And more importantly, as, I – we anticipate the same kind of improvement in that order of magnitude in ’25. It’s a – this is a runway and it should take several years to play out. Now in terms of, pricing rolling over or even flattening, we didn’t see that. Spot prices year-over-year in Inland were up 15% to 18%, term pricing was up 7% to 9% year-over-year. So there’s actually a healthy gap between spot and term. You want spot above term, which what we see, it’s, a pretty good gap. And then even sequentially, we saw from third to fourth quarter, spot pricing was up 2% to 5%. So, we didn’t see any flattening. Look, pricing needs to continue to go up. We’re offsetting inflation, we’re trying to get returns back up to where, we can get a return on our invested capital.
And we’re still a long way away from justifying new builds. So it – it’s very constructive. I think you’ll see the margin progression of 300 basis points to 400 basis points up this year, and then perhaps something similar in 2025.
Ken Hoexter: So really the best way, I guess to take away from that is, is you can’t look at the fourth quarter as the exit rate, run rate, you got to look at the annual as far as the improvement, given the seasonality and repricing?
David Grzebinski: And just, I think that’s fair. We – I mean, you heard our term contracts were up in the high-single-digit 7% and 9%.
Ken Hoexter: Yes.
David Grzebinski: So that’s going to roll through this year and, it’ll progress.
Ken Hoexter: And then did you mention where spot rates are now for a 2-tow barge?
David Grzebinski: No, I didn’t. I better not. I shouldn’t, or my attorney will – he’ll kick me.
Ken Hoexter: And then going now to the O&G side, you keep mentioning supply chain delays. I just would imagine we’re well past everything post-COVID and supply chain issues, I mean maybe Red Sea is now popping up now with rerouting, but what are the issues that you’re still dealing with on the supply chain?
David Grzebinski: Yes, no, it’s gotten a lot better, Ken, for sure. You saw our deliveries, well, probably infer, our deliveries in the fourth quarter were pretty good out of our manufacturing facility. We were having problems with electronic componentry and one-off items holding up all series of equipment. That’s kind of worked its way out. What’s really happening now is long lead time. Engine packages, for example, if we were to order engines today, we wouldn’t get them until kind of mid ’25. So that’s, the big componentry is the problem, that the lead times on engines in particular have been a problem, and it’s really about boundary constraints in the engine world, but it’s just long lead times. So we’re still dealing with that.
If that was compressed, we would deliver better results. If we could get engines quicker, particularly on C&I for power generation, Ken, we, we’re seeing a lot of demand for backup power and, if the engine packages could flow quicker, we’d have better numbers in D&S for 2024.
Ken Hoexter: David, I just want to clarify two things, one is real quick, if I can on the first answer on the margins, so just the 300 basis points, 400 basis points, if December exited close to 20%, does that mean – December ’23, does that mean December ’24 could exit close to 24% for that month, just given that seasonality? Is that kind of conceptually how we should think about it? And then do we need to change the supply chain in any way to affect that change?
David Grzebinski: Yes, on the margins, it depends on weather in December, right? But yes, I mean, directionally if we saw a mild December, I think, absolutely we’d be close to that number, yes.
Ken Hoexter: That’s great. That’s good.
David Grzebinski: On the supply chain, we’re – look, we use – it’s best for me not to name engine – different engine companies, but we use all, all kinds of different engines and they’re seeing it, whether it’s a German-based engine company or U.S.-based engine company, they’re all – have the same issues in terms of foundries producing blocks and getting it through. There’s not much we can do, it’s their supply chain. We’re working with them, trying to pre-order stuff and work that side of the thing. But look, they’re working hard to get the engines, they want to sell as many as they can as well. So, we’re working on it with them, some of it’s out of our control. We’re trying to do better job planning as you would expect.
Ken Hoexter: Thanks a lot, David. I appreciate the time.
David Grzebinski: Thanks, Ken.
Operator: Our next question will be coming from Jon Chappell of Evercore ISI. Your line’s open.
Jon Chappell: Thank you. Good morning. David, I’m going to ask you a bit of a longer-term question but it ties together I think a lot of things we’ve been talking about for the last couple of years or so. When you lay out a path for 300 basis points, 400 basis points both this year and next, that kind of gets us close to the mid-20s, we had spoken maybe a year-and-a-half ago now at this point about inflation really kind of pinching you and potentially, precluding the Inland margin from getting back to the cyclical peaks of 10-plus years ago. Is inflation easing at all now and when you talk about the early innings, I would assume that would mean this has a couple more years of runway, can we revisit then, those kind of mid to high 20% Inland margins, barring an extraordinary event?
David Grzebinski: Yes, I’ll take those in kind of reverse order. I do believe we can get to the high 20s in margin. We’ll see, but inflation is real. We – we’re seeing it even, when you listen to the pundits out there. That we’re still seeing inflation not deflation. I would tell you, maintenance is – maintenance inflation has gone up a lot. We talked a little bit about the shipyards having a hard time getting labor. Steel prices haven’t abated at all. In our ecosystem, mariners are short, critically short across the entire industry. Fortunately, we have our own school where we train mariners, but we’re still, really tight on crewing. So you’re – we’re seeing labor inflation, everybody’s seeing it. Things like paint and steel and all of that, we’re still seeing inflation.
Believe it or not, rental cars are – we do a lot of crew moves and rental car inflation has hit us. So we’re still offsetting that. I think everybody’s been a little frustrated with the pace of our margin improvement, certainly us. We would like to have improved it faster, but it’s really about this inflation and trying to offset it. Look, our customers are experiencing the same thing, they have inflation in their refineries and then at chemical plants, they’re fighting, steel cost, the supply chain issues, and of course, labor costs. So, our sophisticated customers definitely understand it. They understand we’re fighting inflation. We are getting some real price increases, but we need it to get to prices that could justify, replacement capacity.
But it’s a long rambling response, Jon, sorry, but inflation is there. But, the fundamentals are such that we’re going to get to the mid-20s at some point, and barring anything unforeseen, we should get to the high 20s.
Jon Chappell: That’s great. For my follow-up, maybe a tag team here, tying two things together. So, David, you were able to pick up, those barges that your competitor had to walk away from conceivably, and you’re in a, obviously, a great balance sheet position to do that. When I look at your buybacks in ’23, as far as I can find, it’s the second highest year for at least 15, 16 years after 2015, and a ton of free cash flow per your guidance for ’24. So I guess the question is, picking up barges, and the orders are I think a one-off event, but is the M&A market kind of bubbling up a little bit now where you’re off the bottom, no one wants to sell at the low, so maybe there is some activity brewing there, and how much dry powder do you want to keep for that vis-a-vis, maybe using all this free cash flow to continue to ramp the buyback pace? So for David and Raj.
