Timetable change threatens oversupply of oil tankers

The cost of shipping oil and petroleum products could fall sharply next year because a timetable settled last week for eliminating single-hulled tankers is not as stringent as tanker owners had expected.

'The change of schedule has far-reaching consequences,' said Oslo broker Fearnleys in a report. 'We must assume that rates will fall even lower than previously expected.'

Last October, the United Nations' legislative body for shipping, the International Maritime Organisation (IMO), agreed on a draft timetable for phasing out single-hulled tankers.

The draft timetable raised fears of a tanker shortage and soaring freight rates.

Tanker owners rushed to the shipyards to place orders for hundreds of double-hulled ships to cash in on the anticipated boom.

When the IMO's Marine Environmental Protection Committee announced the finalised timetable last week, it had been watered down, and analysts are now questioning how the wave of new tanker deliveries will find employment.

The first compromise in the timetable allows ships that were due to be scrapped at the start of each year to keep trading until the anniversary of their delivery date, giving an extra six months' trading life to the entire fleet.

In addition, some minor categories of tanker will get up to 3.5 years of extra trading life.

'The delayed schedule has more negative implications for the tanker market than a mere delay of six months would entail in another context,' said Fearnleys.

It said that while deliveries of new tankers were set to reach a 25-year peak of 23.5 million deadweight tonnes next year, hardly any of the fleet's older tankers would now be scrapped to make room for them.

One tanker owner said it was typical of the industry to over-invest on the basis of nothing more concrete than a draft timetable.

'They have done it again,' he said. 'They have shot the bolt and over-ordered.'

New York tanker broker Poten agreed. 'An order book of 93 vessels could put the fleet in jeopardy of a possible short-term oversupply in 2002 and 2003,' it said in a report.

Poten ended the document with a strong warning to tanker operators: 'To maintain the medium-term balance and prospects for a decent economic return: Please stop ordering VLCCs (very large crude carriers)!'

Not all analysts were so bearish, however, arguing that the market already had started to regulate itself.

Oslo broker PF Bassoe pointed to a new attitude among tanker charterers as a key factor.

'The Erika incident has made charterers more careful with single-hulled tonnage, and oil companies' vetting procedures are becoming more rigorous,' it said.

The Erika broke in halves in the English Channel in December 1999, spilling 8,000 tonnes of heavy fuel oil belonging to charterer TotalFina.

Bassoe said the new chartering environment was making it more difficult to trade older vessels and increasing the incentive for owners to scrap them. It said this would help redress the market balance. 'Demolition becomes a self-fulfilling prophecy, with or without the assistance of IMO,' it said.