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Frequently Asked Questions About Purchasing Used Ships

by bryancunningham
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The last few years have shown the world how fragile supply chains are, which has changed the way companies view shipping and logistics. Now, larger companies are beginning to handle overseas freight shipping in-house, and existing merchant fleets are expanding to create extra carrying capacity. In other words, a lot of ships are changing hands. This article will answer some frequently asked questions about the process.

How Do Merchants Find Ships?

Merchants find ships by reaching out to qualified shipbrokers. They often begin by browsing through available options on a website like https://www.nautisnp.com/ to narrow down their requirements and then reach out for help finding the right ship and brokering the sale. Shipbrokers have access to a network of large vessels from across the world and make the process of finding the right ship easy.

What Kind of Ships Are There?

There are all kinds of ships available to modern merchants, but most are referred to generally as cargo ships. Some cargo ships are highly specialized, while others are designed to carry any kind of dry bulk goods. There are even multi-purpose vessels available that allow the transport of different classes of cargo at the same time. In other words, prospective buyers have a lot of options to consider.

How Large Are Cargo Ships?

Cargo ships come in many sizes. They are classified by deadweight tonnage, cargo capacity, and maximum dimensions, with dry cargo ships ranging from small handy size ships weighing just 20,000 DWT to massive Chinamax carriers weighing up to 400,000 DWT. Wet cargo ships, often referred to as tankers, range from Aframax-sized ships weighing 75,000 to 115,000 DWT to ultra-large crude carriers (ULCC) weighing up to 550,000 DWT.

How Can Merchants Choose the Right Type of Ship?

Most experienced merchants are already familiar with at least the basic types of cargo ships available, but deciding which one to buy requires consideration of the company’s specific goals. Think about factors such as the intended routes, what kind of cargo will be transported, and what ports the ship will visit. The next step is to bring this information to a shipbroker who can identify potential candidates and begin the sale and purchase process.

What Do Shipbrokers Do?

Shipbrokers handle all of the most crucial aspects of purchasing a vessel. They act as middlemen between shipowners and buyers, including the initial negotiations to the signing of a contract, an inspection of the ship, and the completion of the deal. Each stage of the sale and purchase of a ship comes with its complex regulations and complications, so shipbrokers need to have not just extensive industry knowledge but also basic legal knowledge and essential connections.

How Much Does Buying a Ship Cost?

The cost of buying a ship varies substantially based on how specialized it is, how it’s classified, and what prices the current market will support. The cost of commissioning a new ship is substantially greater than that of buying a used one, so most merchants purchase their cargo vessels secondhand. Having a good ship broker is also crucial to ensuring that bargaining and negotiations go smoothly and the buyer pays a fair price.

What Are the Stages of Ship buying?

There are three general stages of ship buying, although each encompasses many elements. They are:

  1. Negotiations and contracts
  2. Inspections
  3. Completion

How Can Prospective Buyers Make Offers?

In the maritime industry, negotiations are typically carried out via telex exchange. The buyer’s broker initiates this exchange process to initiate an invitation to offer, at which point negotiations can begin. The official contract for the sale of the ship called a Memorandum of Agreement (MOA), is only drawn up and finalized after both parties have agreed upon not just pricing but also the basic terms of the contract.

Are There Buyer Protections?

Buyers generally receive some limited protection in specific clauses of the sales form, most notably clause 9 of the sale from 1993, now considered an industry standard. As with smaller vehicles, such as cars in the United States, the seller must warrant that the ship being sold is free from liens, charters, encumbrances, and other debts. There may also be different warranty claims. However, it’s worth noting that most buyers can claim damages but not necessarily terminate the contract over a breach of warranty.

What Kind of Inspection Is Performed?

An MOA enters into the inspection stage after its completion. During this stage, the physical ship is inspected while afloat, and the buyer will be able to check its class and certificate records and other crucial documents. Experts advise including professional safety, certificate, equipment, engine inspections, and a sea trial, but the inspection process looks a little different for every sale.

What is Required to Close a Sale?

The completion stage of ship buying ends with the closing of the transaction. This process can be a little more complicated for cargo ships than it is for smaller, private vessels. MOAs generally stipulate that certain document be provided by the seller, including:

  • The closing memo
  • The bill of sale
  • A certificate of class
  • A certificate of good standing
  • The minutes of meetings of directors and shareholders
  • Consents or licenses as required by government authorities
  • A power of attorney
  • A certificate permitting the sale signed by the registrar of the ship’s registry

The seller also has to make additional arrangements such as the deletion of their name from the registry, the cancelation of insurance, the settlement of any mortgages, and the repatriation of the crew. At that point, the seller can send an advanced notice of delivery to the buyer to finish closing the sale.

The Ship-Buying Process Is Complicated

As has been evidenced, the sale and purchase of ships is a complex process. Buyers and sellers both need to find experienced shipbrokers who can represent their best interests throughout the transaction.

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