Welcome to the Matson, Inc. Fourth Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference may be recorded. I would now like to hand the conference over to your speaker host today, Lee Fishman. Please go ahead.

Thank you, Olivia. Joining me on the call today are Matt Cox, Chairman and Chief Executive Officer; and Joel Wine, Executive Vice President and Chief Financial Officer. Slides from this presentation are available for download at our website, www.matson.com, under the Investors tab. Before we begin, I would like to remind you that during the course of this call, we will make forward-looking statements within the meaning of the federal securities laws regarding expectations, predictions, projections, or future events. We believe that our expectations and assumptions are reasonable. We caution you to consider the risk factors that could cause actual results to differ materially from those in the forward-looking statements in the press release, the presentation slides, and this conference call. These risk factors are described in our press release and presentation and are more fully detailed under the caption Risk Factors on Pages 12 to 21 of our Form 10-K filed on February 26, 2021, and in our subsequent filings with the SEC. Please also note that the date of this conference call is February 17, 2022, 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. With that, I'll now turn the call over to Matt.

Okay. Thanks, Lee, and thanks to those on the call today. I'll start on Slide 3 with a quick recap of our fourth quarter performance. We finished off a strong year with continued improvement in economic and business trends in our markets, driving overall solid performance in Matson's Ocean Transportation and Logistics businesses. The year-over-year increase in Ocean Transportation operating income in the quarter was primarily driven by strong demand for our China expedited ocean services. In our domestic tradelanes, we continue to see strong demand with higher year-over-year volumes, including the benefit of the 53rd week compared to the largely pandemic-reduced volumes in the fourth quarter of last year. Logistics operating income for the fourth quarter increased year-over-year as a result of continued elevated goods consumption, inventory restocking, and favorable supply and demand fundamentals in our core markets. The supply chain environment remains the key issue in the transpacific tradelane with a number of supply and demand factors at play that will take time to unwind. I'll come back to this issue when we discuss our China service. But importantly, we remain focused on maintaining our fast, reliable tradelane services and providing high-quality customer service during this challenging period for our customers. I'll now go through our tradelane services, so please turn to the next slide. Hawaii container volume for the fourth quarter increased 10.4% year-over-year and was 11.3% higher than the result achieved in the 2019 period. The increase year-over-year was primarily due to higher retail and hospitality-related demand and the benefit of the extra week compared to the pandemic-reduced volume in the year-ago period. Excluding the benefit of the extra week, volume in the fourth quarter of 2021 increased 5.3% and 6.2% compared to the levels achieved in the fourth quarter of 2020 and 2019, respectively. Tourism and the Hawaii economy continued to rebound in the fourth quarter of 2021, despite a softening in airline passenger traffic early in the quarter due to the state's efforts to address the spread of COVID-19 Delta variant. For the full year 2021, container volume increased 8.2% year-over-year due to higher retail and hospitality-related demand as a result of the reopening of the Hawaii economy compared to the negatively impacted volume in the year-ago period due to the pandemic and state's COVID-19 mitigation efforts and the benefit of an extra week in 2021. That was partially offset by volume associated with the dry-docking of a competitor's vessel in the second quarter of 2020. Excluding the benefit of the extra week in 2021, volume for the full year 2021 increased 6.9% year-over-year. Please turn to the next slide, where I'll comment on the current business trends in Hawaii. As the chart on the right shows, 2021 was about a return of tourism and its effects on the Hawaii economy. The rise in visitor travel, driven predominantly by U.S. mainland visitors, powered a resurgence in the tourism industry. This led to a rebound in the state's economy and led to substantial improvement in the state's unemployment rate. The governor's request to defer nonessential travel to Hawaii as a response to the Delta variant led to a slowdown in tourist arrivals in the third quarter and the first few weeks of the fourth quarter, but visitor traffic rebounded in early November through the first couple of weeks in December until the Omicron variant negatively impacted tourist arrivals. Heading into 2022, we're cautiously optimistic about further economic recovery in Hawaii. UHERO's December forecast for 2022, which accounts for the near-term effects of the Omicron variant, shows further improvement in the unemployment rate and continued growth in GDP and construction jobs. Tourism is also expected to continue to improve with an increase in contribution from international visitors later in the year. However, incremental waves of COVID-19 variants present the possibility of further economic slowdowns or disruptions in tourism. While the Hawaii economic recovery has improved significantly from the depth of the pandemic, UHERO continues to expect that a full return to pre-pandemic conditions may take several more years. To give you a sense of the volume trend one month into the first quarter, our westbound container volume in January was approximately flat year-over-year. Tourism to the state was negatively affected by the Omicron variant wave, which led to a softening in demand for retail and hospitality-related goods. We're also seeing a sluggish trend in building materials. So we'll have to see how this and the tourism trend following Omicron play out in the near term. Moving to our China service on Slide 6. Matson's volume in the fourth quarter of 2021 was 32.7% higher year-over-year, primarily due to the volume from the California-China Express or CCX service and the benefit of an extra week. The total number of eastbound voyages in the China service, including the impact of the extra week, increased by 9% year-over-year, of which eight were from CCX voyages and one from CLX. Excluding the benefit of the extra week, volume in the fourth quarter of 2021 increased 24.8%. Freight demand in the quarter remained strong as we continue to see sustained and elevated consumption trends and low inventory levels drive increased demand for our expedited ocean services. Matson continued to realize a significant rate premium over the Shanghai Containerized Freight Index in the fourth quarter of 2021 and achieved average freight rates that were considerably higher than in the year-ago period. For the full year 2021, container volume increased 55.4% year-over-year, primarily due to the incremental volume on the CLX+, the addition of volume from the CCX, higher volume on the CLX as a result of increased capacity in the tradelane, and the benefit of an extra week. The total number of eastbound voyages for the year, including the impact of an extra week, increased by 41 over the full year 2020, of which 20 were from the CLX+ voyages, 13 from the CCX voyages, one from the CLX, and seven from extra loaders. Excluding the benefit of the extra week, volume for the full year 2021 increased 52.7%. I'll now comment on current business trends, so please turn to Slide 7. For January 2022, eastbound container volume was lower year-over-year by approximately 20%, primarily due to the timing of sailings. As our sailing schedule normalizes in February, we expect volume in the first quarter to be higher year-over-year, primarily due to the contribution of the CCX service, which we did not have in the year-ago period. In January, we experienced strong pre-Lunar New Year demand for our expedited services, and we expect a similar environment for our tradelane services in the post-Lunar New Year period as larger factories in China returned to production earlier than in the normal post-Lunar New Year period. The transpacific tradelane is currently experiencing supply chain congestion due to a combination of factors. Consumption trends remain elevated and retail and e-commerce demand remains strong. Supply chain constraints remain at critical points for both ocean and overland transportation. As an example, as of yesterday, there were 72 container ships awaiting a berth at the ports of Los Angeles and Long Beach, down from the high of 109 in early January. This recent decline in the number of vessels waiting for a berth may be a function of how fleets adjusted to year-end holiday and the Lunar New Year period. So while the slowdown is welcome, it may be only temporary. The Omicron wave stressed many key areas in the supply chain, and it will take some time for the effects of this wave of the pandemic to subside. Inventory replenishment continues to be very challenging, particularly for retail customers, as evidenced by the trend in the U.S. retail inventory to sales ratio shown in the chart on the slide. We expect these supply chain congestions conditions to remain largely in place through at least the October 2022 peak season, and we expect elevated demand for all of our expedited ocean services for most of the year. As such, we expect to keep the CCX service in place until at least through the October 2022 peak season. Turning to Slide 8. In Guam, Matson's container volume in the fourth quarter of 2021 increased 14% year-over-year, primarily due to higher retail-related demand compared to the pandemic-reduced level in the year-ago period. The volume in the fourth quarter of 2021 was 18.8% higher than the result achieved in the 2019 period. For the full year 2021, container volume increased 15.9% year-over-year primarily due to the higher retail-related demand compared to the pandemic-reduced level in the full year of 2020. For 2022, we're cautiously optimistic about further economic recovery in Guam as we expect improvement in tourism traffic as the year progresses, but we also recognize the potential negative effects on visitor traffic and other economic factors that future COVID-19 variant waves could have on the economic recovery. For the month of January, our westbound container volume increased approximately 36% year-over-year, primarily due to the timing of a sailing, which was approximately half of the year-over-year increase and the higher volume of retail and hospitality-related goods compared to the pandemic-reduced volume in the year-ago period, which reflected COVID-19 travel restrictions. Guam began to loosen COVID-19 restrictions in the middle of January 2021 and further loosened them in February 2021, after which we saw a significant improvement in volume trends in the year-ago quarter. Moving now to Slide 9. In Alaska, Matson's container volume for the fourth quarter 2021 increased 10.2% year-over-year and was 31.1% higher than the results achieved in the fourth quarter 2019. The increase year-over-year was primarily due to the increase in AAX seafood volume, the benefit of an extra week, and higher southbound volume. Excluding the benefit of the extra week, volume in the fourth quarter 2021 increased 6.3% and 26.4% compared to the level achieved in the fourth quarter of 2020 and 2019, respectively. For the full year 2021, container volume increased 7.7% year-over-year, primarily due to the increase in volume from the AAX service, higher northbound volume primarily due to higher retail-related demand compared to the pandemic-reduced level in the year-ago period, higher southbound volume and the benefit of an extra week. Excluding the benefit of the extra week, volume for the full year 2021 increased 6.7%. I'll now comment on the current business trends in Alaska. So please turn to the next slide. In the near term, we expect improving economic trends in Alaska, but the recovery trajectory continues to remain uncertain. The jobs market continued to improve off the pandemic low, and there are some bright spots for incremental gains in the near term, but there are also some long-term challenges ahead. There's an expectation for further employment growth in 2022, driven by a rebound in travel to the state and increased oil and gas activity from the majors as a result of higher oil prices. The federal infrastructure bill signed into law in November is also expected to lead to more employment growth, though it may not be a meaningful driver in 2022. The challenges to employment growth are continuing signs of labor shortages with the combination of the declining working-age labor force and an unfavorable trend in net migration out of the state. In addition, the state fed fiscal position and the decline in federal pandemic relief payments present uncertainties for the trajectory of the economic recovery in the near term. For the month of January, our northbound container volume was approximately 23% higher year-over-year. Approximately half of the year-over-year volume improvement was due to volume associated with the dry-docking of a competitor's vessel. The balance of the year-over-year growth was primarily driven by elevated retail-related demand. Turning next to Slide 11. Our terminal venture, SSAT, contributed $21.3 million in the fourth quarter 2021 compared to $10.9 million in the prior year period. The higher contribution was primarily a result of higher other terminal revenue and higher revenue per lift. For the full year 2021, SSAT contributed $56.3 million compared to $26.3 million in the full year 2020. The increase was primarily driven by higher lift volume as a result of the significant year-over-year increase in import volume on the U.S. West Coast and higher other terminal revenue. And currently, we continue to see elevated import volume into the U.S. West Coast, which we expect to translate into a relatively high contribution from SSAT. Turning now to Logistics on Slide 12. Operating income in the fourth quarter came in at $14.8 million or $5.2 million higher than the result in the year-ago period. The increase was primarily due to higher contributions from supply chain management and transportation brokerage, where we saw elevated goods consumption and inventory restocking in addition to favorable supply and demand fundamentals in our core markets. For the full year 2021, operating income was $49.8 million or $14.3 million higher than the result in the full year 2020. The increase was primarily due to higher contributions from supply chain management, transportation brokerage, and freight forwarding. We're currently seeing continued elevated container volumes in Southern California, which will be a benefit to some of our lines of business. The contribution from our supply chain management business is expected to continue to track with the performance of our China service. I will now turn the call over to Joel for a review of our financial performance. Over to you, Joel.

Okay. Thanks, Matt. Please turn to Slide 13 for a review of our fourth quarter and full year results. For the fourth quarter, consolidated operating income increased $357.8 million year-over-year to $475.5 million, with higher contributions from both Ocean Transportation and Logistics of $352.6 million and $5.2 million, respectively. The increase in Ocean Transportation operating income in the fourth quarter was primarily due to a higher contribution from China, which was a result of considerably higher average freight rates and higher volume, partially offset by higher operating costs and expenses, primarily due to the CCX service and higher incremental costs associated with the CLX+ service. The increase in volume was primarily due to volume from the CCX service and the benefit of an extra 53rd week. The increase in logistics operating income was primarily due to higher contributions from supply chain management and transportation brokerage. Interest expense for the quarter was $4.7 million or $0.4 million lower than the third quarter as a result of lower outstanding debt and a small amount of capitalized interest. Lastly, the effective tax rate in the quarter was 16.5%, well below the 25.2% recorded in the year-ago period. Matson benefited from a deduction related to foreign-derived intangible income or FDII, under Section 250 of the Internal Revenue Code. The FDII deduction is available to U.S. corporations that generate income from services provided in foreign countries. We expect to continue to record FDII deductions in 2022, and as such, we expect our full year 2022 effective tax rate to be between 23% and 24%. Turning to Slide 14. We illustrate how we allocated our trailing 12 months of cash flow generation. For the LTM period ending December 31, we generated cash flow from operations of $984.1 million from which we used $131.1 million to retire debt, $310.4 million on maintenance CapEx and other CapEx, including $117.3 million of early buyout and operating lease termination payments, $14.9 million on new vessel CapEx, including capitalized interest and owner's items, and $15.5 million on other cash flows while returning $244.2 million to shareholders via dividends and share repurchase. On Slide 15, we provide a summary of our share repurchase program and year-end balance sheet. We announced a $3 million share buyback program in late June 2021, and we began repurchasing shares on August 3. During the fourth quarter and full year 2021, we repurchased approximately 1 million shares and 2.5 million shares for a total cost of $84.5 million and $200.1 million, respectively. As noted in footnote one on the slide, the total share repurchase cost figures include $1.8 million in settlement payments related to share repurchasing at year-end. From January 3, 2022, through yesterday, Matson repurchased an additional approximately 300,000 shares for a total cost of $30.5 million. So to add it all up, as of yesterday, we have repurchased approximately 2.8 million shares for a total cost of approximately $230.6 million. And lastly, on share repurchases, three weeks ago on January 27, we announced that the Board approved the addition of 3 million shares to the existing share repurchase plan. Turning to the balance sheet. Our total debt at the end of the quarter was $629 million, and our total net debt was $346.6 million. Moving to Slide 16. This table shows our four key areas of capital expenditures in 2021. We made payments of $117.3 million to acquire assets under operating leases. As we first noted on our second quarter call last year, we paid $95.8 million to terminate the operating lease on the vessel modeling. In addition, we spent $21.5 million on the lease buyout of the barge Mauna Loa and other equipment, which is primarily containers. During the year, we spent $121.1 million on new equipment to support our four new tradelane services, specifically the CLX+, the AAX, the CCX, and the CAX services. In 2021, we made commitments to purchase approximately $159 million of equipment to support these four new tradelanes and to maintain equipment availability across our entire network. The payback on these equipment purchases has been only a few months given the present high-demand market conditions. Moving to the next category. We also made payments of $14.9 million on the new Hawaii neighbor island flat deck barge. The total estimated cost of the barge has increased a couple of million dollars to approximately $25 million, and we expect the remaining payments to be made as the barge is completed and delivered in the first half of this year. And lastly, we spent $72 million on maintenance and other capital expenditures, which is within the range we provided on the fourth quarter call last year. During the year, we continued with our work on Phase II of the Sand Island modernization project as we upgraded our systems in preparation for expanding into the rest of the Sand Island when Phase II shift of the Kapalama container terminal in a couple of years. Turning to Slide 17. The table on the slide shows our CapEx outlook for the next two years. Starting with maintenance and other capital expenditures, we expect to spend $80 million to $90 million in 2022 and approximately $75 million in 2023. These figures are higher than our annual maintenance CapEx range of $60 million to $70 million as they include additional equipment lease buyouts and ongoing Sand Island Phase II work. Our Phase II work at Sand Island is expected to be completed within the next three years and includes improvements to existing backup systems and other important upgrades at the terminal. We expect to spend $55 million to $60 million on new equipment to support our new tradelane services, the majority of which we committed to purchase in 2021 and is spilled over into 2022 due to long lead times for new equipment. As I mentioned a moment ago, we expect to complete the flat deck barge for the neighbor islands in Hawaii in the first half of 2022, and the remaining payments are approximately $10 million on that barge. And lastly, we expect to spend $15 million to $20 million in 2022 and $55 million to $65 million in 2023 on the LNG installations on existing vessels, which we discussed on our third quarter earnings call last November. As a reminder, we plan to install LNG equipment on the Daniel K. Inouye starting in the first quarter of 2023. The installation is expected to last approximately five months with a total estimated cost of approximately $35 million. We also plan to re-engine Manukai to operate on LNG and conventional fuels. The installation will start after the Daniel K. Inouye's work is completed, and we expect the installation to last on the Manukai only about 12 months and cost approximately $60 million. So in total, we expect capital expenditures of $160 million to $180 million in 2022 and $130 million to $140 million in 2023. As we mentioned on our last earnings call, these CapEx figures do not include any spending associated with the replacement of the three Alaska vessels or the costs associated with additional LNG installations we are actively considering for the Kaimana Hila, the Lurline, and the Matsonia, of which the total installation cost for all three of these vessels is currently estimated to be approximately $115 million. And we continue to review options for refleeting the Alaska vessels later in this decade, which we are in the midst of planning and make it a head start on this year with funding into the capital construction fund. We are exploring the idea of moving older vessels into the Alaska service and ordering new LNG-ready Aloha Class vessels for the China service, but no decision has been made yet. And Aloha Class vessel is about -- has about 500 more containers and capacity than each of the three older vessels currently operating in the CLX service. So the three new Aloha class vessels would add meaningful capacity and growth for our successful CLX service. With that, I'll now turn the call back over to Matt.

Okay. Thanks, Joel. After our performance in 2021, many investors may be focused on what will Matson's profitability look like when we get to the other side of the supply chain congestion and the environment finally normalizes. I don't know yet what the new normal will look like. And I suspect the path to normalization may not be linear and may be longer than some realize. But when we do get to the new normal, I remain confident that the secular tailwind of e-commerce adoption and our unique positioning in the Pacific with an expanded network and superior service offerings will result in sustainable higher levels of cash generation than we anticipated a year ago and meaningfully higher than our pre-pandemic 2019 base. Throughout Matson's long history, we've won new business and grown with our customers through uncertain times by having the fastest, most reliable services and having control of great assets to quickly adapt to changes. To this end, we remain focused on maintaining the reliability of our services and working closely with our customers in ocean transportation and logistics to manage through this difficult environment. The capital allocation plan for 2022 is to stay the course. Joel reviewed our key maintenance and other CapEx expenditures we intend to make in the next two years. We're strategically positioned well, and we'll continue to look for opportunistic areas of organic growth to leverage our recently expanded services in the Pacific. We're also on the lookout for acquisitions that meet our key criteria, but we will remain disciplined in our approach. We will continue to reduce our outstanding debt through scheduled amortization of our long-term instruments. Lastly, in the absence of organic growth and acquisition opportunities, we will consider the return of excess cash to shareholders in the form of share repurchases and/or special dividends. And with that, I will turn the call back to the operator and ask for your questions. Thank you.

Operator Instructions. And our first question is coming from the line of Ben Nolan with Stifel.

Yes. Joel, Matt, good talking to you, another good quarter here. I've got a couple. The -- I first wanted to maybe ask about the Hawaii side. The volumes are pretty good, and you talked about the first quarter or at least maybe being a little flatter, Omicron, all that kind of thing. Just kind of trying to get my head around what -- how full that westbound tradelane is. If the Hawaii economy continues to recover, given your current mix of assets that are serving that business, what's the capacity to actually do more volume than what you're doing right now?

Yes. We have sufficient excess capacity with the delivery of our four newest ships in the current deployment, as we envision keeping the CCX and our current deployment. We have plenty of sufficient capacity to be able to handle a return to pre-pandemic 2019 levels or above given the delivery of the sector capacity. So we have plenty of capacity to address market growth.

Okay. That's helpful. Good to know. I'm glad that was an easy one. So I've got another one for you. You talked about acquiring additional equipment, some of that had spilled over into this year. I assume that's primarily containers and chassis. Can you maybe talk through a little bit about where you stand? I mean, I know it's one of the hallmarks of what you do that you control your own equipment in that respect. But you're doing a lot more volume right now. And all we hear is about people not being able to get chassis or other things. How are you positioned at the moment with respect to that part of the business?

Yes, it's a good question. Some of the CapEx we're mentioning regarding the equipment is really just a spillover because of significant backlogs in getting equipment manufactured and delivered. You'll recall early on in the cycle, we took a step to basically grab every piece of equipment we could get our hands on because we really believed this was going to be something that was going to be sustained. So we have effectively dramatically expanded our container fleet and ordered a significant amount of new chassis as they become available. The equipment you're referring to is primarily dry containers and refrigerated containers. Those are the main categories, along with chassis where there is a significant backlog. But we started from a position of relative strength because Matson operates a wheeled operation. We had a relatively large amount of chassis in our fleet, which gave us a significant advantage and sustained advantage. The other part I would mention regarding the equipment is that in this current environment, the incremental return on a single voyage, or said differently, without a box on a single voyage, you can effectively pay for the entire piece of equipment in one or two voyages. So being short of equipment is very compelling economically, and we definitely didn't want to run out of equipment in our fleet. And then I'll turn it over to Joel to comment on a few of the other items.

Yes. The only other thing, Ben, on the timing point, this extra equipment that we purchased as we expanded our services, especially the most recent ones at CCX, we expect that all to come in by the second quarter through the course of the second quarter. So any equipment coming after that is part of our normal annual replenishment of retiring old equipment and bringing in new equipment. So we don't have that many more months to go here before all the extra growth-oriented equipment will be online for us.

Okay. Perfect. And I've got one more, if I can. I was pretty shocked by the SSAT contribution was almost doubled from where it was in the third quarter. I know you talked a little bit about the increased level of volume. But I guess my question is, is there anything else fundamentally there, whether it's margin or whatever that has some staying power such that what we're seeing now, not only for the next quarter, but that it has some sustainability, even going beyond this? I mean, is there a reason to think that maybe SSAT is structurally more profitable than it had been in the past? Or is it just a sign of the times here?

Yes. I think it's a combination of both. Clearly, the economic model of these joint ventures is such that you pay relatively fixed costs to port authorities to operate these terminals. The more volume we put over them, the greater the incremental return. So the most basic fundamental part of this is that it's very sensitive to changes or increases in volume. To the extent that these volumes are sustained or sustained during the new normal, it depends on your view of the future. We expect, in many of our businesses, for these numbers to subside from their current levels when we get to the new normal. But I think these are circumstances that having control of your own terminals and working with the best operator on the West Coast creates really long-term sustained value for the Company. That has proven itself in down markets, but especially in these up markets, where these are very valuable properties. We have strong confidence in our operators, which differentiates our services from our competitors. So while the dollar impact may not equate precisely, we feel very good about our positioning, including our joint venture terminal.

Operator Instructions. Our next question is coming from the line of Jack Atkins from Stephens Inc.

Okay. Great. And congrats on a great quarter and a great year. So Matt, I guess maybe going back to Ben's first question around the capacity available to you in the Hawaii westbound lane to sort of accommodate growth with Hawaii over the next couple of years as the economy fully recovers. If I go back and look at sort of the last, what I would call peak year for Hawaii volume, which was probably 2016 or so, you did about 162,000 or so containers. In 2021, if I normalize for the extra week, you did about 4% or so below that. I know you've had changes to the fleet, a lot of different things going on. I know you don't like to comment on utilization and utilization rates. Is there a way to maybe kind of talk to -- asking Ben's question a different way, how much available capacity do you have left in the westbound lane, just given how much stronger volumes have been here over the last 18 months or so? Hope that makes sense.

Yes. What I would say again is we are not pressed in capacity. We received these four brand new ships, which are a significant increase in capacity. Currently, both of these four ships go through California; in one case, the CCX that goes through Oakland and then it goes through Long Beach. In the other case, the other vessels are connected to the CLX service, so they go two and five weeks through Long Beach to Honolulu. Those are much larger capacities than we had. So we do not envision needing to add more ships to the fleet as we see a recovery in the Hawaii service. We have ample headroom and are very comfortable with the capacity as the market grows without having to add any additional vessels in the foreseeable future.

Okay. Okay. That's helpful. Makes sense. Maybe shifting gears to the transpacific lane for a moment in your services there. If I go back to, I think last week, Maersk had some comments around how they thought the year would sort of play out first half versus second half and rates kind of beginning to soften. Maybe too strong a word, but just kind of begin the normalization process as we go through the year. Your comments are that we're going to have a strong market through at least peak season in October. Is there a way to maybe think about -- and I understand that market is very unpredictable. But is there a way to think about how you're contemplating the first half of the year versus the second half? Do you think that we're going to have maybe a little bit of softening in the second half of the year, albeit rates staying at very elevated levels? Or is it just too early to make that call?

Yes. I think it's too early. I can provide some context though. Our view generally is that there will be only a slow addition of vessel capacity of new builds that are entering the trade globally, and some will be deployed in the transpacific lanes. We see continued elevated demand and are hearing from our customers that they're expecting strong demand throughout most of 2022. Tactically, the seasonal nature of these trades does play a role. The questions about what happens at Lunar New Year and we're already seeing factories ramp back up. The demand from customers in China is very strong, and there continues to be strong growth in e-commerce. People have money to spend and they are spending it. The other thing is as we transition into the first half, many of our customers are aware of the ILWU contract renewal, and they are trying to find other gateways or position inventory in the market. It’s difficult to predict the outcome of the ILWU contract renewal. When we get into the second half of the year, we typically get into the traditional peak season and holiday period. All of this gives us a general feeling that this will be sustained. In particular, given the lack of air freight and the global situation with many factors at play, this gives us confidence in continued strong demand.

No. That makes sense, Matt. I appreciate that. That really adds a lot of color. Maybe following up a bit, if I think back to what you guys have communicated about CLX+ and some of the other services in the transpacific, you've been skewing that capacity towards the spot market more than the contractual side. Given the upcoming contract negotiations in the next few months, is there a change in outlook you have regarding that contract versus spot market mix as you look forward?

Yes. We've always skewed towards the spot market. The reason for this has been a significant premium that we can achieve over contracted rates. We have confidence after all these years that while we cannot predict where customer demand will come from, what is clear is that every customer at some point has a production problem or a supply chain issue that requires expedited treatment. Looking at today’s context, we see annual contracted rates being achieved that are still significantly below where our spot contracts are. So we're comfortable with our position and the groundwork we've laid over time.

No. Totally makes sense. Shifting gears while staying with China for a moment. I'm curious about how we should think about broadly the economics and margin profile of CLX and CCX as we move into 2022. Are there any impacts from bunker fuel prices increasing, demand on charter assets being high, and how that may play into profitability as we go forward?

Currently, we operate the three fastest services in the transpacific. All of our services rank highest in terms of requests. This translates into a significant premium. Our goal is to sustain these three services until the market normalizes. We expect to extend the CCX until at least October if the market continues to show demand. We've often communicated our belief that the CLX+ is a permanent offering. We're feeling confident about our circumstances, and we're currently receiving significant premium to the markets. Our focus is on maintaining the top-tier service and sustaining demand.

Jack, I'd just add that the rate impact and market rates will have a much more significant effect than increases in charter rates, which have gone up. Though we’ve extended duration on a number of vessels, those costs will be higher in 2022 and 2023, which we pay very close attention to. However, these costs will be very minor compared to the rates we receive in those markets, which will ultimately drive profitability.

Understood. Just curious about potential future orders for Aloha Class vessels as a way to add capacity and refresh the fleet for Alaska. Do you think a decision on that is more likely this year? And can we have a sense of how the costs of a new-build Aloha Class vessel have evolved over the last several years?

First of all, let's focus on the vessels that we need to replace are the Alaska vessels, which turn 40 starting in 2026 and 2027. We feel that we may need to place assets before they turn 40 or potentially longer, perhaps targeting 2025 or '26 delivery. Generally, it's about three years from when you sign a contract to when a vessel is delivered. So if we want something delivered towards the end of 2025, that would be a 2022 decision. We’re in the process of doing the groundwork now to leverage that timeframe if we choose to. I can't provide exact cost estimates as the new build prices will depend on market conditions and shipyard capacities. However, we previously paid about 250 to 270 per vessel for the last set, and that included additional costs for installations. This gives you a ballpark estimate of what full installation costs would look like for vessels of similar size.

We’re looking at logical extensions regarding organic growth opportunities, and we won’t consider purchases that don’t meet our criteria just because we have capital. We’re committed to not overpay and maintaining discipline in our approach.

Operator Instructions. And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Matt Cox for closing remarks.

Okay. Great catching up with everyone. Sorry about our technical difficulties. I was first thinking it might have been Ukraine or Russia, but I don't think so. I hope everyone stays safe, and we look forward to catching up with everyone next quarter. Thanks. Aloha.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.