Good morning, and welcome to the Kirby Corporation 2020 Third Quarter Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Eric Holcomb, Kirby's Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining us. With me today are David Grzebinski, Kirby's President and Chief Executive Officer; and Bill Harvey, Kirby's Executive Vice President and Chief Financial 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 at kirbycorp.com. During this conference 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 under Financials. 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, including the impact of the COVID-19 pandemic and the related response of governments on global and regional market conditions and the company's businesses. A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2019 and subsequent quarterly filings on Form 10-Q. I'll now turn the call over to David.

Thank you, Eric, and good morning, everyone. Earlier today we announced 2020 third quarter earnings of $0.46 per share. The quarter's results were significantly impacted by COVID-19 and the related reductions in demand for Kirby's products and services. Our Marine Transportation business was also negatively affected by the record hurricane season, which significantly disrupted our operations. Across the company, we continue to aggressively reduce costs, which has helped improve distribution and services profitability and kept inland marine margins solid despite a material sequential and year-on-year decline in barge utilization and revenue. Our overall earnings also benefited from a favorable tax rate, which Bill will discuss in a few minutes. Looking at our segments. In Marine Transportation, the inland and coastal markets experienced reduced volumes as demand for transportation of refined products, crude and black oil remain depressed. Although the economy began to recover during the quarter, refinery utilization only slightly improved as refiners were challenged by weak demand, high inventories and low crack spreads. Refinery utilization averaged only 78% compared to the previous five year third quarter average of 93%. Petrochemicals modestly improved sequentially, but chemical plant utilization of 74% remained below levels experienced in 2018 and 2019. These factors contributed to challenging market conditions across inland and coastal, including limited spot requirements and lower pricing, particularly for refined products, crude and black oil moves. Our barge utilization and marine financial results were also impacted by severe weather, which affected our operations across the Gulf Coast and East Coast. During the quarter, there were 20 named storms, including three major hurricanes and one tropical storm, all of which made landfall in the heart of our operations in Texas and Louisiana. These storms resulted in significant disruptions, including delays across our fleet and some prolonged closures of our customers' plants, key…

Thank you, David, and good morning, everyone. In the 2020 third quarter, Marine Transportation revenues were $320.6 million with an operating income of $32.4 million and an operating margin of 10.1%. Compared to the 2020 second quarter, Marine revenues declined $60.4 million or 16% and operating income declined $19 million. The reductions are primarily due to lower inland and coastal barge utilization, reduced fuel rebuilds and the impact of hurricanes during the quarter. However, aggressive cost reductions helped to limit the impact on operating margin. During the quarter, the inland business contributed approximately 77% of segment revenue and had an average barge utilization in the low 70s range. Long-term inland marine contracts or those contracts with a term of one year or longer contributed approximately 70% of revenue with 67% from time charters and 33% from contracts of affreightment. Term contracts that renewed during the third quarter were down in the low single digits. Spot market rates, however, declined approximately 10% sequentially year-on-year with refined products, crude and black oil experiencing the most pricing pressure. During the third quarter, the operating margin in the inland business was in the mid-teens. In the coastal business, spot market opportunities continue to be limited as a result of reduced demand for refined products and black oil transportation. Hurricanes and tropical storms in the Gulf of Mexico and Atlantic resulted in considerable delays and reduced efficiencies. Overall, barge utilization was in the mid-70s range, slightly lower sequentially, but down from the mid-80s range in 2019. Average spot market rates were generally stable during the quarter, but term contracts that renewed in the quarter were lower in the mid-single digits. During the third quarter, the percentage of coastal revenues under term contracts was approximately 85%, of which approximately 90% were term charters. Coastal's operating margin…

Thank you, Bill. The last six months have been very challenging times for most everyone, including Kirby. Before COVID-19 shut down economies around the world, Kirby's inland marine business recorded some of the strongest barge utilization levels in our history. Activity was very strong, pricing was increasing at high single to low double-digit percentage rates and approaching levels not seen since 2014. Operating margins were on a path to exceed 20%. In coastal, capacity was tightening and contracts were renewing higher and double-digit increments. In Distribution and Services, our commercial and industrial businesses were growing with a strong economy, and there was increasing demand for backup power generation. Even oil and gas, which has struggled in 2019, were showing signs of the recovery with expectations for improved demand later in the year, especially with respect to Kirby's environmentally-friendly pressure pumping equipment. Since then, unprecedented and steep activity declines have occurred across the company. It goes without saying the biggest question on everyone's mind is when will the economy recover significantly and get back on track. It is clear the economy is improving. Refinery and chemical plant utilization is up from April lows, and the oil and gas sector is showing some signs of life. we believe our activity levels have bottomed, and we will see gradual improvement throughout next year. However, with the pace of the economic recovery relatively slow, refinery utilization hovering in the mid-70% range and size of a potential second wave of COVID are starting to appear. The risk to and the slope of this recovery is highly uncertain. We believe our fourth quarter will be difficult with results negatively impacted by seasonality and continued low barge utilization. However, as we've said before, we believe this downturn is demand-driven and our utilization will recover when demand rebounds.…

[Operator Instructions] And our first question will come from the line of Jack Atkins from Stephens. You may begin.

Jack, you there?

Yes. David, can you hear me okay?

Yes. We got you. Good morning.

Yes, good morning. Sorry about that. Thanks for taking my questions. So maybe if we could just sort of start with the demand backdrop within inland. David, could you maybe kind of help us think about what's really driving your customers' demand trends here as we look out over the next six months? Miles driven has picked up. We're seeing the industrial economy sort of come out of its trough. Do you – do we need to see more of that to ultimately drive more volumes from your customers, both refineries and chemicals? Or is there something else sort of going on that's impacting customer activity more broadly?

No, I think it's the former in your alternatives there. Let me just give you a little context here. If you look at inland utilization, pre-COVID, we were in the mid-90s, pretty robust. Refinery utilization was in the mid- to high-90% range. At the bottom of COVID, we dropped to 70%, maybe dipped below 70% utilization on inland, and refinery utilization gotten to the high 60s. Yes, it's bounced back a little bit. Pre-summer driving utilization in the refineries got up to about 80%. But it – then it did back last couple of weeks down to 72%, and I think it's about 75% right now across the system, 74.6% to be precise. And when you look at our utilization, it moved almost in line with that. And what do I think is going on? I think it's all about economic activity. It's people driving. It's diesel miles driven, passenger miles driven, and they are going up, but it's still not enough to get the demand up for the refiners to really crank out their products out of their refineries. Jet fuel is one of the big problems. The jet fuel demand is just way off. Diesel's off too and gasoline's off, but they are coming back. And that's why we say we believe our utility has bottomed. We're starting to see a slow climb out of that. You can look at TomTom. I don't know whether you've gone to that website online, but they track global traffic congestion. And you can go to any city in the world really and look at global congestion, which really is about how much car traffic and bus traffic is in the cities. And we're starting to see that come up. It's certainly not to pre-COVID levels. But even as this outbreak has…

Okay, David. Thank you for that sort of color. And I guess maybe for my follow-up question. The stock is trading below tangible book value. You're profitable, you're generating substantial free cash flow. I know the goal is to delever. At what point should we begin thinking about you guys being able to allocate capital towards buying back stock? Because I think historically, you guys like to buy businesses trading below their depreciated replacement value. And I've got to think that at your current valuation, relative to your long-term outlook, you view this as a pretty compelling opportunity to maybe acquire your own business. So how should we think about that in light of your current valuation here?

Yes. I think you're thinking about it exactly the way we are, right? We just had our Board meeting. Clearly, that's part of the discussion. We view our earnings potential. Look, we're the strongest player in both of KDS and in our Marine business in the industry, in our view. And our earnings leverage when things come back, it's quite strong. So you're right. I think this is an incredible time. I do believe this uncertainty has us a little more cautious, and we've been delevering to get our credit metrics a little stronger. But clearly, Kirby's stock is, in our view, a great value at below tangible book. So I don't want to commit to anything, but it's certainly something we look at very carefully.

Okay. Great. Thank you for the time.

Thank you. And our next question will come from the line of Michael Webber from Webber Research. You may begin.

Yes, good morning.

Hey, good morning, Michael.

I wanted to start off first, I guess, with a high-level question. Yes, I think it was – the writing is kind of been on the wall that it's going to be a tough year of kind of pending a COVID recovery that's taking a bit longer than you and most expected. But one of the key themes we haven't seen really slow down at all during COVID has been – it's a pretty broad decarbonization push. And I'm just curious maybe kind of setting kind of a resumption of normalcy to the side, we've seen a number of IOCs and a number of larger players start to position their businesses for maybe more expansive long-term growth trends in that area. I'm just curious, are you guys contemplating at a Board level or internally, what the demand profile post COVID really looks like? And how it might be different than it was heading in? I mean, obviously, the business mix was – cycle over cycle was different kind of right – heading into COVID than it was, say, in 2014 and 2015 when you got the mid-20% margins with ease. I'm just wondering to what degree have you thought about how different that demand profile looks post COVID? And then what you can do to tap into some of those growth trends? Because I think most people would agree that the long-term growth trajectory of maybe black oil and frac might not be enough to garner the kind of multiple than maybe it was 10 years ago?

Yes. No, I think that's an excellent question, Michael. I mean, clearly, the ESG trend and the decarbonization trend is not only there, it's gaining momentum. We're working with our integrated major customers on – both Christian O'Neil, the President of Marine Group and myself are on different committees with some of our integrated major customers and our big chemical customers on decarbonization and how we can do that in the inland space. In terms of its total demand destruction, I think it's going to take a while to play out. But clearly, there is going to be some demand destruction on refined products as we continue down this path towards decarbonization. So the bottom line is you're still going to need energy in the world. The energy continues – usage continues to grow as the underdeveloped world expand its living standards. We are working on actually some very nice carbon-reducing projects throughout Kirby, both in our marine space and also in frac. We've been building electric frac units for five years now. We're probably the market leader. We're doing more and more electrification if you look at S&S, that – that's good. I think we're going to pivot and provide some projects. I do think barging is probably the best mode of transportation to move on a carbon-friendly way. If you look at our carbon footprint per ton mile versus rail, we're probably 25% better. And if you look at trucking, we're probably an order of magnitude better in terms of moving product. So if anything, barging should be the mode of choice to move.

Yes. And I guess it's easy for that, I guess, question to come off as kind of a high concept window dressing. But I'm thinking kind of tangibly, in terms of your customer base, pivoting towards maybe a different long-term future. Is that something you can manifest itself for you all and just a ramp in ammonia and methanol volumes? Is this something where you kind of – something of tangible ways or you shift your fleet mix and/or maybe pivot the Stewart & Stevenson footprint? There's something where you've got a more diversified – I don't know if it's – I know that business – the D&S business services the nuclear industry already. I'm just wondering maybe specifically whether there are ways to gradually shift the book to the higher growth sectors.

Yes. Yes is the short answer. In these committees that Chris and I are on, alternate fuels, as you mentioned two of them, methanol and ammonia, well, we probably moved more ammonia in the United States than anybody else, and we probably moved more methanol in the United States than anybody else. So those would be great alternative fuels from our standpoint. But look, that's complex. You start handling ammonia, it's one of the most dangerous products we carry. So as we pivot to that fuel choice, it could be tough. I would also tell you, and we got to be careful because we're under our NDAs, but we're looking at a couple wind support type things that where our expertise in marine can support offshore wind. So we're looking at the changing world, and we've got lots of projects that can bring that forward for us and generate revenue. But you're precisely correct that two of the big alternative fuels are methanol and ammonia. There's some talk of hydrogen, obviously. Nuclear is interesting, and we do have a good exposure to the nuclear business. I think Europe, though, is very against nuclear power for some reason, but it is one of the true ways to get carbon-free energy. Yes. Anyway, it's interesting. I know you published a lot on this space, and we read your stuff regularly. So thank you for that.

You already have kind of an interesting nexus for that. So I'm just wondering to what degree that ultimately creates growth opportunities that maybe you wouldn't have been talking about a couple of quarters ago. So I can definitely follow up on it. Just to look back on an earlier question, I think it was on, I guess, buybacks. Would tangible book really be – one, I guess, how realistic is that? And then two – just given the leverage profile and maybe in a pretty uncertain future, I guess, near-term. But in terms of how you look at the valuation, would tangible book – would that be the valuation metric you guys are really focused on? I guess we would tend to think about it if you guys are still trading close to 9.5 times to 10 times EBITDA, still going to be at par or north of what you'd be buying a new barge at. So if you think about it in terms of like asset replacement, it's still U.S. credit, that would be – the equity price is still giving you guys credit for creating value, whereas if you're buying a hard asset, that's going to be weight of any premium. So is it realistic to where I think you would be leaning into that right now?

Yes. No. Look, as we said, we're focused on debt reduction right now in the interim, but it's certainly – the stock price is very attractive to us. That said, when we value things, we use a DCF. It's not really – we don't look at it from a tangible book value. I do believe that's an indication of value for sure. And one of the things I think we're all trying to figure out is, given the massive stimulus that's going on in the United States, the deficit growing as much, I think we're headed towards inflation. And hard asset companies in our asset base actually is pretty good in an inflationary environment. I don't know what tools the Fed has, but paying off expensive debt with cheap future dollars is probably one of the ways to get out of the massive deficits that we're going to have in the United States. So inflation – typically Kirby has done pretty well in high inflationary environments.

And Mike, from the debt reduction mode, we – as David's covered, we expect to generate substantial cash flow in the fourth quarter, which would require our debt level – net debt level lower than it was at last December. And our liquidity well over $700 million. So the time we need to – we believe that the time we'll need to reduce debt materially is not extensive. And we'll manage the credit metrics to make sure that we remain investment grade, but we do see substantial cash flow in the company.

Okay. That’s fair. I appreciate your time guys. Thanks a lot.

Thank you, Mike.

Thank you. Our next question will come from the line of Randy Giveans from Jefferies. You may begin.

How was it going?

Very good. How are you Randy?

Doing all right. So on the last quarterly call, you guided to D&S improving in the third quarter but remaining below breakeven levels. However, you were clearly able to turn a small profit here. So I guess what drove this beat? Was it incremental revenue? Or was it kind of lower-than-expected costs? And then, I guess, following those cost reductions, how high do you expect quarterly operating income could recover to in good or maybe at least normal times?

Yes. Good question. Randy, third quarter kind of being above breakeven was better than we expected. And I would say there are two factors. One, our cost savings was – came through a little stronger than we thought. Our team is really going after everything they can as you would expect in this environment, and that was really good. Then the second thing is we were able to ship some environmentally ESG-friendly frac units during the quarter that we had – we have been working on and had basically – not in inventory, but they were almost complete, so we were able to ship that. The ESG, I mean, it's a theme now. All of our pressure pumping customers, frankly, well, and our marine customers, too, everybody seems to be very focused on carbon reduction, and we had some units and some expertise in that – and we had some product that one of our customers was able to take in the third quarter. So that helped, right? That helped in quarterly results. I think your broader question is, and it probably gets to what are we thinking about in 2021 for D&S, I firmly believe it returns to profitability. I think the magnitude of that depends on where the U.S. economy goes. I wish I had a better answer and a more specific answer, but I definitely believe we'll be profitable in D&S in 2021. It's the magnitude that I can't answer, because we just don't know how long its grinding out of economic growth going to take. Certain sectors of the economy – U.S. economy are rebounding pretty fast, but in the old industrial side of the economy, it's a little slower. That said, we – I just mentioned ESG. We do have a lot of ESG-friendly products at Stewart & Stevenson. We're developing more daily. This electrification trend is going on. And we have a lot of products in and around that. So we'll see. I wish I could give you a better answer, Randy. It's just a little too uncertain right now as we look at 2021.

That's fair. And I'm assuming a lot of the costs you've been stripping out is relatively variable. So if business does return, you can maybe bring that back to ramp up operations, right? I guess for Bill, the tax rate that has certainly been the line item that has kind of been all over the map, I guess, the last few quarters. So what drove that $8.4 million tax benefit in the third quarter? And then for modeling purposes, right, what kind of quarterly tax expense or maybe benefit should we use for 4Q 2020 and 2021?

Yes. No, Randy, good question again. It's a result of the CARES Act, Randy, in what we – as you know, we can use our NOLs to go back and apply it against – and get tax refunds. And again, if you remember that the CARES Act, tax refunds are in years when the tax rate was 35% versus – so we actually get a pickup there, and that affects the tax rate. We had guided to 10% – below 10%. And just the nature of that, it's – there's some noise around any tax rate. And of course, we actually had a tax benefit. Prospectively for this year, I think if you use 5% or maybe a little less than 5%, you'll be fine. We do have some noise. Again, that noise – another way to look at that noise, it's actually part of the reasons we get cash. There's cash associated with it. So it's not a noncash item in some ways, but there is volatility, Randy, and I think for this year, if you use 5% or less you'll be fine the next – and eventually, will trend to the 25%. Next year will be to lower though, lower than 25%, because we do have – and again, the year 2020 does provide us some tax benefit.

Sure. And then just to clarify that 5%, is that for the full year or for 4Q?

No, sorry. No, I should have said that, the fourth quarter.

Okay. So there will be a tax loss? There will be expense on that line item?

I believe so. But again, it's very, very difficult, and it could be breakeven. It could be 0. It could be – it should be at or around that, but there's so many moving parts.

That's fair. I just didn't know if the $8.4 million was something you were planning on kind of duplicating or anything.

And in fact, if you look at it, for the third quarter, we had about a $0.15 to $0.17 benefit because of that.

Yes. Got it. Well, hey, thanks again for the time. Good luck in the fourth quarter.

Okay. Thanks Randy.

Thank you. Our next question will come from the line of Jon Chappell from Evercore ISI. Please go ahead.

Good morning, everybody.

Hey, good morning, Jon.

David, I wanted to start on the demand side. And I think conceptually, the refinery utilization being low makes complete sense. But when we think about petrochemicals and housing and autos being two of the bigger end markets and housing is on fire, autos are rebounding aggressively off the bottom. Are there any other end markets that are kind of pressuring the utilization at the petchem plants? Or is it just a function of needing to catch up to these other industries that are recovering?

Yes. I think it's the latter. Petchems have been okay. I think we've been pleased about some things like methanol, for example, that stayed pretty steady. Ammonia stayed pretty steady. Pressure products – and I use pressure products as an example, butadiene, which is a pressure product goes into tire manufacturing. During COVID, they shut it down, because there was no real vehicle manufacturing going on. I think you'll start to see that come back as demand for tires go up. So there are some bright spots in petrochemicals, but some of the petchem volumes go into fuel blend stocks and whatnot. The other thing is hurricanes didn't help petchem volumes at all in the third quarter. Like Hurricane Laura, for an example, hit Lake Charles really hard. And one of our customers' plants was shut down for a full month. And that's just really painful. There are still some plants that aren't open in the Lake Charles area. They're still trying to come back up. So there's a lot of noise in that, but petchem has not been hit as hard as the refinery complex. But they do interact with one another, right, because some of the petchem blends go into – well, they go into blend stocks and the refineries and whatnot. So they are somewhat linked.

Okay. And then tying that in, can you help us think about contract renewals? I know that they're not entirely lumpy, but maybe not completely smooth either. With this precipitous drop in 3Q utilization and spot rates and kind of your outlook for 4Q, is it going to take some time to kind of see a recovery in the margins because you're going to have term contracts reset lower for the next nine to 12 months? Or can we see the term contracts kind of stabilize as soon as you see the light through the eyes on utilization back to 85%, we can see a more aggressive margin expansion in the early part of 2021?

Yes. I – well, you've heard us say utilization needs to be in the mid-80s to kind of get pricing – positive pricing momentum with it in the low 70s. We are continuing to see pricing pressure in the spot market. I think Bill gave some numbers that we were – spot pricing was down in the quarter, sequentially about 10% and probably down 10% roughly from a year ago. Term pricing, term contract renewals was down more like mid-single digits, which is a little better. There – the term contracts have a longer outlook and people think about what's going to happen in the future more there versus spot. I think we'll see pressure in the fourth quarter on pricing still. I think we are seeing utilization – as I said, it's bottomed and it's starting to pick up. We just need it to get into that 80% range before I feel real confident about margins going back the other direction. I think we're going to see some pressure for a while. When in 2021 that reverses, it's too hard to predict right now. I hate to say this because it sounds like a pat answer a lot depends on COVID.

That makes sense. I appreciate it David, thank you.

Thank you.

Thanks, Jon.

Thank you. Our next question from me are Greg Lewis from BTIG. You may begin.

Yes, thank you and good morning, everybody. David, you touched a lot on the tangible book value of the company. Clearly, there's been a little bit of pressure on utilization. I guess what I'm wondering is – you lay out a good chart on deliveries. I guess what I'm wondering is as you're talking to potential – two things: one is, typically, you guys tend to be countercyclical and reach out and go to shipyards when they're in need of orders to place orders, maybe to keep those yards afloat. I guess, first, is that something that you're thinking about doing where we are right now? And then just a follow-up on that, as we think about barge pricing and asset values, is there the potential for any write-downs that we could be seeing as we kind of progress over the next – I guess, as we head in towards year-end, just given the challenges that the fleet's kind of faced in 2020?

Yes. No, thanks, Greg. Good to hear from you. I would say in the inland market, we're kind of in the low 70s in terms of utilization. We're not looking for extra barges right now. So going to build some new barges, it probably doesn't make sense for the near-term for sure. And as you've heard us say before, we'd much rather buy barges from another company than build new. so I don't see us building new barges in the interim. In terms of the new builds in the industry and the retirements, look, we – I think there's not a lot of new orders going into the shipyards to your point. And I think the retirements are going up. You can look at our retirements. We expanded how many we were going to retire this year, just looking at their – the discounted cash flow that they could generate for some of these older barges. And I think we're up to about 80 barges retired this year or retired are kind of laid off. So I just don't see us going into the shipyards to build at this time, Greg. In terms of impairment, look, the great thing is we're still making money. I mean if you look at – in the inland market, kind of mid-teens margins, yes, that's pretty good. That may go down a little bit, but it's still generating pretty good cash flow. So we feel pretty good about that.

Yes. I think if you look on the barges, to – in the future or in the long-term to cover its historical cost is not even a question. I mean these – we are profitable. And if you look at it, there's always a few things that will be idle or a few things that we lay off that go away. But I think the inland franchise is so strong, it's not something that I think there's any big risk.

Okay. Great. And then I think you kind of touched on it. But like clearly, when we think about what Stewart & Stevenson is being clearly eFrac always gets – it's just – it's a big piece of equipment on the oilfield. It's easy to kind of understand. Are there other things that S&S is working on other products or anything where it can kind of move the oilfield into a more environmental or an ESG kind of position beyond the eFrac? Or are there other things that the company is kind of looking at doing and working with customers and helping them move that forward?

Absolutely. We've got a whole list of ESG-friendly products that we've won. We've been selling for a while and some that are newer. I would say the – just sticking with frac, there's kind of three real good areas: one, just a direct eFrac, which – where you have maybe a turbine generating the electricity driving electric drive to the pumps. And we've been doing that kind of work for five years. We're probably one of the market leader in that space. There are some others that are coming out with new ones. Then there's what I would call electric drive, which isn't necessarily gas turbine-driven to generate the electricity, but you could have a dual diesel gas, dual-fuel engine driving electric generation to electric drive. And then there's, obviously, just the traditional instead of just burning diesel, it could be – we call it DGB, which is a cat product. One of the products out there is a cat product called DGB, which is dynamic gas blending, where they can burn up to about 80% natural gas with no methane slip or little or little to no methane slip. So these are all products that we work with our customers on, and they're very ESG-friendly. But I would tell you, other areas is just electrification, backup power, things that are going into electrification. I mean you see it particularly in EVs, but there's a trend towards electrification around the United States and the world for that manner. And we have some products that we offer into that space. We do, for example, I'll give you another example, in hurricanes, we have standby power and literally on essentially an 18-wheeler truck that can come in and plug into the back of a big box store to get it open for communities that have been impacted. Obviously, we keep refining and developing how we can do that more efficiently. Think about kind of an electric caddy where you can just plug into the back of the store versus spending a lot of time rewiring things and splicing into a store's electric connections. So we're working on a lot of things like that. It's an exciting time, and it's part of where the world is headed right now. So we're trying to capitalize on it.

Absolutely, okay. To everybody, thank you for the time.

Thanks, Greg.

Thanks, Greg. Operator, we’ll take one more question.

Sounds good. Our next question will come from the line of Sanjay Ramaswamy from Bank of America. You may begin.

Hey guys, thanks for taking my question.

Yes, good morning.

A simple one to start. But just – I was looking at the revenue ton mile in third quarter, and that was $0.08.9. So just a modeling question there. I think that was up 11% year-on-year. Was that just a function of the lower ton miles? Or I mean, how do you think about that?

Yes. It's interesting. Revenue per ton mile can move around a lot depending on the voyages. So if you're just doing a bunch of cross-channel moves in Houston, you're going to have low ton miles but pretty good revenue, because it's about that move. Conversely, if you're going up river, you're going to have a lot of ton miles in the revenue per ton mile drops. I think we just had some noise in the quarter. Do you have the numbers, Bill?

Yes.

Go ahead.

Yes. In the quarter – and remember, too, that in this quarter, with all the hurricanes and the delays, there were very low ton miles, right, in relative terms where last year was the third quarter was an excellent quarter from a point of view of movement. We went – so I do know – you do point out a fact that it was $0.089 this quarter. Last year was $0.08. So there's a lot of things there. But in the end, a lot of it relates to just, as David said, the length in as well, just the weather last – this year with all those hurricanes, it really froze things for extended period.

Yes. And we have 70% of our businesses under term contracts. So they would be – even if you're not moving, you'd probably get some revenue and very little ton miles.

Yes.

Perfect. No, that makes a lot of sense. And just for the follow-up question. Just maybe thinking about a potential second wave of – in fact, it's not a potential, but it's here right now, I mean maybe the potential for further kind of lockdowns. Maybe just can you talk to the potential scale of the cost-cutting kind of initiatives that you can take and the further stuff that you can take out of both D&S and inland. I know in the second quarter, you guys did a great job of taking cost out within inland and now D&S is back to profitability. So just maybe the potential scale for further cost out in both of those businesses just to keep the margins somewhat steady?

Yes. I mean we continue to fight. But as you know, the longer you have to go after cost cutting, the harder it gets, right? I think in Marine, we've taken out probably $120 million in cost, and that's an enormous amount. We're still looking at our cost structure and looking for ways to cut it. Similarly, we've probably taken out – well very painfully, we've taken a lot of heads out of our D&S business. Is there a lot more to do there? No, not a lot is my short answer. So that's part of the equation on thinking about margins, right? The levers that we can pull to pull down costs are still pretty thin right now, because we've taken so much out so far. That said, in every company, as things get worse, you get smarter about how you can take cost out. So we're continuing to look at that. And I think one of the keys though is, look, we know this is a demand-driven situation. We know demand is coming back. We know there's huge pent-up desire to get back to normal life. And I do think a vaccine is not that far off. Who knows where it – when it gets to a sufficient distribution number and has an impact? But that could be, in my mind, worst case mid-summer of next year. And as the economy opens back up, the demand will come back. I think there's huge amounts of pent-up desire to go back to some type of normalcy. And so we don't want to cut – to use a proverbial saying, we've cut the fat out. We've cut into maybe a little of the muscle, but we surely don't want to put all the muscle out or hit to the bone, because we've got to be able to respond. It's a very long-winded answer to you. Sorry about that, Sanjay.

And then Sanjay, if you look at it, part of the issue in the third quarter was the high inventory levels our customers had, and they've worked those down. So as the demand – our demand is linked to their demand. And when they had high inventories, you can imagine what they were doing. So we think that – or I think personally that what will happen even in the lockdown scenarios, it might be – it will be more steady from our side. It may not improve, but it will be more steady.

That’s it. I appreciate it. Thanks guys.

Okay, thank you.

All right. Yes, thank you, Sanjay, and thanks, everyone, for your interest in Kirby and for participating in today's call. If you have any questions or comments, you can reach me directly today, 713-435-1545. Thanks, everyone, and have a great day.

Thank you.

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