Capital

Ship finance

Published 28 August 2026 · updated 22 September 2026

A ship is one of the largest single assets a private company can own, and almost none of them are bought with cash. The way the money is raised leaves fingerprints all over the rest of the business: on the ownership register, on the flag, on the covenants an owner has to keep, and on the lowest rate he is able to accept.

One ship, one company

The standard structure is a single-purpose company that owns exactly one hull, has no staff, and does nothing else. Above it sits a group; beside it sits a manager. The registry records the single-purpose company as the registered owner, which is why that field is a piece of record-keeping rather than a contact.

Three reasons keep the structure in place. It ring-fences liability, so a casualty on one ship does not reach the others. It makes the ship saleable as a transfer of shares, which is quicker and cheaper than transferring the asset. And it gives the lender a clean box to lend into: one asset, one mortgage, one set of earnings, no other creditors.

For a broker the consequence is practical. Writing to the registered owner reaches a shell. Who owns a ship separates the four roles that have to be tracked, and it is the commercial manager, the company that actually trades the ship, who answers a position enquiry. The chain of who is contracting with whom on a given fixture is a separate question again, covered in who is who on a fixture.

The instruments

Leasing deserves the extra sentence. In a sale and leaseback the owner sells the ship to a lessor and immediately takes her back on a long bareboat charter, usually on BIMCO's BARECON 2017 form with finance-specific amendments and often with a purchase obligation at the end. Economically it is borrowing. Legally the lessor owns the ship, and the registry will say so. That single fact accounts for a large number of hulls whose registered owner is a financial institution and whose ships are plainly being traded by somebody else.

The covenant that bites

Loan documents carry a minimum value clause, sometimes called a loan-to-value or security maintenance covenant. It requires the ship's market value to stay above an agreed multiple of the outstanding debt, tested periodically against broker valuations. If the value falls through the threshold, the owner must post cash or additional security, or prepay part of the loan.

The trap in it is the timing. Ship values fall when the freight market falls, so the covenant demands cash at precisely the moment the ship is earning least. An owner who is paying every instalment on time and trading profitably can still be in default because a valuation moved. This is why a market that merely looks soft to a chartering desk can look existential to the owner on the other side of the telephone, and why distressed sales cluster in a trough rather than being spread across the cycle. See shipping cycles for the pattern that produces it.

Breakeven, and the rate an owner cannot take

The cash a ship generates is spent in a fixed order. Voyage costs come out first, which is what a time charter equivalent already nets off. Then daily running cost: crew, insurance, stores, lubricants, maintenance, class and survey. Then debt service, interest and principal. Whatever remains belongs to the owner.

Two thresholds follow, and confusing them is the commonest misreading of an owner's position:

• Operating breakeven is the daily figure that covers running cost alone. Below it, trading destroys cash and laying up may be cheaper than working.
• Cash breakeven adds debt service. Between the two, the ship is worth trading because she contributes to a loan that has to be paid either way, even though the owner is losing money.

This is the answer to why two owners quote very different minimum numbers for the same class of ship on the same day. It is not stubbornness or better information. One bought at the peak with heavy leverage and one owns his ship outright, and their floors are genuinely different. A broker who knows which is which knows who will move.

Where the lenders have gone

The pool of shipping banks narrowed considerably after the last long downturn, and leasing houses, alternative credit funds and export credit agencies took much of the space. The practical effect on counterparties is a wider spread of terms and a wider spread of what a lender will finance.

Environmental scoring is now part of that. Under the Poseidon Principles, signatory financial institutions measure and publicly disclose the climate alignment of their shipping loan portfolios against the International Maritime Organization's decarbonisation trajectory. The signatory group represents a large share of global ship finance. The consequence at the desk is indirect but real: an older, thirstier ship can be harder and dearer to finance than her earnings alone would suggest, which feeds back into what she is worth second hand and into how long she stays in the fleet.

What this changes about the work

Three things worth carrying into a negotiation. Ownership on a registry is a financing artefact, so never treat it as a commercial contact. An owner's reluctance on rate usually has a number behind it, and that number is a breakeven rather than an opinion. And a fixture is a lender's security as much as an owner's revenue, which is why owners care about charterer credit, about payment terms, and about the ship being free of arrest, sometimes more than they care about the last dollar on 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

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