Nonetheless, 2001 will go down as being a vintage year for product tanker shipowners. Daily returns for ships operating on the spot market were on the whole higher than those of 2000, which in themselves were excellent.

Although the drop at the beginning of the year was a technical correction and largely predictable, nobody thought that the levels achieved, more than $50,000 per day for the LR and more than $30,000 per day for the MR, could be maintained. It was generally thought that the market would find an equilibrium in the middle of the year, but it was not the case: the drop in rates which began in May started gathering speed month after month to finish the year at the levels of end 1999.

The freight market for product tankers suffered a continuous drop in revenues throughout the year 2001 for all sizes

The creation of the Handy Tankers K/S pool, formed around AP Moller, Seaarland Motia and d'Amico Tankers which consists of 25 ships in 2001, led certain oil companies to cover their medium-term tonnage needs. BP took control of seven ships in this size, as well as CSSA, while Shell, Agip and Tamoil all took on two each.

Either by chance or as a result of this policy, the pool does not seem at least for the moment to have accumulated a sufficient share in the deals concluded to have had a significant impact on rates.
 

As for the 35,000 tonners, many charters have been concluded for periods of two years or more, notably for account of Stasco (five), Coastal-El Paso (three), ExxonMobil (two), and Glencore (three) at rates between $16,000 and $18,000 per day.

Naturally given to covering inter-zone voyages, these ships suffered from the shortening of their voyages as soon as American demand fell-off as from the month of June, and their daily returns which were over $35,000 per day at the beginning of the year collapsed to $11,000 per day in December. As from October they also suffered from a lack of activity in the Far East.

This category benefited from the good performance of the market in the Far East during the first half of the year, during which their daily returns always remained above $30,000 per day and sometimes went up to $50,000 per day. The second-half was more difficult due to the fall in Japanese demand and a virtual disappearance of jet voyages MEG/Europe as from September.

The LR1 were largely used for exports of jet from Middle East Gulf or from the Indian Ocean, as well as voyages of gas oil and fuel oil from Europe to the U.S. The few very modern ships (less than five years) saw rates of close to $20,000 per day for periods of one to five years.

The existence of the "LR2 pool" and contracts at variable levels based on different indices (notably Platts) helped to avoid a really sharp fall in rates for these ships, although the result was achieved at the cost of considerable waiting time which affected daily returns.

The explanation of the slow but steady drop in product tanker freight rates is due more to a fall in demand than a rise in availability.

In addition, whilst petrochemical demand has slowed considerably, German distillate stocks at the end of the year are at their historic highs.
 

The fear of a major crisis in Japan, which could then ricochet on the fragile economies of Korea and Indonesia, contributes to the pessimism in the minds of many observers. The risk of a serious impact on the world scene cannot be excluded.
 

The fleet of handysize (30,000 / 40,000 dwt) increased by 29 units in 2001 for a total of over the million dwt mark. Forty-two additional units should be delivered in 2002 and 47 in 2003, whereas only 17 ships are programmed for 2004. One hundred and thirty five new ships will have be delivered in four years, nearly a third of the existing fleet.

The fleet of medium range has grown by only 11 ships delivered this year for a total of about 500,000 dwt, but 30 ships should be delivered in 2002, 53 in 2003 and 20 in 2004. In 2005 two-thirds of the fleet will be less than 15 years old.

As to the largest size, four were delivered this year, 11 will be put on the market in 2002 and 25 in 2003.

However charterers have adopted extremely strict quality criteria, especially on age, which considerably reduces the number of eligible ships. This has become a very sensitive issue in the handysize sector where nearly 50 % of the ships have become practically unemployable.

Despite the pessimistic outlook for the short-term, it is reasonable to expect an improvement in the medium-term if the anticipations do not stifle the expected recovery at birth.

It is obvious that stock positions at year's end and stagnant demand for oil products do not encourage optimism.

Nevertheless the elasticity of tonnage on offer remains relatively small due to increased concerns on quality. It might suffice therefore that the recovery of the American economy lives up to the analysts' hopes for the third quarter of 2002 and that Japan manages its revival for an increase in oil product demand to produce a rapid and substantial rise in freight rates. After all, isn't it what happened at the start of 2000, when rates were at their lowest?

While an exaggerated pessimism seems out of place in the short term, there is still a risk in the medium-term with a financial market historically favourable combined with a lowering of construction costs leading to a wave of orders which in turn would produce a tonnage surplus, that would unbalance the product tanker freight market for a long time to come