Kirby sees demand slip

QUIET RIVERS

INLAND • THE CURRENT HEALTH CRISIS HAS HAD A SIGNIFICANT IMPACT ON DEMAND FOR FUELS AND CHEMICALS, WITH A RESULTING FALL IN DEMAND FOR TANK BARGE SERVICES

KIRBY CORPORATION, THE largest domestic tank barge operator in the US, has reported a sharp decline in revenues and profits for the second quarter, reflecting lower production from the nation’s oil refineries and petrochemical plants in light of reduced end-user demand during the current Covid-19 pandemic.

Quarterly revenues of $541.2m were 30 per cent down on the figure for second quarter 2019, with net earnings down 47 per cent at $25.0m. The biggest falls were recorded in Kirby’s Distribution & Services segment, with its exposure to the oil and gas market; in Marine Transportation, on the other hand, revenues were only 5.7 per cent off, with the operating margin actually higher than in the previous year.

In the inland market, average barge utilisation was in the mid-80 per cent range in the second quarter 2020, compared to the mid-90 per cent range a year earlier, as a result of reduced demand for refined products and petrochemicals. This lower utilisation translated into lower spot rates, though term contract pricing held stable, Kirby says. This fall in revenues was partially offset by the impact of the acquisition of the Savage Inland Marine fleet, which was completed on 1 April.

In the coastal market, lower demand for refined products and black oils cut barge utilisation from the mid-80 per cent range a year ago to the mid-70 per cent range. Spot market activity declined but both spot and term rates remained stable. Revenues in this segment were down 17 per cent year-on-year as a result of this fall in demand, along with the retirement of two large-capacity vessels and planned shipyard activity. DEMAND SLUMP David Grzebinski, president/CEO of Kirby Corp, comments: “The dramatic economic slowdown associated with the Covid-19 pandemic in the second quarter was felt across our marine transportation and distribution and services businesses. We responded by aggressively lowering costs across the company and were able to generate solid earnings and strong cash flow. Although the demand impacts have continued into the third quarter, activity appears to have bottomed and is starting to slowly improve.

“In marine transportation, with demand for many liquid products down significantly during the quarter, refiners scaled back their utilisation levels into the high 60 per cent range before it gradually improved into the mid-70 per cent range, and chemical plant utilisation fell to near 70 per cent,” Grzebinski continues.

“To offset the impact of these activity declines, we aggressively implemented additional cost reductions across the business, significantly reducing horsepower, operating costs, and general and administrative expenses. Despite a 6 per cent sequential reduction in segment revenue, our cost reduction efforts contributed to a sequential improvement in segment operating margins from 12.6 per cent to 13.5 per cent.”

In inland marine, although refinery and petrochemical plant utilisation rates have started to improve, Kirby expects a slow recovery going forward until economic activity rebounds more significantly. In the coastal market, with 85 per cent of revenues under term contracts, much of its business is expected to be stable through the end of the year.

“Given the risk of future spikes in virus cases and governments issuing new restrictions, the timing and magnitude of a material recovery remains unclear,” Grzebinski says. “Until we see a significant improvement in demand, we will continue to aggressively manage our costs, restrain capital spending, and focus on cash generation.” www.kirbycorp.com