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 | The second-hand oil tanker market |  |  
 | This past year will leave a bitter taste in the mouths of industry players.
 Values of this type of tankers have eroded by some 10 / 15 % over the year despite an
 improvement being perceptible in mid-December. There are numerous reasons which have provoked
 this general depression, both with buyers as well as sellers of the second-hand tankers in the
 course of 2002, severely reducing the volume of business transacted.The main reasons were:
 
 
 A world economy in a depressed state.
 A reduction in crude production.
 Miserable daily returns during the first three quarters.
 A perception and proof of insecurity linked to terrorism.
 Declining newbuilding prices.
 A systematic misunderstanding and a frequent misinformation on the
 part of the general media on this type of transport, exacerbating the justified
 indignation of victims of pollution.
 The inability of competent organisations such as the IMO and
 Intertanko, to get their point of view across to the general public. Business done in the last quarter might have picked up given that the
 financial costs remained attractive and that owners at last enjoyed an upsurge in freight rates
 resulting from the Venezuelan crisis, an increase in crude production, and the sound of drums
 in Iraq.
 But very little effect was felt, as at the same time the 'Prestige' accident and the
 indecisive bureaucratic handling of the affair, only resulted in paralysing buyers and sellers
 a little more.
 
 Minds more competent than ours will be able to make a cold analysis and comprehensive
 conclusion on this incident involving an Aframax tanker built in 1976, in respect of her
 maintenance, the causes and the consequences. Nonetheless, we can perhaps be permitted to
 recall some home truths to those who seem only interested in this subject either occasionally,
 or in a partisan or worst of all in a demagogic manner:
 
 
 A bad ship is not an old ship, but one badly maintained.
 A bad owner is not an 'offshore' owner, but an irresponsible
 one.
 A bad flag is not a flag of convenience, but a permissive one.
 A bad manager is not an 'exotic' manager, but a manager
 indifferent towards his crew.
 A bad broker is not one looking to make a commission, but one who
 fails in his duty to inform.
 A bad charterer is not one who optimises his freight costs, but
 one who uses the services of intermediaries in a bad way. And finally, the most important of all these home truths and too often
 wrongly underestimated: No doubt there are a number of bad ships amongst the older ones, but to
 suppose that shipping accidents will cease with the scrapping of all old ships is fanciful. The
 strength of a chain is defined by its weakest link and the same goes for the tanker fleet. To
 pretend or suppose that all old ships are floating rust-buckets, as is the case in France,
 Spain and Portugal in the period after the shock at the end of 2002, is wrong and
 intellectually dishonest.
 Spain in dealing with the 'Prestige' repeated the same mistake as France did with the 'Erika',
 in not allowing the vessel access to a port of safety and by sending her out to the open seas
 in gale force conditions. This was the worst of all decisions in our opinion. Japan, China and
 Taiwan had a similar reaction, but fortunately without drastic consequences, at the time of the
 'Front Tobago' incident in May off Taiwan.
 For the future, it is to be hoped that calmer and more constructive attitudes will prevail, as
 it is not enough just to hope that by an accelerated 'phasing out' of old ships will be the
 panacea to the problem of pollution at sea.
 
 The solution exists already, which consists of diverse regulations, laws, and responsibilities
 respected by a large majority of owners. There will be enough time to create further controls,
 once the European states will meet their obligations and instigate their part-share of port
 inspections (Port State Control), when ports of refuge have been designated, and when ships in
 distress stop being sent out into storms in an irresponsible fashion.
 
 Accelerating the 'phasing out' is on one hand unrealistic in view of the age structure of
 the fleet, but above all, will probably condemn owners to bankruptcy or to a reduced activity
 at sea as well as on land, by not allowing them to depreciate their assets over the necessary
 period foreseen at the time of acquisition.
 
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 Only 24 units of this class changed hands in
 2002, some 13 less than in 2001. Among these ships, 7 VLCCs were built in the 70's and their
 buyers were solely motivated by storage or conversion projects. As an example, we can cite the
 en bloc sale of 'Stena King' and 'Stena Queen' for a reported price in the region of
 $20 million each.
 The age category, which finally caught the attention of most buyers, was that of vessels built
 between 1986 and 1995, but all single-hulls. No less than 12 vessels were concerned, namely
 half the global total. This tendency can be explained by the fact that buyers were mainly
 Japanese owners, anxious to renew their fleet with double-hulls, whilst buyers were primarily
 Greek taking advantage of a low-priced market, in the expectation of a resale in a rising
 market. These vessels, even single-hulled, are sufficiently modern to enjoy several turns of
 the cycle. To illustrate this contention, we can quote the sale in June of the 'Nisseki Maru',
 258,094 dwt built in 1988, for a price of $20 million and that of the 'Tango' 264,340 dwt,
 1995 sold at the same time for $29 million, even if their 'phasing out' date is within one
 year of each other (2014 for the 1988, and 2015 for the 1995).
 
 The modern double-hull vessels were the losers in 2002, as only 5 units changed hands. The
 downward pressure exerted by the low prices being proposed by shipyards, largely contributed to
 the inability of buyers and sellers to find common ground. Thus Irving Oil finally had to give
 up and become resigned to releasing the 'Irving Primrose' and the 'Irving Galloway',
 305,955 dwt, both built in 1995, for a price of $57 million apiece, against a 4 to 5 years time
 charter back.
 
 Only scrapping saw a more sustained activity in this size, since 36 VLCCs were disposed in this
 way, whereas we accounted 32 such units in 2001. Scrap prices conversely were on a rise during
 the course of the year. The number of 36 ships scrapped compensates the number of new
 deliveries for the year 2002 which ended at 40.
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 Very few transactions were recorded in this
 category in 2002, as only 18 Suezmax changed hands and all the more that this total includes
 tankers between 115,000 to 199,999 dwt. We have registered respectively 24, 23 and again 23
 sales for the years 2001, 2000, and 1999.
 As with the VLCCs, the poor daily returns severely limited buyers' budgets. In 2002, three
 tankers built in 1975 and 1976 changed hands including the 'Sky', 154,934 dwt, sold for
 $8.3 million for conversion, nearly twice its nominal value.
 
 The very rare Suezmaxes built in the 1980's were exchanged in good numbers this year, since 7
 were sold, including 4 units from BP, the 'British Strength', 'British Skill', 'British
 Spirit', and 'British Success', 127,800 dwt, built in 1983, for the first three and 1984
 for the last, at a price between $6 to $7.25 million each, to two different buyers.
 
 Eight modern double-hulled tankers, less than 10 years old, were sold this year. We can
 illustrate this by the sale of the 'Chevron Atlantic', 149,748 dwt, built in 1992, sold for
 about $28.5 million in June, and of a vessel under construction named 'Antares' with
 delivery in 2002, for a reported price of $51 million.
 
 Scrappings of this type of ship were at the same level as in 2000 (16 units), as in 2002 we
 counted 17 units, compared to no less than 28 in the intervening year. In contrast to VLCCs,
 which were scrapped mostly at the beginning of the year, Suezmax sales were spread out over the
 year. At the same time, 25 new ships in this category left the shipyards.
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 If we include ships over 60,000 dwt, but with
 beams of over 32.20 metres, we recorded 31 deals for Aframaxes up to 119,000 dwt in 2002. It is
 therefore this category that has been least affected by the depression, mainly as the daily
 returns were less disastrous than in larger sizes.
 The annual volume remains fairly steady as we have registered 34 and 36 sales in 2001 and 2002.
 Prices of modern tankers have seemed too expensive in the eyes of buyers in comparison to the
 alternative of newbuildings, which is why activity has been concentrated in the oldest ships.
 The lion's share went to vessels in the 1977-1988 age bracket with 20 sales out of 31, as
 asking prices were sufficiently realistic to allow buyers to adapt to spot rates which held up
 well. We can give as representative sales, the 'Marifru Maru', 101,838 dwt, built in 1979,
 sold for $3.6 million, the 'Afrapearl', 86,417 dwt, built 1981, sold for about $4.75
 million, and the 'Maersk Visual', 110,296 dwt, built 1988, for $18 million.
 
 Eleven modern ships (built after 1990) were sold this year of which 5 single-hull. Among them
 we can cite the 'CSK Valiant', 97,151 dwt, 1990, for a price of $17.8 million, and that of
 'Ventikos', 69,998 dwt, built 1993 with a beam of 36 meters, for $18.3 million.
 
 Six more modern and double-hulled units changed hands. We can quote the 'Diana', 96,125
 dwt, built in 1992, sold for $23.5 million in July, whereas a more modern vessel built 1999
 with a centreline bulkhead the 'Pine Venture', 105;000 dwt, obtained about $33.25 in
 February.
 
 We have seen this past year 20 ships going to scrap, slightly more than in 2001, two more than
 in 2000, and the same number as in 1999. In compensation, some 43 units joined the fleet in
 2002. More ships should have been demolished this past year if one looks at the age structure
 of the fleet, however spot rates were not bad enough to cause a rush towards the scrapyards of
 Pakistan, India, China or Bangladesh.
 Panamax tankers (less than 32.30 meters beam) also saw a reduced activity, as only 11 changed
 hands in 2002 as compared to 22 the previous year. Seven of them were built between 1978 and
 1986. Otherwise 2 modern single-hull ships of 1991 and 1992 as well as 2 double-hulled resales
 were realised.
 
 We can indicate the following sales: the 'Kestrel', 56,963 dwt of 1979, for $2.5 million in
 October, that of the 'Seamusic III', 70,914 dwt, built 1992, for about $21 million in
 February, and finally one of the rare en-bloc sales of the year, that of 'LMZ Mandi' and
 'LMZ Zacvi', 70,000 dwt, built 2002, sold in April for $36.5 million apiece.
 
 We have thus seen again that in this segment of the market, the price spread between buyers and
 sellers was insurmountable for the newest ships, as well as for the largest.
 
 No less than 13 ships were scrapped compared to 7 in 2001 and 8 in 2000. This is a good figure
 if we remember that 9 units joined the fleet in 2002, but this should be seen in the light of
 46 new orders placed in 2002 and an orderbook which has already more than 70 ships.
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 This type of vessel encountered sales
 similar to that of the previous year, since 9 units were sold compared to 11 in 2001. This
 category of the market thus continues to retract in the course of time and the specialisation
 of the fleet prevents a renewal. Contrary to last year, no modern unit changed hands since all
 OBOs sold for further trading were built between 1980 and 1988. The double-hulled configuration
 of these vessels has however allowed them to obtain respectable prices in comparison to
 classical tankers of similar age.| 
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 We can illustrate this with the sale of the 'Probo Baro', 48,062 dwt, built 1988, for a
 price in the order of $11.7 million, with a 2 year time charter back. Also to be noted were the
 sales of the 'Sapphire', 70,681 dwt, built 1981, for $2.9 million in July, and that of the
 'Tijuca', 310,686 dwt, built 1987, for a price of $25.5 million.
 
 Otherwise 13 ships between 50,000 and 132,000 dwt were taken off to the scrapyards, thus
 diminishing further the number of this type of vessels in the fleet. Today we estimate the
 active fleet to include about 120 Oil-Ore and Oil-Bulk-Ore units of over 50,000 dwt.
 Nonetheless two new units of 121,000 dwt will enter the fleet in 2003.
 
 | Tomorrow's market |  |  
 | Improved levels that owners enjoyed at the end
 of the year was a welcomed compensation for the poor rates which prevailed over most of 2002,
 but it is likely that once the Venezuelan and Iraqi crisis come to an end, the gloom will
 return. Only the Chinese economy is looking healthy, but even if they increase their crude oil
 transportation requirements, they will be unable to sustain the market on their own. The U.S.,
 Europe, and Japan seem to continue to be stumbling along at least for the first half of 2003.
 Thus we will probably have to go through a further reduction in activity until the above crisis
 and conditions have been fully played out.
 On the other hand, the balance between supply and demand is more delicate than we might have
 expected, as witnessed by the sudden surge in rates at the end of 2002. If the price of new
 buildings were to stop their infernal fall and the pace of scrappings were to let off, or even
 accelerate following the 'Prestige' incident, we should be able to see a bigger volume of
 business in 2003.
 
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 Shipping and Shipbuilding Markets in 2002
 
I N D E X
 
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