Ship Sale & Purchase

Whilst in chartering, except in the longest of contracts, one is dealing with the temporary commitment of a vessel, the sale of a ship will involve a capital expenditure generally running into millions of dollars, pounds or other currency. There are three distinct sectors of the sale and purchase market, New buildings, Secondhand and Demolition. The most active market is, of course, the trade in second-hand ships as it is the exception rather than the rule for a ship to stay with the same owner from builder’s yard to scrapyard. A ship can well have an active life of 20 years although a depressed freight market will tend to shorten this. In such a time-span the requirements of a ship operator can vary considerably. Unlike the chartering markets where the principals are clearly specialists in their respective fields of activity, any shipowner is at some time a buyer or a seller. Selling may be motivated by the need to dispose of ships made redundant by changing patterns of trade, or ships becoming obsolescent in a particular owner’s fleet and needing to be sold to make way for more modern additions. Scrapping The final incentive to sell is, of course, when a ship becomes too old to keep in a trading condition economically and the only course left is to sell her for scrap. Age, unfortunately, is not always the reason for scrapping as was seen, for example, during the oil crises of the late 1970s and 1980s. Just prior to that period, there seemed to be no limit to the demand for crude oil carriers and every yard which could build VLCCs or ULCCs had full berths and bulging order books. Then came the recession with its inevitable massive reduction in the demand for oil resulting in some tankers going straight from the builder’s slipway to a lay-up berth. In such a situation many owners could find no prospect of trade for their ships and no funds to pay for ‘mothballing’ them so that demolition was the only course left. Incidentally while on the depressing subject of scrapping ships (before the lesson has barely started) it is not unusual for a shipowner to sell an obsolescent ship for scrapping even though there may be buyers at a better price wanting the ship for trading. There are two reasons for such apparently paradoxical behaviour, the first being the fact that under some fiscal regimes, obtaining a high price for a ship near the end of her life may actually be disadvantageous from a taxation point of view. The second reason, should a ship be sold for trading to make room for a new addition to that owner’s fleet, would mean there would now be two ships where there used to be only one. Ships naturally tend to be suitable for particular trades and so there is the risk that the seller would be creating problems for himself by providing a competitor with a ship with very low capital cost to amortise. Such an owner may, in any case, be trading under a flag of convenience so that selling the redundant ship for trading rather than for scrap could risk increasing the amount of competition against the newly acquired ship.