Neptune Atlas
Ship finance
A ship is one of the largest single things a private company can own, and almost no ships are bought with cash. The way the money is raised affects the rest of the business. It shows on the ownership register, on the flag, on the loan conditions (covenants) an owner must keep, and on the lowest rate the owner can accept.
One ship, one company
The standard structure is a single-purpose company. It owns exactly one hull, has no staff, and does nothing else. A group company controls it, and a separate manager runs the ship. The registry records the single-purpose company as the registered owner. That is why the registered owner field is a record, not a contact.
There are three reasons for this structure. First, it limits liability, so an accident on one ship does not affect the others. Second, the ship can be sold by transferring the company’s shares, which is quicker and cheaper than transferring the ship itself. Third, it gives the lender a simple unit to lend to: one asset, one mortgage, one stream of earnings, and no other creditors.
For a broker, the result is practical. If you write to the registered owner, you reach an empty company. Who owns a ship explains the four roles you need to track. The commercial manager, the company that actually trades the ship, is the one who answers a position enquiry. Who contracts with whom on a particular fixture is a separate question, covered in who is who on a fixture.
The instruments
| Source | What it is | Where it shows up |
|---|---|---|
| Bank mortgage debt | A term loan secured by a first preferred mortgage on the hull, plus the rights to the ship’s earnings and insurance payouts | A mortgage entry on the registry; loan conditions in the owner's decisions |
| Export credit | Lending or guarantees backed by a government, linked to a new ship built at a yard in that country | Contracts for new ships, not second-hand deals |
| Leasing | A lessor (a finance company) owns the ship and charters it bareboat to the operator, often with an option or a duty to buy it later | A leasing company as registered owner, and the operator nowhere on the registry |
| Capital markets | Bonds and listed shares, mostly for larger groups | Published accounts, and a group that can act faster when the market recovers |
Leasing needs a little more explanation. In a sale and leaseback, the owner sells the ship to a lessor and at once takes it back on a long bareboat charter. A bareboat charter means the charterer runs the ship with its own crew, as if it were the owner. This is usually done on BIMCO's BARECON 2017 form with changes for financing, and often with a duty to buy the ship back at the end. In economic terms it is a loan. In legal terms the lessor owns the ship, and the registry says so. This one fact explains many hulls whose registered owner is a financial institution while someone else clearly trades the ship.
The covenant that causes the most trouble
Loan documents include a minimum value clause, also called a loan-to-value or security maintenance covenant. It requires the ship’s market value to stay above an agreed multiple of the debt still owed. The lender checks this from time to time using broker valuations. If the value falls below the limit, the owner must put in cash or extra security, or repay part of the loan early.
The problem is the timing. Ship values fall when the freight market falls. So the covenant demands cash at exactly the moment the ship earns least. An owner can pay every instalment on time and trade at a profit, and still be in default because a valuation changed. This is why a market that looks only weak to a chartering desk can threaten the survival of the owner the desk is talking to. It is also why forced sales happen together at the bottom of the market instead of being spread across the cycle. See shipping cycles for the pattern behind this.
Breakeven, and the rate an owner cannot take
The cash a ship earns is spent in a fixed order. Voyage costs come out first. A time charter equivalent already takes these off. Next come daily running costs: crew, insurance, stores, lubricants, maintenance, class and surveys. Next comes debt service, meaning interest and repayments. Whatever is left belongs to the owner.
This gives two limits, and confusing them is the most common misreading of an owner’s position:
- Operating breakeven is the daily amount that covers running costs only. Below it, trading loses cash, and laying the ship up (taking it out of service) may cost less than working.
- Cash breakeven adds debt service. Between the two limits, the owner is losing money, but the ship is still worth trading. It helps pay a loan that must be paid anyway.
This explains why two owners quote very different minimum rates for the same type of ship on the same day. It is not stubbornness or better information. One bought at the top of the market with a large loan and the other owns the ship outright, so their lowest rates really are different. A broker who knows the position of each owner knows which owner can lower the rate.
Where the lenders have gone
After the last long downturn, far fewer banks lent to shipping. Leasing companies, alternative credit funds and export credit agencies took over much of that lending. For the parties to a deal, the result is a wider range of loan terms, and a wider range of what a lender will finance.
Environmental scoring is now part of this. Under the Poseidon Principles, the financial institutions that sign up measure and publish how well their shipping loans match the International Maritime Organization's plan to cut emissions. These signatories provide a large share of global ship finance. The effect on the desk is indirect but real. An older ship that burns more fuel can be harder and more expensive to finance than its earnings alone suggest. That lowers what it is worth second hand, and affects how long it stays in the fleet.
What this changes about the work
Remember three points in a negotiation. First, ownership on a registry is a result of the financing, so never treat it as a commercial contact. Second, when an owner resists a rate, there is usually a number behind it, and that number is a breakeven, not an opinion. Third, a fixture is security for the lender as much as income for the owner. That is why owners care about the charterer’s credit, the payment terms, and keeping the ship free from arrest (seizure by a court), sometimes more than they care about a small difference in the rate.
References
- Poseidon Principles for Financial Institutions, Aligning ship finance with climate goals. poseidonprinciples.org
- Global Maritime Forum, Poseidon Principles. globalmaritimeforum.org
- BIMCO, BARECON 2017. bimco.org
- Watson Farley & Williams, BARECON 2017: the timely revision of an industry standard. wfw.com
- UNCTAD, Review of Maritime Transport 2025. PDF
- Martin Stopford, Maritime Economics, 3rd edition, 2009. Routledge
Related
Neptune Atlas
Neptune Atlas keeps the four ownership roles apart on every hull, because the company on the registry is usually a company set up only to hold the financing, and the company that trades the ship is somebody else. The commercial manager is the contact; the registered owner is a legal record. 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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