Wallenius Wilhelmsen ASA

OSE:WAWI

Earnings Call Transcript 2021-Q3

[Torbjorn Mogard Wist, Acting CEO & CFO]

Good morning, everybody. Welcome, and thank you for joining us for this Third Quarter Webcast. My name is Torbjorn Wist, and I'm the CFO and acting CEO of the company. Before we move into the agenda and practical information on the Q&A, I thought I would share some highlights from the third quarter.All in all, we delivered another good quarter where we showcased our competitive advantages and demonstrate our ability to scale and adapt to secure higher-margin cargoes in what can only be described as a volatile market. Our EBITDA ended at a record $233 million, the highest quarterly level since the merger in 2017. We have a strong rate and profitability development in the Shipping segment, and this outweighs a reduction in volumes across all 3 segments.Unfortunately, global supply chain issues remain, and it is no surprise that the semiconductor chip shortage has affected volumes in our business. In August, we successfully issued a NOK 1.5 billion bond at attractive pricing, and we ended the quarter with a cash position of $587 million, up $21 million quarter-on-quarter. These good results will help build a solid foundation to return to a dividend position as well as consider future investment decisions.We have established an ambitious target to reduce CO2 intensity in our shipping operation by 27.5% from 2019 to 2030. The target can only be reached by improving energy efficiency for our sailing fleet, in combination with fleet renewal for vessels that age out during the next decade. We are working hard on our fleet renewal and emission reduction strategy, which includes the concept study of the Orcelle Wind as well as other existing vessel technologies. We expect to revert with more information within the coming 12 months.Last week, it was confirmed that our U.S. subsidiary, ARC, was not awarded the updated bid for the Global Household Goods Contract. ARC has requested a debrief from the U.S. Transportation Command, TRANSCOM, and will evaluate its options to protest the decision. Any further announcements will be made as and when needed.Turning to the agenda. We will, as usual, start with the business and market updates before we review the financial performance. We will have a Q&A session at the end of the presentation, managed by Anette Orsten, who is our VP, Global Treasury and IR. If you have any questions, please send it on the ask the question button, which you see on the screen. We will, of course, endeavor to answer all your questions either on or after the call. As last time, we are fortunate to be joined by Erik Noeklebye, COO of our Shipping segment based in Seoul as well as Michael Hynekamp, who is on a bit more disadvantageous time zone sitting in New Jersey. Mike is, of course, the COO of our Logistics segment. They will together review the key business and market developments for the respective segments during the quarter.And I will now hand over to Erik for an update on the Shipping segment.

[Erik Noeklebye, Executive VP & COO of Shipping Services]

Thank you, Torbjorn. And before I move into the shipping business and market update, I would like to share the story behind the picture that you can see on the slide as it relates to our position as an end-to-end solution provider, where both shipping and logistics are a part of the overall delivery. In this picture, you can see our first shipment of Airbus A220 fuselage components. That's leaving the port of Dalian in China. And we will move the Airbus parts on land and sea from the manufacturing plant in Shenyang, China to the Airbus factory in Mirabel, Canada. And in addition to the transportation services, Airbus would also know the location of each part as it moves through the supply chain, using our digital tracking tool, and that allows them then to optimize their operations at every point. And this, for us, showcases what is a modern end-to-end supply chain management and what that looks like.Okay. Then moving into the results part for the Shipping segment. So for the Shipping segment, we saw a net freight rate per cubic meter, improving significantly in the third quarter, and it's up 30% since the last quarter in Q2. The rate improvement then countered the volume drop of 9% on the back of auto production remaining impacted by the semiconductor chip shortage, as well as the High & Heavy portion that ended at a strong 33.5% for this quarter. But, of course, also High & Heavy volumes do remain high, but they are somewhat lower than in Q2, also on the back of similar type of drivers.So the semiconductor shortage and continued unpredictability in the supply chain continues to affect our operations and volumes also in the third quarter. The volume drop we saw was largely driven by continued reductions in volumes on both the European/Atlantic and Atlantic export trades. These trades continue to lag significantly behind the trade volumes we saw in the third quarter of 2019. And while this impact our operation, we do our utmost to handle the volatility and remain trustworthy for our long term clients. And that, of course, is a balancing act in this current market environment.Looking to Asia, and while trade volumes from Asia to Europe and Asia to South America, specifically, continued to grow in the third quarter. And by that, positively impacting average debt freight rates. We do so -- we have seen exports then from all main Asian markets affecting as well negatively by the semiconductor shortage, especially throughout September. And for us, that has led to actually less pressure on the operation and also reduced capacity shortage overall.Our shipping business for automotive and High & Heavy clients, it's largely categorized by 1 to 3-year contracts with pre-agreed pricing and fuel adjustment clauses. So for us, this means that we do not see the same fluctuation in rates when the supply-demand balance changes, neither up nor down as experienced by, for example, the container lines.As to contract renewal activity for Q3 specifically, it was successful. Our ability to negotiate higher rates and better terms reflects the overall capacity shortage and especially manifesting itself for used and spot generated volumes as well as breakbulk cargo. As a general rule, 4 regions where volume and demand are high, we do see the ability to improve rates, while in regions with muted development, we see more of a flat development overall.For the final quarter, our contracting activity is focusing on renewal of contracts commencing in 2022. And I can also mention that we are in a process of renewing the contract with Hyundai and Kia Motor Group, starting in Q1 2022. The renewal process is tracking well. And on the back of our 17-year-old long history together, we have a lot of confidence that we will maintain our good relationship as well going forward.Finishing up on the fleet capacity overall. So the fleet capacity constraints that we experienced in the first half of the year has eased on lower shipping volumes. The car carrier fleet does not see the same level of congestion and pressure as experienced, for example, by the container fleet as we access a separate terminal network. And of course, also for us, that means many overall terminals. The core fleet remained at 119 vessels at the end of Q2, and that accounts for about 20% of the global car carrier fleet.Our core fleet consists of vessels on long-term charter as well as owned, and the total number includes the final vessel in cold layup that we hope to have in operation now in November. And the short-term charter activity in chartering activity for us was reduced during the quarter as further reactivations took place and then also somewhat less pressure on capacity, especially out of Asia. And in Q4, we have also taken the liberty of delivery of our final newbuilding, the post-Panamax vessel, Nabucco. So that concludes the shipping business updates, and then I will move on to the market update. And then I would like to start with the light vehicle market.So light vehicle deep-sea volumes remained stable, while the sales volume declined 11% year-on-year, with sales clearly hampered by its supply chain pressure, including parts shortages that we have talked about before. On a quarter-by-quarter basis, the global light vehicle sales declined 10% as dealers did not have enough vehicles to supply the strong demand and the strong demand remains solid on continuing strong consumer confidence. It's linked to job markets remaining strong. We see continued low interest rates environments. There is still a post-COVID pent-up demand. There are still incenting programs in place, et cetera.In addition to the supply chain pressure, OEMs are challenged by continued cost pressure linked to high commodity prices. Steel has risen by 4 times over the last 12 months, and we also see rising label cost now. Finally, on light vehicles. We do see reports on the reserves of magnesium are running low. And magnesium, of course, being an important input for the aluminum and thereby in auto production. So that's another risk factor that we are watching going forward.If I then move to the High & Heavy section or part show their market update. We continue to see a strong development also in this quarter. And quarter-on-quarter, the global volumes dropped approximately 5% and as a development, broadly reflecting what we have seen also in our Group. But compared to the same pre-pandemic period in 2019, global volumes were nearly 20% higher. So it is a strong overall marketplace. And we believe that the High & Heavy fundamentals, they continue to remain relatively intact compared to 3 months ago. There has been a strong rebound in construction activity. And while it's still uneven, both geographically and when comparing residential and non-residential constructions, this is still moving on well.Commodity price inflation has also continued benefiting most commodity producers around the world. Global food prices have not been this high for a decade despite prices for some crops pulling back since the summer. And the same goes for metal prices that are at an all-time high, despite the iron ore price having fallen significantly, close to 50% the last 3 months. But while the demand picture remains strong, the situation related to machinery availability, both in terms. So production disruptions and also record low inventories has solely intensified the last couple of months, same as for the automotive market. So this supply crunch and the fluidity of the situation makes near-term market increasingly hard to predict, obviously. However, we do expect both unfulfilled end-user demand and also inventory restocking to be positive for us once global supply chains begin to normalize again.If I move to the last slide of the obvious part of the market update and the fleet, the global fleet, demand recovery and trade imbalances has led to a tight owner situation. And the situation is mirrored in the global fleet figures, where we saw no recycling at all. And there was also only one delivery in Q3. Some highlights from the slide you see, there are still a substantial number of recycling candidates there. The order book has -- for this quarter, increased significantly and now stands at 40 vessels, up from 16 last quarter. And while that's a large increase, it's still at a moderate level. And we think this then contributes to the expectation of a continued tight supply and demand balance going forward.New orders currently have a lead time of 3 to 4 years, and that's a significant increase in lead time during the year as well. Supply chain inefficiencies like port congestions and other port-related activities has eased and added some capacity during Q3. And when we look at markets, they are forecasted to be beneficial with a utilization rate of 91% next year, and that's considered a fairly high utilization of the global fleet as it usually is between 85% to 90%. That's considered to be fully utilized. And the continued reports on even more activity in the ordering market, we see that, however, these are still not firm signed orders yet, and they are not accounted for in the numbers that you see on this slide.So that concludes the business and market update for the Shipping segment. And I would like now to hand over to Mike for an update on the Logistics segment.

[Michael Hynekamp, Chief Operating Officer of Ocean]

Great. Thank you, Erik, and Good morning, everyone. Before I move into the business and market update for Logistics, I'd like to give you some insights into this photo you're seeing of a car inside a automotive vehicle scanning booth. Two weeks ago, we made a small investment in DeGould, the U.K. company, which offers automated vehicle inspection systems by using high-definition cameras to take photos of automobiles. The images are then analyzed with their proprietary AI technology to capture the full condition of the vehicle and detect any damages. While the investment amount is small, it represents an important strategic position to foster more efficient as well as consistently high-quality operations in our network digitally.In addition, the partnership supports our strategic ambition of providing end-to-end as well as full life cycle supply chain services, some of which you've already heard about from Erik in regards to our work with Airbus. So far, we've done a pilot with this in our operations in South Hampton with some promising results. We've improved the overall process quality. We've eliminated process bottlenecks and reduced damage claims by upwards of 50% compared to our historical averages. So we're excited about this new partnership with DeGould and the opportunities it presents for us in the future.With that, I'm going to turn over to the business update itself for Logistics Services. The shortages in the semiconductor chips continued to have a negative impact on auto volumes in the Logistics Services segment, leading to a reduction in revenue and profitability compared to the previous quarter. On a more positive note, although our efficiencies were impacted at the margin level, our direct labor efficiencies are in times for activity remained positive when volumes were actually provided to be handled. Balancing labor is critical at the moment in planning for the eventual recovery of volumes. We are constantly ensuring our business has sufficient and highly trained staff to handle potential volumes related to pent-up demand for autos, which is expected to come in mid-2022 and then, of course, extending into 2023.Our vehicle processing centers were significantly impacted by lower and quite erratic OEM volumes, leading to inefficiencies in operations, challenges in labor planning, and in some cases, site shutdowns in our embedded plants locations. This volatility in volumes has had an especially big impact on processing centers and Solutions Americas for autos. But it's also in the quarter impacted EMEA and APAC regions as well as in some of our terminals. In EMEA and APAC, we also saw the expected vacation seasonality in the third quarter with lower volumes during the summer holiday season.The terminals business experienced volume decreases that correlated with the drop in shipping volumes mentioned. More specifically, the terminals incurred decreased auto volumes related to chip shortages, reduced storage volumes for auto and High & Heavy due to strong product demand in the market as well as the seasonality that we mentioned. It's important to note that Logistics Services revenue is a combination of volume and mix effects where we see at the moment, lower storage and fewer need for value-added services as OEMs are in great need to get their product to their customers as quickly as possible.On the positive side, we continue to benefit from some spillover breakbulk volumes due to a lack of capacity in the container market, particularly in our terminals. And finally, inland transportation activity fell in Solutions Americas for High & Heavy, primarily due to just that lower transportation activity. While we did see brokerage and equipment processing services were mainly flat compared to the previous quarter.Now, I'd like to turn it over a little bit to the market update itself. And I'll spend a short update here on the overall market development, more specific to the Logistics segment itself. The Logistics business is somewhat more heterogeneous than shipping, and there are slightly different drivers for the various land-based subsegments. For instance, our terminal business will have many of the same customers and volume drivers, as Erik has just covered in the market update for the Shipping segment. Yet for other land-based subsegments, the deep sea auto volumes are not as highly correlated.Our vehicle processing centers are, in many cases, located within the OEM plant itself or we're very close proximity to the OEM plants as well as being import locations. That is why we have included in this slide where we look at all the light vehicle flows for our 2 main logistics regions, that being North America and Europe. This includes all product flows, meaning, all light vehicle production for both domestic sales and seaboard volumes for export abroad plus imports inbound. In these regions, sales and production developed as follows: in North America, in Q3, the semiconductor shortage accelerated and clearly held back sales. Dealer inventories, lack various models and trims, and we see the OEMs beginning to prioritize the most profitable models in their lineup. We saw overall inventories at a low of 25 days supply in the dealer networks.On the positive side, demand remains very strong with excellent job figures, low interest rates, fiscal stimuli that contributes to solid consumer confidence, and the result is record high average retail prices that are supporting strong OEM and dealer profits for the vehicles that are actually available for sale. In addition, in the U.S., we see increased focus on low-emission vehicles, including the current Biden administration's non-binding goal of 50% EV sales by 2030.Turning to Europe, the worsening situation around semiconductors has led to longer waiting periods, which has been starving the demand recovery. Variations of COVID intensity, including partial lockdown and slightly reduced incentives have curbed potential sales. It's also worth mentioning that last year's figures were have been inflated by incentives and pent-up demand after the first COVID lockdown. But yet today, we still see inventories at lows of 40 days supply. Most government incentives have continued and are still related to low-emission vehicles and stricter CO2 regulations, creating upward pressure on purchase prices in Europe as well. And also we are seeing increased imports from China and Europe, particularly related to lower emission vehicles.So all in all, the strong underlying demand and high consumer confidence have not shown their full potential in the actual production and sales of ours as the semiconductor shortage has continued to interrupt the production. As previously mentioned, we expect the situation to stabilize by midyear 2022.So this concludes the business update for Logistics services. At this time, I'd like to hand over to Torbjorn for an update on financial performance. Torbjorn?

[Torbjorn Mogard Wist, Acting CEO & CFO]

Thank you, Mike. And let me start with the financial highlights, where we can see all improving in the third quarter. If we start on the left-hand side of the chart, where you can see the total revenue was $990 million, up 1% quarter-on-quarter and 42% up year-on-year as Q3 last year was heavily affected by COVID-19. The Shipping Services revenue increased 4% over Q2 despite the lower volumes due to an increase in fuel surcharges and a solid increase of 13% in net freight rates from $42.7 per cubic meter to $48.3. Since Q2, revenue for flatting government services and fell 9% in Logistics Services. The adjusted EBITDA was $223 million, up 9% quarter-on-quarter.In the middle, you can see that the Group posted a net profit of $65 million in Q3. The adjusted EBITDA margins increased to 22.5%. And we will get into the key drivers behind the improved margins on the next slides. Cash increased to $587 million, and net debt decreased to $3.4 billion. On the right side of the chart, you can see that annualized return on capital employed was 6.4%, up since Q2, mainly on the back of increased EBITDA generation and lower net interest-bearing debt. Additionally, Q2 was negatively impacted from a $7 million reversal of impairment related to a vessel reclassified as a tangible asset from asset held for sale. The equity ratio is up to 35.7%, and net debt-to-EBITDA improved to 4.8x, down from 5.5x in Q2 as the LTM EBITDA is now affected by one less COVID-19 impacted quarter.Moving on to the next slide. In Q3, the segments, as mentioned, experienced a mixed EBITDA and margin development. The Shipping segment increased the adjusted EBITDA margin to 24.8% from an already solid 21.5% in Q2. The net freight rate development for CBM and lower net fuel costs accounted the impact from the 9% drop in volumes.The Logistics segment margin fell in Q3 on the negative volume impact from the semiconductor chip and other shortages that Mike touched on. And the government services margin was slightly down in Q3 as a new logistics support services contract did not outweigh lower U.S. flag cargo activity as well as an increase in fuel prices. As mentioned, ARC was not rewarded the Global Household Goods contract. It is important to note that the solid existing business operations and results in government services are not impacted by the loss of that contract.We will now look further into the Q-on-Q revenue and EBITDA development. As mentioned, EBITDA ended at $223 million, increasing 9% quarter-over-quarter. To explain the key drivers behind the improvement, we first look at how the Group revenue improved by $12 million to $990 million compared to Q2. Volume effect was negative for Shipping and for Logistics in the quarter, mainly due to the continuing impact on auto volumes from the frequently mentioned semiconductor chip shortage. The revenue per CBM increased significantly for Shipping and more than outweighed the negative volume effect in the quarter.For Shipping, net freight rate per CBM increased on the strong cargo mix, beneficial trade route mix as well as some rate improvements on contracted and spot volumes. For Logistics, revenue per unit decreased slightly as the volume impact also led to a reduction in value-added services as well as storage. Fuel surcharges earned under fuel adjustment clauses in shipping contracts increased by $17 million from last quarter, reflecting the increase in fuel prices over the previous period. Charter income increased $4 million for shipping in Q2, reflecting normal vessel swap activities with other liners and not a reduction in fleet capacity.Looking at the $18 million improvement in adjusted EBITDA compared to the last quarter, the key impacts beyond the $12 million revenue increase can be categorized as follows: the cargo and voyage cost decreased in Q3 for shipping in line with the drop in volumes. Fuel costs increased by $12 million for shipping due to the continued increase in fuel prices in the quarter, despite the 6% reduction in fuel consumption due to lower volumes. Fuel cost for government increased by $1 million, reflecting price increase. Vessel OpEx decreased by $3 million for shipping and $1 million for government on fewer vessel reactivations and less vessel maintenance cost. SG&A developed flat for the Group. Other shipping include charter expenses, which increased by $4 million Q-on-Q due to increasing day rates in the short-term charter market. And other logistics include positive effect from reduction in direct operating expenses linked to the lower volumes and activity on subsides.Turning to our liquidity development. In the quarter, total liquidity increased by $21 million to $936 million due to higher cash flow from operations and lower financing cash outflows due to the NOK 1.5 billion bond issued in August. When looking in further detail of the cash flows in the quarter, the cash flow from operations at $166 million is explained by an adjusted -- the adjusted EBITDA of $223 million was offset by buildup of working capital and $32 million paid in customer settlement and fines. This payment reduces the provisions and other current liabilities in the balance sheet. We also had some taxes paid of $2 million.The investment cash flow of $28 million mainly consist of $29 million in maintenance and scrubber CapEx, and then that was offset by some interest received. The financing outflows were lower in Q3 than in Q2. Net proceeds from the bond issue were positive with a $41 million after settlement of derivatives, repayment of WAWIL02 bond and buybacks of 2022 maturities. We paid $7 million in connection with the maturing vessel facility and regular bank debt installments amounted to $65 million and regular lease payments to $47 million. We also had some interest paid of $40 million.Right. Moving on to the balance sheet. We maintain a solid balance sheet and a comfortable liquidity position at the end of Q3. Total assets reduced to $7.5 billion. Equity is at $2.7 billion, an increase by $59 million in Q3, mainly thanks to the $65 million of net profit. And this led to a 1.2% increase in the equity ratio to 35.7%. Net debt decreased $84 million to $3.4 billion, and net debt fell as cash increased $21 million and as scheduled debt and lease payments together with a $7 million balloon payment exceeded the increase in debt through the bond issue and in scrubber related lease debt. The company concluded a successful NOK 1.5 billion senior unsecured bond in August, and this was again, swapped to USD 166 million.The Group has no further debt maturities in '21 for '22, the bond and bank debt maturities are manageable and expect to be refinanced within the next 12 months, a $132 million related to 3 bond maturities, the majority in the final quarter of next year. And we plan to refinance these by accessing the bond market. $120 million relating to secured debt balloons and $40 million relating to revolving credit facility are intended to be refinanced with banks. Regular installments on leases and bank loans will be covered by cash flow from operations.With that, we conclude the financial update and move on to the prospects. Number one, we expect the Shipping supply-demand balance to remain favorable in the midterm due to the overall global fleet situation. For Logistics, volumes will benefit from stabilizing semiconductor chip supplies. Potential risks include further parts and labor shortages, further imbalances and disruptions to the global supply chains and any operational impact from virus outbreaks. Continued stabilization of market conditions will provide more financial flexibility and help drive future shareholder value. As mentioned in the report, we aim to prepay the deferred debt in early 2022 to pave the way for payment of dividends in accordance with our dividend policy.And that concludes the presentation we had planned for today. We will have the Q&A session, and Anette will read the questions. Please keep sending questions through the webcast. And if you -- if there are questions that we will cover off-line, I suggest that I'd like to just say so and then we will address those after the call. So Anette?

[Anette Orsten, VP, Group Treasury & Investor Relations]

Thank you. And now before the Q&A session properly starts, just as you know, there -- just so that you know there's a 30 to 40 second delay in this webcast. So at the end, when we have the last question, there will -- we will still wait another 30 seconds since there is that delay to allow for any final questions to come in.So now we will start with the questions that we have received. And just a quick reflection on the questions that we do see. They are very much relating to net freight rate. Some are asking for guidance on future quarters. We do not provide guidance on our financial results or our volumes or any of our numbers in that matter. So just so that you know we will not go into detail on any outlook for future quarters.And the first question is relating to exactly that from -- through the Martin. What net freight rate per CBM do you think we will see the next quarters? As mentioned, we will not go into detail on that.And we can move on to the next question. And then we have a few questions coming from Anders Karlsen. Number one is also relating to net freight rates. And Erik Noeklebye, I ask you to prepare to look into these questions. Just as all of you listeners know, we made a more generalized net rate and contract development answer that may cover several of the questions we have received.So question number one from Anders Karlsen, are the high achieved rates per CBM for the quarter, a reflection of low contract nominations. And Erik, I give it over to you.

[Erik Noeklebye, Executive VP & COO of Shipping Services]

Thank you, Anette. And since there are several of these questions, and we will perhaps provide some more details later. Let me try and answer a little bit more generic now. And let's see how that can provide value. So when we look at the net freight development overall, and as many of you know, it's really split into cargo mix and then contracting and rate improvements. And both of those factors, they play a substantial role into improving the overall net freight per CBM for this quarter.And then when it comes to contracting, since the majority of our questions are linked to that. I can say that for the third quarter, the large OEM contracts we have that goes -- that has a longer duration. None of them have really been a part of the improvement we have seen in the third quarter. For those who are now renewing and working on, they will then come into play for next year. But of course, we are taking advantage of the current supply and demand picture.So what we are seeing there in terms of actual rate improvements and improved on the contracting side are smaller types of contracts, it's another breakbulk space. Also a lot of the used customers that we have, a lot of project cargoes that we move, especially out of Asia and China and also all kinds of liner and spot cargo. And of course, since any rate increase we get is a dollar-for-dollar effect on the bottom line. This has, even though it's a smaller portion of our overall contract base, it has a large effect than on these monthly and quarterly results. And we have been able to see some substantial double-digit improvements over -- during the quarter, taking advantage of this positive supply picture that we see. I think I would stop there, Anette, perhaps that's…

[Anette Orsten, VP, Group Treasury & Investor Relations]

Yes. And then I think you have partly touched on question 2 from Anders Karlsen. Further, in terms of contract renewal, how is this progressing? I think, Erik, you can just quickly repeat what you actually said during the contract renewal in your business update? And the follow-up on this question, are you seeing positive rate shifts that reflect the freight level seen in Q3? Or what kind of changes in percent compared to last on as achieved?And we don't go into details on percent change, but Erik, you can repeat that comment on contract renewals in Q3.

[Erik Noeklebye, Executive VP & COO of Shipping Services]

Yes. So I think I actually mentioned it already in my high level answer. And in terms of -- it's -- we are taking advantage, all the supply and demand picture. And I think the contracting is progressing well. And as I said, what we have done in Q3 has a substantial effect into the net rate improvement.

[Anette Orsten, VP, Group Treasury & Investor Relations]

And just on the final question from Anders Karlsen. How much of your contract portfolio has been renewed through the year and what is outstanding going forward?And as mentioned in the presentation, we have concluded all renewals for 2021, and what we are working on today really is to 2022.So further question from Anders Karlsen, in reference to a tighter supply side, what is the status of your long-term charter in portfolio? For example, average duration and what number of extension options do you have? And when are these due?And on that question, that is something that will require some further analysis, and we need to look into that after the call.Then we have received some questions from Frederick Ness. And the first one is also relating to net freight rates. I think we've already discussed some of that. And just, I think a general reflection I would like to give is that, our business is to operate a large and complex industrial shipping fleet. And for us to, as well as possible, utilize the vessels on all the routes that we do have, both with contracted cargoes and with additional cargoes that we secure on a spot basis. And we do not break down in detail on trade route mix or how cargo mix or contract impact that net freight rate per quarter, as it's quite complex overall impact that leads to the net freight result. So we will not go into detail on that.And then there's a follow-up on similar matters from, Frederick Ness, relating contract negotiations. I think we've already covered that well. And as mentioned, we do not -- I see there's also a question on net freight rate per CBM and how much that is ascribed to a tight container market. And as just mentioned, we do not split our net freight rate into exact sources as this is really the result of the shipping operation being as efficient as possible.And then we have received a question from Petter Haugen, relating to the ARC contract. And a question really, if that impacts the ARC fleet. For example, will these vessels be used in other type of operations or contracts in Ocean? And on that, Torbjorn, can you answer that?

[Torbjorn Mogard Wist, Acting CEO & CFO]

Yes, sure. Look, the global household contracts is, call it, something that would have entailed a buildup of capacity going forward in time, some of which will use existing fleet, some costs that would have had to be built up, particularly in relation to the land transportation and buildup of employees. So this is not really going to affect much the utilization of government services as we see it. And we, of course, will always consider whether we can utilize available capacity within one segment in another to ensure that we can cover our customer demands.

[Anette Orsten, VP, Group Treasury & Investor Relations]

And then the second question from Petter relates to the update on the renewal of the Hyundai, Kia contract. And I will just repeat quickly that, as Erik mentioned in the presentation, that is tracking well. And we have confidence to continue our solid relationship.Next question is coming from Ludwig Janda. And that is also very much relating to contracts. And I think just we will not go more into detail on contract renewal than we've already mentioned. And that also relates to the magnitude of rate increases under recent contract renewals.And we've also been asked to provide a more specific breakdown of increase in net freight rates. And as mentioned, that is not something we go into detail to, but we do give information in our report and in our presentations, in general, on the key impacts that we see.In the -- yes, we have received a question from Pal Holdo Dahl. And in the forecast of the global fleet utilization at 91% in '22, which is up from 89% 3 months ago, and that is counter to what we're seeing on the demand side by IHS, which is expected to be less strong than 3 months ago. And 2022 supply is largely unchanged, I guess. So is it turmoil or trade imbalance or supply chain inefficiencies that drive utilization improvement? And how sustainable is this effect? And Erik, can you give an update on that question?

[Erik Noeklebye, Executive VP & COO of Shipping Services]

I would say it's a mix, but it certainly is an expectation that we will see less supply chain disruptions going into 2022. Even though the part side supplying into the manufacturing will probably remain and provide somewhat of volatility. We think that COVID-related issues like challenges with crew change, challenges in terms of vessels being stuck in yards, waiting workers and a host of other issues that have driven at least congestions on the transportation side. We do see that it will be free up somewhat going into next year. And I cannot mention as a flavor for our fleet. We have had, of course, a lot of follow-up after a longer period of cold layups of vessels. So we have, of course, been performing dry docking, et cetera, to get the fleet and the vessels back up to standard, but we will from start of 2022, then have our full fleet back in operation. So that also then improves our overall capacity situation. And that would also similar to the other lines, that will also then improve the overall utilization of the fleet size that would be fully available.

[Anette Orsten, VP, Group Treasury & Investor Relations]

And just in general, we have received several other questions on net freights and contracts, and we will not go more into detail on those.Next question is from Jonas Shum. He's asking if we can provide some guidance on expected CapEx going forward beyond the Nabucco newbuild delivered in this quarter. And Torbjorn, can you give some further color on that?

[Torbjorn Mogard Wist, Acting CEO & CFO]

Yes. Sure. Look, we're not going to comment on expected CapEx going forward other than to say that we are considering the fleet investments, sustainability-linked investments, et cetera. And we will provide more clarity on this in the months to come, and we communicated earlier in the presentation that within the next 12 months, we will give more clarity on the fleet. So we'll leave it at that for now.

[Anette Orsten, VP, Group Treasury & Investor Relations]

And the next question is relating to the semiconductor supply situation. It is coming from Petter Haugen. And he is asking, you expect the semiconductor supply situation to stabilize in the second half of '22. How should we interpret that? Is semiconductors supply no longer a restriction at that time? Or should we just expect volumes to stabilize? And I think Mike, can you provide some color to this question on semiconductors.

[Michael Hynekamp, Chief Operating Officer of Ocean]

Yes, absolutely, Anette. It's a great question, and I think it's a question, clearly, obviously, for the industry overall, both on the High & Heavy and on the automotive side. Our expectations is that we begin to see the recovery for semiconductor is improving supply of particularly autos in the second half of 2022. The question about how much of that will stabilize or continue to be unhindered. It remains the question, I think, overall for the industry. It would be remiss of us to say that we have a deeper insight than what we're hearing from customers. All we know is that we're hearing that some of the challenges and volatility that we've experienced in 2021. We expect that to kind of mitigate in 2022 to what level in terms of stabilization of growth still remains, I think, an unknown for the industry overall.

[Anette Orsten, VP, Group Treasury & Investor Relations]

Very good. And then I see we have a final question from Petter Haugen. So if anyone else has some further questions, please enter those now, so that we can catch them before we close this presentation. So Petter Haugen asks also you expect to remove dividend block in the second half of '22? Will that mean you can pay dividends for the first or I think it means early '22, would that mean you can pay dividends for the first half of '22 or even earlier?

[Torbjorn Mogard Wist, Acting CEO & CFO]

Yes, it's Torbjorn, Anette. What we said in the report is that we aim to prepay the deferred amounts in early '22. And of course, that involves a dividend block. But I cannot sit here today and talk about expected dividends. That is something the Board and the company would have to come back to at a later point in time.

[Anette Orsten, VP, Group Treasury & Investor Relations]

Very good. And I see we have a question from Eirik Haavaldsen relating to our fleet. And I guess this will go to Erik Noeklebye. And the question is your fleet, including time charter in is now smaller than it has been in a while. With pent-up demand from mid-2022, how comfortable are you with this now that charter rates are rising. Will it be easy to turn around and increase capacity when European export volumes accelerate according to your expectations? Eirik, can you give color on that?

[Erik Noeklebye, Executive VP & COO of Shipping Services]

Yes. I can give color on that. And of course, it's a very good question. So I think just as a base here, the global PCTC fleet is not expanding much the next 2 years. So whatever large increase there is in volume, it's going to be a challenge from a global fleet perspective. And then I think it's more a matter of -- so how efficiently can we operate and how well can we then serve in terms of the demands that we each and then everyone of us as operators have. As I mentioned just before now, we have our full fleet in operation as of 2022.So the large [ TCN ] demand that we had, especially at the start of this year has gone away justify the fact that we have now taken vessels out of cold layup. We have had some scheduled dry dockings. That has also been delayed in terms of COVID issues with Chinese yards, et cetera. So we are fairly comfortable at the start of the year. But of course, we will continue to look in a market as and when needed to take in charters as we see it. But again, overall, we do think that there will be a capacity constraint globally. So there will not -- we think, the capacity to carry or cargo that is forecasted to be shipped.

[Anette Orsten, VP, Group Treasury & Investor Relations]

And now we see no further questions. So we will give it some more seconds before we have the final -- or before we conclude this Q&A. And as we are not seeing any further questions at this time, I would like to hand this over to you again, Torbjorn.

[Torbjorn Mogard Wist, Acting CEO & CFO]

Thank you, Anette, and thank you to everybody on this webcast for tuning into our third quarter presentation this morning and also for your continued interest and engagement both in Q&A and outside of this particular forum. So I look forward to catching up with you at a future point in time. Have a great day.