The effects of a sliding oil market and the coronavirus are starting to be felt by the nation’s largest tank barge operator, with Kirby Corp. posting a $248.5 million net loss for the first quarter of 2020.

The loss is notable as the Houston-based tank-barge operator had reported a profit of $44.3 million for the first quarter in 2019 and had a relatively good financial year that included several important acquisitions and occurred despite difficult operating conditions caused by prolonged high water and flooding.

Citing the current volatility of world oil prices and unknown effects and duration of nationwide lockdowns, Kirby joined many other U.S. companies in abandoning its full year earnings guidance for 2020 which predicts how the company expects to do financially over the coming months.

CEO David Grzebinski said during a conference call Tuesday to announce the company’s first quarter results that Kirby is so far weathering the coronavirus pandemic well. It has had “only a handful” of positive Covid-19 cases in a company of 6,000 employees. He credits the excellent planning and execution of new protocols by its shoreside and onboard personnel.

He said the company started the year off strong, with improving market conditions in its marine business and stable conditions in its distribution and services segment.

“Most of the first quarter was solid, but as the Covid-19 crisis deepened and energy prices collapsed, business activity levels declined in distribution and services,” he said in a statement read during the call. “Although there are many unknowns and business levels are expected to decline for a period of time, Kirby has ample liquidity and we expect meaningful free cash flow in 2020. As such, we remain confident that Kirby is well-positioned to overcome the current economic challenges while remaining focused on safety and serving our customers.”

A deep drop in demand for crude oil due to the pandemic and cutbacks of activity in the oil patch have hit Kirby’s distribution and services division especially hard. The company has laid off and furloughed workers and reduced work schedules. “These are difficult decisions, and I understand the impact they have on the affected employees and their families; however, these actions are necessary to allow that business to remain viable,” he said.

Revenues in this segment dropped to $240.7 million from $376.5 million the same time last year. Reduced activity in the oilfield resulted in lower customer demand for new and overhauled transmission parts and service, he said.

Marine transportation, which includes inland and coastal barges, remains a bright spot, with little impact so far from coronavirus. Revenues increased 13% compared to the 2019 first quarter, operating income was up 43% and barge utilization was high — in the low to mid-90% range — despite poor weather conditions and lock closures on key waterways. Grzebinski attributes the strong results to improved spot rates and term contract pricing as well as contributions from the acquisition of Cenac’s barge fleet. He noted that there has been increased demand for the use of Kirby barges to store the oversupply of crude oil, and to a lesser extent, chemical and refined products.

“Since the onset of the Covid-19 pandemic, marine activity has remained relatively strong with many customers using incremental barges to ready their supply chains, store products and relocate inventories. However, with many refineries and some chemical plants curtailing production in response to lower consumer demand, our barge utilization levels started to decline in mid-April,” the CEO said.

He said unlike the recession that hit in 2008/2009, he expects far fewer barges to enter the market this year, and retirements to be higher, and this will help keep the supply of barges in check. New barge orders in the second quarter will be minimal, “and you’d expect that since every company is trying to preserve cash.”

In the coastal market, barge utilization rates were in the low to mid-80% range during the first quarter, and spot market and term contract prices was 10%-15% higher than the same period last year. Revenues in this market were on par with the 2019 first quarter with the impact of higher pricing being offset by planned shipyard days on large capacity vessels.

Looking ahead, Grzebinski said Kirby is “dealing with very volatile market conditions. During this time, we are managing this situation day-by-day with an intense focus on the health and safety to our employees, seamless operations and uninterrupted customer service. Additionally, we are aggressively reducing costs, lowering capital spending and focusing on cash flow.”

Due to declining consumer demand for petrochemicals, crude oil and refined products, inland barge utilization levels have declined to about 90% in recent weeks, and he expects this trend to continue until an economic recovery is underway.

“However, the long-term nature of many of our inland term contacts and the flexibility of barging in the evolving and complex U.S. supply chain will help to insulate some of the decline in business activity,” he said. With the recent reopening of some state economies, an uptick in demand is expected, and if the current demand for barging holds, the business might not suffer too much. “But we don’t know how long it will last and how deep it will go,” he added. “You worry as we open up and get a spike (in infections) that we’ll go back into lockdown. We just don’t know.”

Declines in coastal barge utilization is expected to decline in the near-term as movements of refined products slip. “Additionally, labor constraints in the shipyard industry as a result of the pandemic have resulted in delays and extended shipyards for several of Kirby’s large capacity vessels,” he said.

As for distribution and services, the outlook is bleaker. As activity in oil and gas slips further and with all major Kirby customers curtailing spending for the rest of the year, only minimal levels of service and parts sales and few new orders for pressure pumping equipment are expected.

Despite these headwinds, Grzebinski remained optimistic. “I expect 2020 will be a solid year,” he said. “We are well-prepared to weather the challenges presented by Covid-19. In marine, although we anticipate a decline in volumes and barge utilization, we believe that our marine customer contracts and the variable nature of our cost structure will help to minimize the impact on our operating margins.”

He said the company has taken steps to mitigate problems in the distribution and services division, and that Kirby has strong liquidity and cash flow generation that will be used to repay debt, enhance liquidity and strengthen the balance sheet.

Pamela Glass is the Washington, D.C., correspondent for WorkBoat. She reports on the decisions and deliberations of congressional committees and federal agencies that affect the maritime industry, including the Coast Guard, U.S. Maritime Administration and U.S. Army Corps of Engineers. Prior to coming to WorkBoat, she covered coastal, oceans and maritime industry news for 15 years for newspapers in coastal areas of Massachusetts and Michigan for Ottaway News Service, a division of the Dow Jones Company. She began her newspaper career at the New Bedford (Mass.) Standard-Times. A native of Massachusetts, she is a 1978 graduate of Wesleyan University (Conn.). She currently resides in Potomac, Md.