Neptune Atlas

Asset market

Sale and purchase

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A ship is two businesses at once. She carries cargo for a daily margin, and she is a depreciating asset whose value swings further and faster than the freight she earns. Sale and purchase is the second business, and on most desks it is a different team from chartering with a different set of relationships.

The sequence of a deal

The shape is standard enough that a newcomer can follow it, and every step in it has a way of going wrong.

The form

The dominant contract is SALEFORM, the memorandum of agreement of the Norwegian Shipbrokers' Association, whose current edition is SALEFORM 2012 and which is published in cooperation with BIMCO. It replaced the long-serving 1993 edition after a full industry review. BIMCO has since issued its own alternative, SHIPSALE 22, which is a different drafting of the same transaction rather than a replacement.

One provision is worth knowing by number because it is negotiated on every deal. Under SALEFORM 2012 the parties insert the deposit percentage themselves, and if they do not, the form applies a default of ten per cent of the purchase price. Older habits assumed that ten was fixed; it is a default, not a rule.

The traps between agreement and delivery

She is sold as she is. Once inspection is accepted, the buyer takes the ship in the condition she was in, fair wear and tear excepted, with the standard forms giving very limited comeback on defects found later. Everything a buyer wants to know has to be known before the subject is lifted. That is why the class records matter more than a walk round the deck.

Survey position moves price more than age does at the margin. A ship with a special survey and drydocking due next quarter carries a bill the buyer will pay. Two sisters of the same age can be worth materially different money on the strength of when they were last in dock and whether any conditions of class are outstanding.

Delivery is a place and a window, not a date. The form runs on a delivery range and a cancelling date, and the ship has to be physically delivered there, free of cargo and free of charter unless the sale is with a charter attached. A seller who cannot make the cancelling date hands the buyer an option in a market that may have moved.

Bunkers and lubricants are bought separately. Whatever is on board at delivery is taken over by the buyer at an agreed basis, usually invoice price, and on a large ship it is a real sum arriving on top of the purchase price. It is the single most commonly forgotten line in a first deal.

Name, flag and number. The buyer will rename and usually reflag her. The IMO number does not change and is the only thing about the ship that never will. See ship names and renaming for why a register that keys on names produces duplicates.

Why the ownership record barely moves

Most ships are registered to a single-ship company that exists for exactly that purpose. So there are two ways to sell a ship, and they look completely different in a register:

This is the structural reason ownership data is stale in ways that look like an error and are not. Who owns a ship sets out the four roles that have to be tracked separately; the commercial manager is the one a broker writes to, and it is the role most likely to change when a ship trades hands without the registry noticing.

What a ship is worth, and who says so

There is no transaction tape. Nothing obliges a seller to publish a price, plenty of deals are reported as undisclosed or as a region of a number, and the reported figure often includes or excludes things the next reported figure did not. Valuation therefore comes from three imperfect sources: broker opinion, published assessments, and comparable reported sales.

The Baltic Exchange publishes weekly sale and purchase assessments for a five-year-old ship of defined size in each main sector, contributed by panellist S&P brokers. Like the freight indices, these are professional judgement of the current market value of a defined vessel rather than a record of trades. They are a benchmark, not a valuation of your hull, and they say so.

The data shape is worth being blunt about, because it decides what any analysis built on it can honestly claim. Across the 31,852 sales recorded in the Neptune Atlas register over 30,599 hulls, 16,732 carry a price. Roughly half of every recorded sale in this market has no price attached at all. Any average built from the priced half is an average of the deals somebody chose to report.

What actually drives the price

Age, size and yard set the starting point. Specification adjusts it: gear or no gear, ice class, coating, box holds, fuel consumption, the presence of a scrubber, and whether the ship suits the trades in demand right now. Survey and class position adjusts it again. And then the freight market multiplies the whole thing, because a ship is worth the earnings the market believes she will produce, discounted.

That last factor dominates the others and it is why asset prices and freight rates move together with the asset lagging. It is also the connection between this article and shipping cycles: buying well is a cycle decision, and the inspection, the form and the deposit are simply how a cycle decision gets executed without losing money on the paperwork. The floor under all of it is the scrap value, which is the subject of ship recycling and demolition.

References

Who owns a shipA hull has up to five companies behind it and they are not interchangeable. Only one of them answers a chartering e-mail. Ship names change, and they are not uniqueNames repeat and names change. Why a name is the worst key on a hull, and the ranked match that works in its place. Reading a ship's particularsWhat each figure on a vessel description constrains, why GRT is a volume, and why draught excludes a ship long before deadweight does. Shipping cyclesSupply is a fleet ordered three years ago and demand is not. That mismatch is the whole reason freight rates behave the way they do. Ship financeAlmost every hull sits in a company of its own with a mortgage over it. That structure explains the ownership record, the covenants, and the rate an owner cannot take.

Neptune Atlas

Neptune Atlas holds sale and purchase records against the hull, with seller, buyer, price and light displacement where the market reported them. Of 31,852 recorded sales, only 16,732 carry a price: the record says so rather than filling the gap. Every paid plan starts with 7 free days. A card is needed to start them, and cancelling before they end costs nothing.

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