Wallenius Wilhelmsen ASA

OSE:WAWI

Earnings Call Transcript 2021-Q4

[Torbjorn Mogard Wist, Acting CEO & CFO]

Good morning, and welcome, everybody. Thank you for joining us on this Q4 results presentation. 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 of the Q4 highlights. We are very proud to deliver a strong final quarter in '21 with an EBITDA of $306 million. High freight rates, operational efficiency and a full sailing fleet are key drivers for the improved margins despite continuing chip shortages and supply chain challenges. Going forward, we will need to continue to leverage our operational flexibility to maneuver the ongoing global market volatility. Thanks to these results, we have already commenced the prepayment of $50 million of deferred debt and this will be finished within the first quarter of '22. This allows a return to a dividend-paying position, and we are pleased to propose a solid dividend of $63.5 million for fiscal year '21 within the dividend policy. Going forward, our aim would be to gradually improve the dividend per share through the cycle. Our cash position increased to $710 million, partly due to the successful NOK 500 million bond tap issue in November. At the end of November, it was announced that Lasse Kristoffersen is appointed new CEO of the company. He will start no later than 1st of June 2022, and I very much look forward to welcoming him on board. Today, we have further exciting news. We are launching our sustainability-linked financing framework, which will allow us to issue sustainability-linked financing going forward. This framework is based on our Board-approved target to reduce CO2 intensity in our Shipping operation by 27.5% from 2019 to 2030. CICERO Shades of Green has provided a second-party opinion confirming alignment of the framework within relevant principles and best practice. Additionally, DNB has verified the 2019 baseline for CO2 intensity. Any future sustainability-linked financing will include a pricing covenant linked to whether we can achieve the carbon intensity reduction as outlined in the framework. The KPI being measured is the fleet weighted average CO2 intensity based on data reported to the IMO and calculated on our controlled fleet. The sustainability performance target is to reduce the KPI by 27.5% from 2019 to 2030, as previously mentioned, along a defined trajectory of annual targets. In the framework, we outlined our strategy to achieve the reduction, including technical, operational and asset replacement initiatives. We commit to reporting our progress under the framework on an annual basis. Turning to today's agenda. We will start with the business and market updates from Shipping and Logistics before turning to the financial update. We will have a Q&A session at the end of the presentation facilitated by Anette Orsten, our VP in charge of Global Treasury & IR. [Operator Instructions] And in the spirit of same procedure as last quarter, I am joined by Erik Noeklebye and Mike Hynekamp, respective COOs of our Shipping and Logistics segments, who will give you an update of key business and market developments from their respective segments. And I will now hand over to Erik for an update on the Shipping side. Erik?

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

Thank you, Torbjorn, and good morning, everyone. So we heard that Q4 has been another exciting quarter for us. All vessels are back from cold lay-up. And in October, our last vessel in the HERO series, Nabucco, was delivered. When we order these vessels back in 2012, this was the best alternative at that time. And I think we can still say that this is one of the most energy-efficient vehicle carriers on the order today. We are proud of having Nabucco as part of our fleet and the delivery of this vessel was welcome given the high demand in the market. We are in the process of considering our future fleet needs. And as stated before, we will share more information on our fleet strategy during 2022. On the choice of propulsion and fuel and as shared in the sustainability-linked financing framework that was published today, we need to continue a wide variety already -- to consider a wide variety of already available multi-fuel solutions as well as development of new technology and alternative energy resources. So moving into the results side. The shipping volumes increased 5% in the fourth quarter, and the net rate increased per CBM with USD 1 up to USD 49.3 per cubic. The Asian export volumes continue to be strong and while we saw -- also saw some rebound in European export volumes influenced by automakers' year-end sales targets. The strong fourth quarter matched with a general cyclicality observed in our Shipping business historically due to the end-of-year sales effects and also holidays. Q4 and Q2 periods are generally the stronger quarters while first and third quarter historically have been weaker. The impact from component shortages was reduced in Q4 compared to Q3, and the first part of the quarter saw fewer operational delays compared to earlier supply chain congestions. On a general note, the car carrier fleet does not see the same level of congestion and pressure as experienced by the container fleet as we access a separate terminal network, including many of our own terminals. However, this does not mean that we are immune from the ongoing volatility and supply chain challenges. Operational delays are growing again in December. And as we move forward into 2022, we expect some further port congestion to create delays in our overall operating system. Our Shipping volumes developed more positively than the global Deep Sea auto volumes in Q4 as we were present in more favorable trades and because we had customers performing more positive than the market. A higher portion of autos in the European export trades results -- it result felt in a weaker cargo mix, but the effect is not strong enough to offset the net freight rate development. And in absolute terms, high & heavy and breakbulk remained stable and at a high historic level. Positive trade mix, in particular from Asian trades, is a key contributor to the continued positive development in net freight rates. Trade mix and our ability to efficiently utilize our entire fleet remained the key drivers of net freight rates together with cargo mix. These factors will often influence our net rates more than the changes in underlying contract rates. Our Shipping business for automotive and high & heavy clients is largely categorized by 1- to 3-year contracts with pre-agreed pricing and fuel adjustment clauses. This means that we do not see the same fluctuation in contract rates as, for example, experienced by the container lines during 2021 when the supply/demand balances changes. We are very pleased that we successfully renewed the HMG contract during the quarter. The contract is renewed for 3 years, and we maintain a 40% volume share starting in the first quarter 2022. This agreement confirms our strong 19-year-old long relationship with the Hyundai Motor Group and is proof of the quality of our dedicated services delivered under the existing contract. We are grateful for the trust from HMG and look forward to continuing our strong relationship with them. In relation to other contracts, our ability to negotiate improved rates better reflects the need for the market to pay for services and value offer and to cater also for current and future cost increases. This is valid for all cargo segments we carry. And as a general rule for regions where volume and demand are high, we see the ability to improve rates, while in regions with more balance between supply and demand for shipping services, we see a more flat development. If I then move over to the fleet side. In Q4, we managed to continue increasing our long-term capacity despite the tight global fleet situation. All our vessels are now sailing as we took delivery of our final newbuilding and also the final vessels returned from cold lay-up. The controlled fleet, including both owned and long-term charter vessels increased by 6 to 125 vessels in total, accounting for about 20% of the global car carrier fleet. In addition to the delivery of the Post-Panamax vessel, Nabucco, we secured 5 additional long-term charters meaning contracts longer than 12 months. The short-term charter-in activity reduced during the fourth quarter as we continued to see reduction in availability of external charter tonnage. And finally, on the fleet, the scrubber installation program finished with the last 2 scrubbers installed in the fourth quarter. We now have 24 old and 10 charter vessels with scrubbers. Okay. Moving on to the market side and starting with the light vehicle market. So we saw light vehicle deep sea global volumes drop 16%, in line with the total market year-on-year with sales clearly hampered by supply chain pressure, including semiconductor shortage. As previously mentioned, this is a bit contradictory to our own light vehicle volumes development as we see that has developed more positively due to customer-specific developments. One contributor that has become more visible over the past months is the fact that, on average, light vehicles consume more semiconductors and not just because of a higher share of EVs but also because each vehicle contains more advanced feature equipment like adaptive cruise controls, et cetera. On a quarter-on-quarter basis, global light vehicle sales were up 6.6% due to solid Chinese sales. In North America and Europe, dealers did not have enough vehicles to supply the strong demand. And demand remained solid on continued strong consumer confidence, such as job markets remaining strong, continued low interest rate environment, pent-up demand, governmental incentive programs, et cetera. In addition to the supply chain pressure, OEMs are challenged by continued cost pressure linked to high commodity prices. We saw the steel price quadruple over the last 12 months, and there is also rising labor costs and other cost areas that are increasing. Moving over to the high & heavy cargo segment. In this segment, we saw the same development that we have seen since the peak last summer with growth rates moderating as Q4 '20 was a normal basis for comparison. Absolute volumes were down from the peak recorded in the second quarter of 2021, but remained above the levels in all of the 9 years before that. While we believe that the booming growth rates we have seen over the past year may soon be behind us, we do remain positive on the outlook in the year ahead. Broadly speaking, the fundamentals have improved in the quarter behind us. Construction activity is now growing meaningfully in both North America and Europe, and it is encouraging to see that activity related to commercial buildings is finally improving there. For agriculture and mining, the commodity prices have strengthened since the third quarter. And while prices are down compared to the peaks last summer, both farmers and miners are experiencing historically strong earnings. Against this backdrop, machinery demand is still very strong, but the growth potential continues to be dictated by the supply side. Supply chains are still very stretched, but there are at least some signs of these issues easing. That being said, there is no shortage of uncertainty at the moment. And supply issues, labor shortages, inflation and also COVID will continue as relevant risk factors. At the same time, the near-term visibility is quite good as OEMs are reporting record orders and backlogs extending well into the second half of this year. And this leaves limited room for restocking of inventories in 2022. We believe that this will push some demand into next year as well. Moving into the final section from my side on the global fleet. Demand recovery and trade imbalances has led to a very tight tonnage situation, and recovering from the pandemic, there is also a further need for more capacity. The situation is mirrored in the global fleet figures, where we saw no recycling and only 1 delivery in Q4. There are still a substantial number of recycling candidates. And while the order book is increasing, it remains at a moderate level. It stood at 39 vessels at year-end and another 6 new orders were confirmed during January. This contributes to expectations of a continued tight supply-and-demand balance. Only 3 vessels are up for delivery in 2022 and 8 in 2023. And new orders currently have a lead time of at least 3 years, a significant increase in lead time during the year -- during 2021. Supply chain inefficiencies like port congestions and pandemic-related challenges eased somewhat during the second half of 2021. However, supply chain volatility and congestion are expected to continue in 2022. Markets are forecasted to be beneficial and the utilization rate is increased to a very strong 96% for this year as the global fleet utilization around 90% is considered to be a fairly fully utilized fleet. So this concludes the business and market update from my side, and I would like then to hand over to Mike for an update on the Logistics segment. Please, Mike.

[Michael Hynekamp, Chief Operating Officer of Ocean]

Great. Thank you, Erik. Thank you, Torbjorn, and good morning, and thanks to everyone in attendance of this call. Before diving into the performance and market dynamics for the Logistics part of our business, I just wanted to share this photo that you see, which is of an electric vehicle produced in China. As many know, the Chinese EV manufacturers are new and important customer group for us, but they are also working quite hard to conquer share in the European market as well as the rest of the world. And these OEMs are manufacturers with brand names such as Polestar, MG SAIC and NIO. We have been fortunate that they've engaged with us and we are currently offering a seamless delivery of their finished products to market. Their units are delivered from factories in China to our ports like Shanghai, where we load them into our vessels and provide shipping services. The vessel then, of course, sets sail to our terminal, in this case, in Zeebrugge, Belgium, where we have continued development and investment to make Zeebrugge an EV hub for Central Europe. For some of these models that do arrive in Belgium, we send the cars themselves, which are targeted, for example, to the Norwegian market through one of our short-sea partners to call upon ports of destination. When the car arrives in Drammen, Norway, for example, we prepare it for the end user by coordinating and organizing that it's cleared through customs, it's been charged, it's adapted for winter tires as needed and we also add Norwegian manuals as well as much more. In the end, this new part of the business is that we are ensuring we can deliver the car to the dealer or even to the new car owner. And this is just a great example we wanted to share with you of our integrated end-to-end logistics capability where we're delivering services on land and sea, acting as a single point of contact and visibility for these OEMs and many others as we move forward into the future. So with that, I'd like to just turn to some of the performance metrics for the quarter in Logistics. The shortages in semiconductor chips continued to have quite a negative impact on auto volumes and logistics services as a segment, particularly for the autos produced for domestic consumption, meaning those not traded on the ocean as exports. However, our customers experienced fewer production shutdowns in the quarter itself and volumes and margins improved compared to Q3. We are optimistic that the increased volumes in Q4 will continue into 2022. And when they do, our highly trained staff are ready to handle the increased volumes related to pent-up demand for autos. And while we efficiently manage our labor, we do need to ensure that our business is sufficiently staffed even during these times of volatile volumes and supply. We are extremely proud and grateful for our employees for their resilience through the challenging years that we've had, and of course, the challenges that will come as we begin to see volumes stabilize and grow. Now I'll just turn more specifically to some of the performance that we've seen in the quarter. Speaking to Solutions Americas (Autos), we did see an increase in value-added services, including accessory installation repairs over the quarter. The EMEA and APAC region had volume that's slightly above prior quarter, which positively impacted value-added activities in the market itself, particularly items such as fumigation mainly out of China. The Terminals business experienced volume increases correlated with the increase in shipping volumes, as mentioned by Erik. This was particularly seen in Zeebrugge terminal and the continued strength in our terminal in Australia. The volume increases were mainly due to the year-end sales push as well, which Erik has mentioned. The increased volume has caused some terminal congestion and vessel bunching, but we continued to manage those in concert together as one organization. And finally, I just want to touch upon the high & heavy activity in Solutions America did fall primarily due to seasonality with lower volumes as expected for Q4. Before I do move into the market update, I would like to mention that our Logistics group has received the prestigious award in 2021 from Nissan North America as their supply chain management partner of the year. This award exemplifies our commitment to our customers through resilience in difficult times and continuous improvement on their behalf. We provide Nissan with a wide array of services, including technical services, inventory management, operational support and end-to-end enhancements through our visibility tool. And we are extremely proud of our long-term relationship with Nissan and Nissan in North America. Turning to the market dynamics and market update. I'll provide a short update on the overall market development more specific to Logistics segment itself. On this slide, we look at all the light vehicle flows in our 2 main Logistics regions, that being North America and Europe. This includes all product flows, meaning light vehicle production, both for domestic consumption in sales and for export abroad plus imports. In this region, sales and production has developed similar to what we've seen in the prior quarter. In North America, in Q4, the semiconductor shortage continued to clearly hold back sales, dealer inventories lag models and trends and we see that OEMs have been prioritizing the most profitable models in their lineup. Inventories still are at record low levels of 25 days supply in North America. On the positive side, demand, of course, remains positive with excellent job figures, relatively low interest rates and the fiscal stimuli that has contributed to solid consumer confidence in the market. OEMs continued to record high average retail prices, which is supporting both their and their dealer networks' profitability for vehicles available that they do have available for sale. And in the U.S., we see an increased focus on low-emission vehicles, including the current administration's nonbinding goal of 50% EV sales by 2030 and the OEMs' focused on new low-emission vehicles. In Europe, the challenging situation around semiconductors has led to long waiting periods starving the demand recovery. And variations in COVID intensity, including partial lockdown and slightly reduced incentives, has also curbed potential sales. It's worth noting and mentioning that last year's figures were a bit inflated by incentives and pent-up demand after the first COVID lockdown and inventories, despite that, still continued to remain low at roughly 40 days supply. Most government incentives that have continued are still related to low-emission vehicles and stricter CO2 regulations, creating upward pressure on purchase prices as well in Europe. We see increased imports from China, as I mentioned, into Europe and particularly related to the EV segment. So all in all, the strong underlying demand and high consumer confidence have not shown their full potential in actual production and the sales as the semiconductor shortage has continued to interrupt production. And as previously mentioned, we expect the situation to gradually improve during 2022 but expect volatility as we get towards that gradual improvement. This concludes the update for Logistics. So I'd like to hand over to Torbjorn for an update on our financial performance. Torbjorn?

[Torbjorn Mogard Wist, Acting CEO & CFO]

Thank you, Mike, and also thank you, Erik. [Operator Instructions] Now if we take a look at our key financial metrics, they clearly reflect the strong performance we had in the fourth quarter. Starting on the left-hand side of the chart, you can see the total revenues for the group was just shy of $1.1 billion, up 9% quarter-on-quarter. The adjusted EBITDA was $306 million, up 37% quarter-on-quarter and more than double that of Q4 '20. Shipping and Logistics both contributed to the growth in Q4 with solid revenue and margin growth. In Government services, revenues were flat quarter-on-quarter, while EBITDA dropped from the third quarter. In the middle, you can see that the group posted a net profit of $98 million in Q4. The adjusted EBITDA margins, they increased to 28.4%, and we will get into some of the key drivers behind the improved margins in the coming slides. Cash increased significantly over the quarter from $587 million to $710 million, while net debt was stable at $3.4 billion. On the right side of the chart, you can see that annualized return on capital employed was 10.2%, up from 6.4% in Q3 due to the uptick in EBITDA. The equity ratio is up to 36% and the net debt-to-EBITDA improved to 4x down from 4.8 in Q3. Now let us look at the Q4 EBITDA performance segment by segment. The Shipping segment delivered an adjusted EBITDA margin of 32.3%, up from 24.8% in Q3. The margin improvement is driven by increased net freight rates and fuel surcharges, but it also demonstrates the company's operating efficiency. By operational efficiencies, we are referring to the expertise we deployed in several aspects of our execution, such as port rationalization in terms of reducing the number of port calls; sea days ratio, how much time we spend at sea moving versus time spent waiting in port; and also the ratio between laden and empty days. But most importantly is our fleet utilization, how much cargo is on every single vessel voyage we execute. In Q4, we saw that we carried more cargo per voyage increasing fleet utilization. As you can see, there is a $32 million extraordinary item in shipping. This is related to an internal vessel sale from the Shipping segment to Government services and the sale is part of an ordinary renewal of the ARC fleet. The extraordinary item affects the adjusted EBITDA in the Shipping segment, but has 0 effect on a group consolidated level. The Logistics segment saw positive margin development quarter-on-quarter as volumes increased in Solutions Americas (Auto) and through our Terminals after the previous quarters were severely impacted by semiconductor chip shortages. The Government services margins were down in Q4 compared to the previous quarter and to last year. The segment has had a more challenging year as volumes and revenues are largely driven by U.S. flag cargo activity, and we have seen lower demand in this sector than in the previous year. Rising fuel prices have also contributed to the drop in margins for the Government segment. We will now look further into the quarter-on-quarter revenue and EBITDA development on the next slide. Firstly, in terms of how the group revenue improved by $88 million to just -- to around $1.1 billion. The volume effect was positive for Shipping and for Logistics in the quarter mainly due to the increase in auto and explains most of the revenue increase. Revenue per CBM also increased and explains $12 million of the revenue increase from the Shipping segment. The increase in net freight rates is mainly driven by a positive trade mix. Fuel surcharges earned under fuel adjustment clauses in shipping contracts increased by $19 million from Q3, reflecting the increase in fuel prices over the previous period. Charter income increased $4 million for Shipping and Government in Q4, reflecting normal vessel swap activities with other liners. Looking at the $83 million improvement in adjusted EBITDA compared to Q3, the key impacts beyond the increase in revenues can be categorized as follows: the cargo/voyage cost decreased in Q4 for Shipping due to good fleet utilization, relatively more auto port rationalization and less space charter cost. Fuel cost increased by $7 million due to continued increase in fuel prices in the quarter as well as increased fuel consumption. Vessel OpEx increased by $12 million for shipping due to delivery of the final newbuilding, reactivation of the last vessel from lay-up as well as an end-of-year adjustment of accruals. Charter expenses decreased during Q4 as a result of less short-term charters and an increase in vessels on long-term versus short-term charters. SG&A developed flat with a marginal increase for the group. Logistics include manufacturing costs and operating expenses and increased on higher volumes. Taking a look at the full year results for '21. Total revenue was some 3.9 billion, up 31% compared to 2020, which, of course, was heavily impacted by the pandemic. And reported EBITDA was $830 million, up 75% year-on-year. Adjusted EBITDA of $865 million was $35 million higher when adjusting for the increase in antitrust provisions while 2020 EBITDA was adjusted with $55 million in antitrust expenses and $7 million in cancellation of scrubber installations. All in all, adjusted EBITDA grew 62% year-on-year. In 2021, the group recognized a net impairment loss of $62 million. Q4 was negatively impacted by $76 million from impairment of goodwill deriving from the merger in 2017. This noncash impairment relates to goodwill in WW Ocean, part of the Shipping segment, and is based on updated long-term forecast including expected required investments such as replacement of capacity in coming years. Conversely, we had a $14 million reversal of impairment related to a vessel being reclassified from assets held-for-sales to tangible assets. The group had a net profit of $177 million for the full year compared to a $302 million loss in 2020. The earnings per share was $0.32. Return on capital employed, here calculated as a full year average as opposed to the annualized quarterly average we saw for Q4, was 4.5%, up from the negative return we saw last year. Based on the results, and of course, the prepayment of the deferred debt, the Board has decided to propose an ordinary dividend of $0.15 per share payable in 2 tranches. And in total, the proposed dividend for '21 is equivalent to about $63.5 million. In the quarter...[Technical Difficulty]

[Anette Orsten]

We can move to the next slide. We have a short technical difficulty on our end.

[Torbjorn Mogard Wist, Acting CEO & CFO]

Okay. If we can get -- I'm just waiting for a slide to come up, a small technical issue. Yes. Here we are finally. In the quarter, the total cash increased by $124 million to $710 million due to higher cash flow from operations and lower financing cash outflows. In addition, our undrawn credit facilities remained unchanged at $349 million. When looking in further detail at the cash flows in the quarter, the cash flow from operations at $228 million is explained by, of course, the adjusted EBITDA of $306 million being offset mainly by $65 million paid in customer settlement and fines, which is part of the change in working capital. And those payments significantly reduced the remaining antitrust liabilities and provisions set aside in the balance sheet. Taxes paid were some $13 million. The net investment cash flow of $70 million mainly consists of items such as $39 million of final installment for the delivery of Nabucco, $21 million of dry docking, $7 million in scrubber installation and $7 million in some financial investments. The financing outflows were much lower in Q4 than in Q3. Net proceeds from the bond tap issue was $57 million after swapping to U.S. dollars. We have drawn down a $50 million facility to finance Nabucco delivery. The debt balloon of $32 million relates to an intercompany sale of vessel and regular bank debt installments amounted to $99 million and regular lease payments to $56 million. And we had some interest paid of $38 million. The balance sheet. We maintain a solid balance sheet and a comfortable liquidity position. The total assets increased to $7.8 billion due to the vessel delivery, additional long-term charters and increase in cash. Book equity is at $2.8 billion, an increase on the positive result. Net debt is $3.4 billion, a slight increase of $15 million in Q4. The net debt increased as the increase in debt and lease liabilities exceeded the cash increase of $124 million. The company concluded a successful NOK 500 million -- NOK 500 million tap issue in November we drew down on the Nabucco facility, and the lease liabilities increased due to the 5 new long-term charters. In January, we have, as mentioned, begun the prepayment of the remaining deferred amounts with the WW Ocean banks of $50 million, and all amounts will be prepaid within Q1 '22. The group's '22 debt maturities are deemed manageable, and we plan to be -- plan to refinance these throughout the year, some $133 million related to 3 bond maturities, the majority of which are in the fourth quarter of the year. We have $120 million related to secured debt balloons and $40 million relating to a revolving credit facility, which are intended to be refinanced with banks. Regular installments on leases and bank loans will be covered by cash flow from operations. Turning to the prospects. In the absence of further volatility and disruptions to supply chains, which continue to be experienced in the market, we expect to further improve financial flexibility and help drive shareholder value creation based on the Shipping supply-demand balance, which is expected there to remain favorable midterm, due to the overall global fleet situation. Logistics volumes will benefit from gradual improvement of chip supplies during '22. And as we have highlighted on a number of occasions throughout the presentations, the potential risks include further parts and labor shortages, and now in more recent times, increased geopolitical tensions, significant restrictions to the global supply chains, and of course, operational impact from virus outbreaks. That concludes the presentation we had planned for today. We will have the Q&A session and Anette will read the questions, and please keep sending questions through the webcast. Anette?

[Anette Orsten]

Yes, very good. We have received some questions already. So please keep sending them in if you have further. And I think we will start with some questions that are relating to the Shipping business. So Erik, please prepare. I see the first question we received is relating to speed and basically the IMO '23 regulation. It's from Frederik Ness, and he is asking whether we expect the speed for our own vessels to fall as due to EEXI and CII. If yes, how much lower compared to current average speed and -- as IMO '23 regulation impact is not entirely clear. I guess, Erik, you can answer in a more general way.

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

Yes. So I think that's the first point, right, that the actual regulation is not clear yet. It's still worked on. And the upcoming conference with IMO in June will probably conclude, but it's not certain yet that it's fully concluded then. So I think we will wait. We'll be commenting on exact effect on the fleet itself. But that said, speed -- the speed reduction is a tool for controlling and managing the emissions going forward, it is. But we can't really go into detail until the actual regulation is clear. I think that hopefully answers it.

[Anette Orsten]

Very good, Erik. We've received a further question from Frederik Ness relating to ship operating expense, and the question is as follows: ship operating expenses was USD 64 million in Q4 '21 while the average from Q1 '20 to Q3 '21 was $49 million and a further $52 million in Q3 '21. How much of the Q4 increase is due to one-offs? And what should we expect for ship operating expenses going forward?

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

So I think in terms of expectations going forward, the answer is somewhere in the middle. The fourth quarter actually saw some lag in invoicing for the earlier part also of 2021 as we have seen increases during the year, everything, as Torbjorn mentioned before, from insurance side, but also from how the ship management companies have handled all the crew challenges linked to the pandemic, but also, in general, cost increases across the supply chain also for labor. So while the level in Q4 is somewhat related to costs earlier -- further part of the year, it does signal some level of increase going into '22.

[Anette Orsten]

And I guess we can also add to that, Erik, that we did increase the controlled fleet in Q4 and an increase in ship OpEx is thus also expected.

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

Correct.

[Anette Orsten]

And we've received a further question relating to Shipping and it is relating to our net freight rates, and we've received from Anders Karlsen. In terms of our income per CBM, this has over the past quarters surpassed anything you've had in the past. What is driving this increase? Are contract rates up? Or is it that you are now booking more cargo on earlier soft rates? Or is it other types of cargoes that drive the improvement. Lastly, what level can we expect going forward? And just to the last part of the question, I can just say that we do not guide on rates or results going forward. But Erik, I'll leave it to you to answer on net freight rates more in general.

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

So it is a mix of several factors that you are mentioning. So trade mix is maybe the strongest driver of net freight. So the positive developments in those trades that has a naturally higher profitability level certainly helps a lot and drives a lot. And there's, of course, also cargo mix within those trades. And then for the fourth quarter, the ability for us to efficiently utilize our entire fleet and also having the full fleet back online. So all of these things, I would say, are key drivers on net freight rate development. And historically, at least and also for Q4, these factors, as I mentioned, they will often influence our net rates more than the changes in the underlying contract rates even though, of course, that's also driving improvement. And what we see is that we will first see the impact from contract renewals that we have made now for the last part of '21 in '22.

[Anette Orsten]

Very good. And then we have one final question. So if you have further, please keep posting them. And the question goes to Torbjorn, it is relating to the impairment. And the question comes from Pål Holdø. Can you elaborate briefly on the rationale for the impairment made in WW Ocean in Q4 '21?

[Torbjorn Mogard Wist, Acting CEO & CFO]

Sure. This -- the goodwill that we're talking about here is goodwill in WW Ocean that derives from the merger in 2017. And of course, it's goodwill in WW Ocean, which is part of the overall Shipping segment. Now we regularly will test goodwill impairment with our auditors. We've been through that. And when we look into sort of the coming years, we see that we will need to make investments in replacement of vessels and other forms of investments and that challenged the goodwill within WWO as a result of which the impairment was recognized.

[Anette Orsten]

Very good. We've not received any further questions so far. I will give it a few more seconds before we conclude today before I leave it to you, Torbjorn, to conclude. I'm not seeing any further questions today. So if you have any, please feel free to reach out during the day. Torbjorn?

[Torbjorn Mogard Wist, Acting CEO & CFO]

Very good. Thank you, everyone, for tuning in to this webcast and look forward to catching up with all of you next quarter. Have a great day.