Venezuelan barrel, the Canadian heavy barrel, some of that has been displaced for abundant lighter, tighter U.S. Permian or domestic crude. Naturally, what we do in the barge business is we move a lot of the heavy and medium feedstocks into refinery. We help balance and optimize the refining complex. That's a big part of our business. When their crude slates lighten up, it takes some of those barrels out of the barge and into the pipeline. PADD III refineries typically like that heavy barrel, and we'll watch that very closely. But I think you see some things like Chevron being able to hopefully import from Venezuela again, and some of the macro geopolitical issues enabling the heavier Mexican barrel and some of the Canadian barrels to come back in, that will be a good thing for us and the barge business. But despite what you might call a little bit of headwinds in July, I mean, you hit it, Reed, when you referenced it, the supply side picture is still very good, and David referenced that. The supply side picture is still very good, and we can go into more detail about that later on in the call.

Got it. That's great color. And then I just wanted to touch on the power generation side. Obviously, a great quarter for that segment. You talked about stronger demand and business wins. When we look at the revenue for the second quarter, is that a lot of down payments? Or did you have some deliveries come through this quarter that helped out those results?

Yes, it was about deliveries. We experienced delays in previous quarters related to our supply chain, especially with larger engines. However, we have started to resolve those issues and are beginning to ship some significant power generation orders. I believe the third quarter will be strong for shipments, but I want to remind you that power generation can be inconsistent. These large orders do not come in a steady flow, and the deliveries can vary as well. Nonetheless, the growth we are witnessing is remarkable. Even after a substantial shipment quarter in the second quarter and another expected in the third quarter, our backlog has increased. In the second quarter, our backlog likely rose by 15% to 20%. We are still receiving orders, and our power generation segment is performing well. While we're not focusing on AI, we are certainly benefiting from our power generation side in our D&S business. Additionally, we have been focusing on our cost structure, and you might have noticed that our margins are improving. Christian has the team intensely focused on cost and throughput performance, which is beginning to yield results. We are very optimistic about the position of D&S right now.

Yes, David, I might add one thing just to give a shout out. The D&S team right now, you see a steady drumbeat and pattern of improvement. The teams embraced the hard work of changing and continuous improvement, lean manufacturing. We've got a hardworking team, who are humble enough to know that we can continue to do it better, and they had a great quarter in Q2, and I predict that truly the best is yet to come. The team is executing at a very high level right now, very proud to be working with them.

Our next question comes from Ken Hoexter of Bank of America.

Sorry, a lot of calls going on at the same time, a lot of earnings out. So I just want to understand kind of the messaging here, you moved to the lower end of the 15% to 25% growth target. Christian, I hear you on kind of the shifting demand on the last answer for spot price weakness that you saw maybe towards June. But I guess I'm getting conflicting reports on what's going on here lately in the second half of July, and I know it's recency, but some customers are saying it continues to deteriorate. It's getting softer. Some are saying seeing some sort of a rebound. Maybe you could just give kind of an update, a little bit more detail on that, and then thoughts on the margin impact, right? What's driving the move to the bottom end of the range? Is it just the Inland because you got great coastwise and others.

No, Ken, let me clarify about the lower end of our guidance. I will let Christian provide more details on what we're observing in July. You are correct that there are both positive and negative indicators. However, if demand remains as subdued as it currently is in the chemicals sector, we are likely to land at the lower end of our forecast. That being said, it wouldn’t take much to revitalize that demand—a slight increase in housing starts or auto production could boost our domestic chemical routes. Additionally, if we see a return of heavier feedstock into the refineries, it could tighten up demand a bit. Therefore, it’s not certain that we will remain at the low end. If demand stays steady where it is now, we may end up there, but we’re not far from a rebound, especially since the supply side is quite constrained. I’ll hand it over to Christian to discuss some of the finer details regarding our products.

Yes. Thank you, David. Ken, I would subscribe to your channel checks that are more optimistic in the latter half of July. Typically, in early July, you see a lot of the traders and other folks are on vacation around the 4th of July. You typically see a slowdown just based around that and the trading activity, coupled with good summer conditions where we're making a lot of miles, you create a lot of barge availability. I will tell you, I feel better about where we are. I can't speak to the other barge lines in late July versus where we were in early July, if that answers your question.

It does. There are conflicting reports regarding a crucial aspect of the business right now, and on Coastwise, you've achieved a significant milestone. Dave, you previously mentioned the possibility of margins surpassing those of Inland, and currently, we're in the low 20s at Inland and upper teens at Coastwise, which is quite close. If this weakness or the current situation at Inland continues, does that mean we might not see the margin increase in the second half that we anticipated? Is there a possibility that Coastwise could catch up and even exceed it?

Yes. Let me explain a bit. On the inland side, approximately 60% of our movements involve petrochemicals, while on the coastwise side, it's around 10%. Consequently, the coastwise segment isn't experiencing the same chemical demand challenges as we are inland. However, we still anticipate that margins on the inland side will gradually improve, although we're not as optimistic due to the current chemical demand environment. On the coastal side, we remain very positive as it faces significant supply constraints. Even if someone were to invest in new equipment, it would take about three years before seeing results. That said, the supply outlook for inland is also encouraging. This year, we planned to build around 52 inland barges, and we estimate that 27 have been delivered thus far, while about 35 have been retired. This results in a net decrease in inland barges. Thus, we have a favorable supply outlook despite a slight demand slowdown, which is minor. We're operating with an average utility rate of around 90% for the third quarter. While we remain disciplined with our pricing, we recognize that others may have different perspectives. I apologize for rambling a bit. I hope this answers your question, Ken.

No, it does. I'm just trying to figure out if we're going to see that reality of Coastwise surpassing inland on the margin side, right? I get what's going on, on the inland side, the scale and the bounce up on coastwise has been tremendous.

Yes. Yes, we're happy to get coastal margins very high. But yes, you know the big earnings power is on the inland side, as you know. It's just that much larger than the coastal side.

I'm sorry, but could you clarify what the year-over-year growth for inland revenues is expected to be for the third quarter? Or was that information included in the earnings range?

Yes, Ken, we didn't give a specific for the third quarter, but we gave you the full year. So we'll be in the low to mid-single digits there for the full year.

Our next question comes from Greg Lewis of BTIG, LLC.

Raj, I guess my first question is, I think I heard in the prepared remarks that you guys made some decisions to defer some CapEx. Could you talk a little bit about that decision and kind of what maybe was driving that, that you're seeing in the market?

No, this is related to some of our growth-related capital expenditures, and some of these projects have been postponed. The reason we reduced the capital expenditure number is that some of it will likely be deferred into 2026, and we wanted to make sure to point that out. The key point, Greg, is that our free cash flow is increasing, and regarding capital allocation, you can expect us to continue buying back our stock. We are pleased with the current state of our stock. Naturally, it's a balancing act, as I have mentioned before, and we are always considering acquisitions. We will need to navigate that, but barring any acquisitions, you should see us continue with our stock buybacks.

Yes, Greg, let me add to that. Raj increased the free cash flow guidance by $50 million this quarter. Part of this increase is due to deferrals, and part is simply because we're generating more cash as our business improves and the power generation sector starts to deliver. We have significant working capital available. As you know, we prefer to use our free cash flow to acquire other companies, especially in the marine sector. However, those opportunities can be unpredictable. In the absence of acquisitions, as Raj mentioned, we are pleased with our stock value and you can expect us to utilize a majority of our free cash flow for stock buybacks.

Okay. Yes. No, that's been pretty consistent messaging around that. My other question was regarding the inland barge new build side, where it seems that there are very few barges under construction. However, I thought you mentioned that pricing might be decreasing, even though steel prices are not going down. I'm curious about what factors might be putting downward pressure on new build barge pricing.

I don't know that we said that new barge build pricing was coming down. We're not hearing that.

Still seeing clean barges, 4.5, heaters, 5, 7, 10K, 22 ballpark-ish, give or take, a couple of hundred depending on the bells and whistles that you put on them. But I would tell you that steel is still stubbornly high and really, the labor component at shipyards has not changed. My conversations with the shipyards in recent times, I don't see any significant decrease in the price of tank barges nor on the offshore side.

Okay. And so realizing that Kirby is probably more disciplined than others. But as Kirby views it, I feel like on previous calls, you kind of pointed to 20-plus percent away from new build economics, just looking around that, I imagine not much has changed in terms of that.

Yes. It's probably more like 35% to 40% to make sense to build a complete new tow with a new towboat plus two new barges, a two-piece tow.

Our next question comes from Scott Group at Wolfe Research.

So just looking back at Q2 and what was felt like a pretty strong environment, the inland contracts increased low to mid-single digits. It feels like we've been in that sort of low to mid-range the last few quarters. Why don't you think in a stronger environment, we've seen better than that? And how do you think about contract pricing in what now may be a little bit of a softer environment? And how does that change your views about where you think ultimately these inland margins can go? Like do you think the low 20 range is sort of where we're going to go this cycle? Or do you think that there's still some upside beyond that?

I definitely think there's still plenty of upside. Let me talk a little about pricing. We take a thoughtful approach when it comes to our customers. It's challenging to approach some of these large chemical clients who are facing significant difficulties and tell them, 'You need to pay this amount or else.' Instead, we collaborate with them. It’s a partnership based on supply and demand, and we explain our labor costs and the impact of inflation, but we do it gradually. These customers are large and sophisticated, and we are not attempting to take advantage of them. These partnerships are important. We prefer a slow and steady approach. I believe the inland margins will eventually reach the high 20s. What we are experiencing now isn’t really a pause; just last quarter, we raised prices. This quarter will see a gradual increase, and we are comfortable with that. Since 2022, rates have risen by 50%, so an increase was necessary. We estimate an additional 35% to 40% increase is needed to achieve a return on new capital for building new barges. So, I would emphasize that slow and steady is our approach, and we are satisfied with that.

That's helpful. Regarding M&A and buybacks, how much capital do you foresee deploying? Also, when considering M&A, do you think a larger acquisition or several smaller ones is more likely?

It's quite challenging to predict mergers and acquisitions. Earlier this year, we purchased some barges and boats for around $100 million, which we initially considered a significant acquisition, but now it seems small in comparison. We're open to any acquisition, and ideally, the larger ones would be more beneficial for us, but their unpredictability remains an issue. If I were to guess where we might make an acquisition, it's likely on the inland side, which aligns with our goals. This area presents the most synergy potential and allows us to enhance our customer service. We have a wide range of possibilities in mind, from small barge lines to larger ones, and while we prefer larger acquisitions for their broader impact, predicting them is tough. We evaluate numerous opportunities, but sometimes we are restricted from pursuing our stock due to material discussions, and other times, the price spread is too wide to make it feasible. So, while I'm trying to provide clarity, as you can see, predicting acquisitions is quite complicated.

This concludes the question-and-answer session. I would now like to turn it back over to Kurt Niemietz for closing remarks.

Thank you, Amber, and thank you, everyone, for joining us today. As always, feel free to reach out to me throughout the day for any follow-up questions.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.