recently from ocean and air rates. But how much of this is continued price discovery as the value of your offering has really been proven out? And then if you could also help us understand how much of this is fuel here in 2Q and how much fuel we should expect in 3Q just as we look at how much of this is permanent, how much of this is temporary, just given the current backdrop.

Sure, Reid. Why don't I ask Joel to comment on the fuel question, and then I'll focus on the body of the first part of your question.

Yeah, Reid, the quick answer on the fuel is not much of it has been impacted by the fuel. You know, we announced, and it's publicly available on our domestic trade links, the fuel pieces, so you can see that. But I think your question was geared more towards the Trans-Pacific and our China services. And most of the early rate action that we took that had some fuel components to it was done early in the second quarter, the March-April timeframe, and then the rest of the pricing environment since then has really been market-driven, not fuel-driven.

Okay, and then read to the main body of the first part of your question. I think, as we've said in our prepared comments, we've been pleasantly surprised by the strength of the international ocean markets. I'll talk about the Trans-Pacific and ours in a moment, but What's interesting this year that perhaps didn't exist last year on the international trades was it's not just the Trans-Pacific volumes that we're seeing strength. We're seeing, despite the conflict in the Middle East, the international trades, whether they be the South American trades, whether they be Asia, Europe or African trades, have all been remarkably resilient and have as a result have absorbed much of the capacity of the international ocean carriers. And as I said in my earlier comment, to answer a question, I think the carriers have done a good job of deploying the right amount of capacity to carry each of these international trades without creating a huge backlog of cargo, nor by creating a large surplus of capacity. So the networks have responded in a very orderly way. I think that's translated into the pricing that you see on the SCFI or other publicly available indices. And, of course, Matson's, as you point out and know, our freight rates are above the rates of the international trade. Our freight rates don't generally move. We don't change them as much, but we're definitely into a period under which we're achieving very satisfactory freight rates and expect those freight rates to continue until the end of peak season.

Got it. That's very helpful. And just kind of a quick follow-up there. I think last year when the broader ocean rates came down, Matson rates seemed to hold a little bit more stable. Should we expect similar price action or maybe a little bit more in tandem movement this time around?

Yeah, I think our thinking about pricing just more generally is expressed in our guide forward on the third quarter and the full year. And that is to say in the fourth quarter, we do expect Once we get past peak season, we have historically and at this point expect to step rates down as we get towards the end of the year. Again, that's all reflected into our thinking about how that's going to result for the Q3 and Q4 guides.

That makes a lot of sense. And last one for me, just kind of bigger picture. As we look out to 2027, it looks like ships are on pace to be delivered on time. When you think about the current volume backdrop, is it shaping up how you expected slash hoped for whenever these ships get deployed to where you can utilize them to the best of their abilities, or is the backdrop slightly different than you planned? Has your thinking changed at all?

We're very much looking forward to the additional capacity with the first of the vessel getting delivered in the first quarter of 2027. That'll, for the first vessel at least, move nicely as we get into the second and third quarter peaks so that additional capacity is welcome. We'll be taking the place of a smaller vessel that will then be deployed into one of our U.S. domestic trades, Hawaii or Alaska. And so we continue to feel that that additional capacity will be welcome and will allow us over time both to increase our earnings footprint, but also connected to our Southeast Asia strategy of broadening our markets that we focus on with our highly differentiated product. I think we'll tailor nicely into the additional capacity that gets woven into our fleet over the next couple of years. So we feel really good about our positioning there.

Great.

Thank you, Matt. Thank you, Joel.

Thank you, Reed.

Thank you. And our next question comes from the line of Tomo Sano from JP Morgan. Your question, please.

Hello, everyone.

Hi, Tomo. Hi, Tomo.

Thank you. Congrats on a quarter. On the 45% year-over-year increase outlook for third-quarter ocean transportation operating income, could you provide more color at the high-level bridge across Pricing and Volumes and Key Costs, if possible. Thank you.

Yeah, Tom, I'll take a first stab at that. The primary one, there's some piece of volume and there's some piece of higher freight rates. I mean, clearly rates are higher now than they were last year's Q3. And then on the volume side, both Q2 and Q3 last year were highly unusual, as we've talked about. So the tariff impact in April and May was extreme last year. But then there was actually a bit of a mini surge and a rush to move cargo in June and early July. And then later in August and September, it was a muted peak season that we talked about. So you had less volume, really, frankly, moving through the third quarter than you normally would have in the third quarter. So we expect this year to be a better volume environment for our China trade, as well as we're heading in the environment right now is at higher all-in rates. So the answer is the 45%.

Thank you. That's helpful. And you talk about Southeast Asia. Cargo is now 20% to 25% of China's service volumes. If possible, could you discuss qualitatively how it's different versus China-origin cargo in terms of the profitability and pricing structures and seasonality and the customer concentration, please?

Sure. Yeah. I will endeavor to do that. It's a multifaceted question. So let me try to break that down. So I think the first thing that we are very pleased about is from just in the last couple of years, we went from essentially no organized Southeast Asia services to now in North and South Vietnam and in Thailand, we are the fastest and most reliable carrier including those that are ocean direct from those origin with our regional transportation partners and our service. So the good news is that of all of those origins, we've satisfied our strategy, which is we want to participate in markets where we are the fastest and most reliable, where we can offer a competitive product such that we will grab the top 5% or some small percent of the market that really needs to get their cargo there on time, whether it's a late order production problem, whether it's coming out of air freight, and that absolutely needs to be at its destination where it matters. And we do achieve a premium relative to the market and significant premium relative to the market from those origins. But as to the element of the question about our relative contribution. Freight rates are similar but slightly lower all-in rates for us than our China origin direct cargo. Our operating costs to carry that are a little bit higher because we're positioning equipment into that region and we're carrying it out so there's a connecting carrier agreement payout. I would say those numbers are very small and manageable relative to the size of our freight rates and we are highly satisfied with the ending yield that drops to the bottom line associated with the Southeast Asia cargo, acknowledging that it's slightly lower than a China direct. But we've been able to, we think, diversify. We've established our market presence. As to your question about the types of cargo, many of the customers that are using us in Vietnam and in Thailand are the same customers that trust us with cargo out of China. and for the beneficial cargo owners are the same customers that are using us that have multiple facilities in different countries. So our value proposition is already known and trusted by them. So maybe I've over answered your question or not exactly right, but that's some of the color of the comparisons between our China origin cargo and our Southeast Asia cargo.

Thank you very much. I appreciate it. Congrats again.

Thanks, Tomo. Thanks, Tomo.

Thank you. As a reminder, if you do have a question at this time, please press star 11 on your telephone. Our next question is a follow-up from the line of Jacob Lacks from Wolf Research. Your question, please.

Hey, guys. One more for me. How do you view the cost structure of the new vessels compared to the current CLX vessels that will be shifting out? And then should the improved profitability on these be realized immediately following delivery, or will there be, like, a bit of a lag for any reason? Thanks.

Jake, so the cost structure is very similar. They're larger, but the daily operating cost and the fuel burn, importantly, are very similar to the vessels that we have today. So there won't be a big change or meaningful change on the cost structure, but we do have the bigger capacity. So the answer then becomes, you know, on the additional utilization that we've talked about that should be incrementally profitable to our bottom line. It depends on exactly what month when each of the ships are deployed, but we expect them to be full, all of them, in Q2 and Q3. All the incremental capacity may not be used in Q1 and Q4. but generally we expect these vessels to be near all the additional capacity to be used to be very profitable for us and flowing through the bottom line because of the comment I made about operating costs being similar. So that's generally how we expect it to improve our bottom line as each vessel is phased in. Great. Thank you. Okay. Thanks, Jake.

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

Okay. Hey, thanks for everybody listening in. We look forward to catching up with everyone on the Q3 call. Thank you.

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