With the world economic climate suddenly wavering between stagnation and depression, and an America unexpectedly facing the woes of unemployment, compounded by terrorist attacks putting at stake its supremacy, freight rates have got sucked into a downward spiral which is certainly overdone.

The question is to know whether this is a mechanical phenomenon which is justified and long lasting or, on the contrary, simply a strong reaction which will enable the market to recover a healthy balance quicker than expected. We think this second hypothesis to be more likely.

Many experts believe that the United-States will recover from the dramatic events of September 11th stronger than before, and that growth will pick up again after the second quarter of 2002. The role that the world's most important economic power plays in terms of energy consumption will be confirmed and it is likely in addition that we shall see a decline in the use of nuclear energy.

Despite efforts of producing countries to push up oil prices, the world producing capacity today is such that the oil price is unlikely to go over $25 per barrel. This is another factor in favour of a rapid economic recovery.

The high freight rates registered in 2000 and in the beginning of 2001 acted as a brake for any voluntary scrapping of the oldest vessels. However, faced with depressed rates such as we have currently, their employment should be increasingly dubious.

Given that today we have already witnessed a serious decline in the number of orders of newbuildings for the three main categories of tankers, we should see an increase in the number of vessels over 20 years heading for the scrapyard. The return of a better balance between supply and demand could therefore occur in a far shorter time than predicted by many.

The year 2001 saw an impressive number of transactions, at the end of the year we have listed about 140 second-hand sales of ships for navigation or transformation (and thus excluding demolition). In comparison, the total of ships transacted in 2000 was 126 and in 1999 only 98. This figure of 140 is however slightly misleading as a considerable number of transactions were done "en bloc" and it is primarily by this yardstick that one can measure the effects of mergers and regroupings within the shipowning world.

Values have declined due to a drop in ships' revenues for all sizes, the systematic compressing of construction costs offered by yards, and by charterers taking a control of the market at the expense of owners. Just as at the end of 1998 and during 1999, charterers can again pay themselves the luxury of deciding arbitrarily whether to reject older ships without risk of paying a heavy premium for a modern ship. It is for this reason that no matter what the size, ships of the 70's and 80's have seen their value drop by more than 45 % during the course of the year, whereas modern units and double-hulls have lost between 20 to 25 % of their value.

Prices remained firm at the beginning of the year but collapsed as the steady decline in daily revenues was being realised and slipped further after the events of September. We should like to point out certain tendencies which characterise this sector but which are also present in other types of tonnage:

• The cyclical rise and fall of values are getting shorter not only because of the instability of our economies but also due to the shorter reaction time of the players be they owners, charterers, or builders.
• If the concentration of tonnage in the various pools helps push the market on its way up, they do not seem capable of slowing it down on the falls.
• Different types of owners exist and their varying time horizons contradict their objectives, which are equally different. Consequently, those who are under obligation to always produce profits in the short term, tend to amplify the movements of the market.
• The sellers' ability to resist their counterparts when values are declining seems stronger than the resistance of buyers when values are rising.

The year 2002 appears to be starting out as difficult times for owners. The asset worth has fallen to levels of 1999 and a large number of ships are due to come into service for the Aframax and the Panamax fleets. The demolition of the oldest units is inevitable in the short-term, but the revenues of the old ships are often the means of financing the costs of their new ships.

Experience shows that the tonnage on offer has not and should not be the problem. The really essential factor is demand and it is this demand that we should try to determine as best as possible. Although we can not be categorical in our forecasts, we would nonetheless give some suggestions to potential investors:

This sector of the market saw 37 units change hands, namely five times more than last year. The main player in this was Frontline (directly or via the Tankers International pool), since it seems that 13 ships out of the 37 involved this owner. The fluctuating values allowed certain to realise brilliant operations in terms of timing. For example Bergesen was able to sell for nearly $78 million per unit, several of his ships which he had bought for less than $65 million a year before. As mentioned above, a number of sales were done "en bloc", 17 ships out of the total 37 transactions changed hands in this manner. The most noteworthy without doubt being the sale of four ' m/t 'Hellespont Burnside', m/t 'Hellespont Elmere', m/t 'Hellespont Holly', m/t 'Hellespont Sheridan' of 305,000 dwt built by Samsung, for delivery in 2001 and 2002 to the National Shipping Company of Saudi Arabia for a price of $82.5 million per vessel.

Out of 18 ships sold this year, built after 1990, all except four were double-hulled and were less than three years (newbuilding resales included). Among the four single-hulled, was the sale "en bloc" of the m/t 'Front Tarim' and the 'Front Tartar' of 306,902 dwt built in March 1993, for a combined price of $104 million with three years charter at $38,000 per day.

Ten ships built between 1980 and 1989 changed hands and to illustrate the drop in prices, we can cite the sale of the single-hulls with the m/t 'Isuzugawa Maru' of 247,392 dwt built in 1987 for $28.5 million in February, whilst the m/t 'Cosmo Jupiter' of 248,965 dwt built in 1986 achieved $18.9 million in October. Owners of ships in good running order and built in the 70's have managed to survive with honours in the current skirmishing. Out of the nine ships sold from this decade, seven were converted into FSO or FPSO. Thus the t/t 'Stena Companion' allowed her owners to obtain over twice the price of her scrap value, achieving nearly $15 million in September.

Although a final reckoning still remains to be done, it seems that at time of press, around 30 ULCC/VLCC have been sold for demolition. It is worth pointing out however that the rhythm of scrapping has been increasing in pace over the past months and that in the last two months of this year the activity was hectic. This tendency should continue even to accelerate right throughout 2002, and in any case to last at least as long as rates are under pressure. The price per light ton has also diminished and while it was possible to obtain about $170 per light ton at the beginning of the year, it finished at the end of the year at somewhere near $135 per ton.

The volume of activity during these last years has remained extremely stable for this type of ship. We noted 23 transactions per year for 1999 as well as 2000, and this year the number changing hands has been 24. In the same way as with VLCCs, the number of ships sold "en bloc" was also significant, since a third of the 24 ships (namely eight) were subject to two grouped sales. The more important of the two was that which consisted of five resales, the 'Hyundai 1351', 'Hyundai 1350', 'Hyundai 1336', 'Hyundai 1335', 'Hyundai 1334', and 'Hyundai 1333' for delivery in 2002 / 2003 and sold during the summer for $330 million en bloc.

We have seen however that activity is essentially concentrated on very modern ships. Ten resales, added to five ships built between 2000 and 2001, then a single unit built in 1993, represented two-thirds of the sale and purchase deals in this sector. Several of these units have changed hands with charter back attached, such as the m/t Four Smile' 160,573 dwt built in 2001, which was sold for a price of about $60 million with a five year charter back at $27,500 per day. To our knowledge the only ship sold from the 90's was the m/t 'Polysymphony' 150,038 dwt built in 1993, which went at the beginning of the year for $41 million.

No ship built between 1980 and 1989 was sold and the remaining transactions were for units built in the 70's. As in the VLCC category, with freight rates collapsing during the year, buyers were especially active at the beginning of the year since five of the seven transactions were done in the first half of 2001. Thus the m/t 'Enalios Thetis' of 149,992 dwt built in 1979 was able to achieve a price of $6.5 million in February whereas in mid- November the m/t 'Elfwaihat' built in 1976 was sold at a level very close to its scrap value, of about $3.2 million.

The demolition figures were impressive, as 28 ships were taken off to the Far East. This is a level comparable to that of 1999 in which 26 ships were withdrawn from the market. The attractive freight rates in 2000 only produced 16 demolitions. As with all size of tankers for this year, sales of Suezmax for scrapping became more numerous as the year progressed.