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Asset market

Sale and purchase

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A ship is two businesses at once. It carries cargo and earns a margin each day. It is also an asset that loses value over time, and its value rises and falls further and faster than the freight it earns. Sale and purchase (S&P) is the second business. On most broking desks it is a separate team from chartering, with its own contacts.

The sequence of a deal

The steps are standard enough for a newcomer to follow, and each one can go wrong.

The form

The main contract form is SALEFORM, the memorandum of agreement of the Norwegian Shipbrokers' Association. The current edition is SALEFORM 2012, published together with BIMCO, and it replaced the long-used 1993 edition after a full industry review. BIMCO has since issued its own alternative, SHIPSALE 22, which is a different wording for the same deal rather than a replacement.

One rule is worth knowing because it is negotiated on every deal. Under SALEFORM 2012, the parties fill in the deposit percentage themselves. If they leave it blank, the form uses ten per cent of the purchase price. People used to assume ten was fixed, but it is only the default.

The traps between agreement and delivery

The ship is sold as it is. Once the buyer accepts the inspection, the buyer takes the ship in the condition it was in, except for fair wear and tear. The standard forms give the buyer very little right to complain about faults found later, so the buyer must learn everything before the subject is lifted. That is why the class records matter more than a quick look around the ship.

Survey timing can move the price more than age. If a ship has a special survey (the main periodic class survey) and drydocking due next quarter, the buyer will pay that bill. Two sister ships of the same age can be worth very different amounts, depending on when each was last in dock, and whether any conditions of class (repairs class has ordered) are still open.

Delivery is a place and a time window, not a single date. The form uses a delivery range and a cancelling date, and the ship must be physically delivered there, with no cargo on board and no charter, unless it is sold with a charter attached. If the seller cannot meet the cancelling date, the buyer may cancel the deal. By then, prices in the market may have changed.

Fuel and lubricants are bought separately. The buyer takes over whatever is on board at delivery at an agreed price, usually the invoice price. On a large ship this is a large amount on top of the purchase price. It is the cost people most often forget in their first deal.

Name, flag and number. The buyer will rename the ship and usually change its flag. The IMO number does not change, and it is the only thing about the ship that never will. See ship names and renaming for why a register that tracks ships by name creates duplicates.

Why the ownership record barely moves

Most ships are registered to a company that owns only that one ship and exists only for that. So there are two ways to sell a ship, and they look completely different in a register:

This is why ownership data can be out of date in ways that look like a mistake but are not. Who owns a ship explains the four roles that must be tracked separately. The commercial manager is the one a broker writes to, and it is also the role most likely to change when a ship is sold with no change in the registry.

What a ship is worth, and who says so

There is no public record of trades. No rule forces a seller to publish a price, and many deals are reported as undisclosed or as a rough figure. A reported figure may include or leave out things the next reported figure did not. So valuations come from three imperfect sources: brokers’ opinions, published assessments, and similar reported sales.

The Baltic Exchange publishes weekly sale and purchase assessments for a five-year-old ship of a set size in each main sector, provided by panels of S&P brokers. Like the freight indices, they are expert opinions on the current market value of a defined ship, not a record of trades. They are a benchmark, not a valuation of your ship, and they say so.

Be clear about what the data contains, because it limits what any analysis can honestly claim. The Neptune Atlas register records 31,852 sales over 30,599 hulls, and 16,732 of them carry a price. So roughly half of all recorded sales in this market have no price at all. Any average built from the priced half is an average of the deals someone chose to report.

What actually drives the price

Age, size and shipyard set the starting point. The specification adjusts it: cranes or no cranes, ice class, coatings, box-shaped holds, fuel use, whether there is a scrubber (an exhaust cleaning system), and whether the ship suits the trades that are in demand now. Survey and class position adjusts it again. Then the freight market raises or lowers the whole figure. A ship is worth the earnings the market expects it to make, discounted to their value today.

That last factor matters most, and it is why ship prices and freight rates move together, with ship prices following a little later. It also links this article to shipping cycles. Buying well is a decision about the cycle, and the inspection, the form and the deposit are simply how you carry out that decision without losing money on the paperwork. The lowest a ship can be worth is its scrap value, which is covered in ship recycling and demolition.

References

Who owns a shipA ship has up to five companies behind it, and they are not the same. 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 way to identify a hull, and the ranked match that works instead. Reading a ship's particularsWhat each figure on a vessel description limits, why GRT measures volume, and why draught rules a ship out long before deadweight does. Shipping cyclesSupply is a fleet ordered three years ago, and demand is not. That mismatch is the main reason freight rates behave the way they do. Ship financeAlmost every hull sits in its own company with a mortgage over it. That explains the ownership record, the loan terms, and the rate an owner cannot accept.

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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