Brokers are vital intermediaries between parties looking to buy and sell ships. Sale and Purchase Brokers (S and P Brokers) are highly specialized
shipbrokers. Their clients are typically ship owners. S and P Brokers serve as
intermediaries in the business of selling and buying ships. They assist in the sale
and purchase of second-hand tonnage and newbuilding. Their compensation is generally in the form of a commission.
S and P Brokers not only handle transactions between ship owners. They
may also be asked to sell vessels directly to demolition yards or cash
intermediaries for scrapping purposes.
Ships are technically complex, and they are bought and sold in an
international market that is extremely volatile. The S&P broker needs to be an
expert in the market for ships while providing timely and accurate information to
their clients.
The duties of the S and P Broker include:
- Put the seller and buyer in contact with one another.
- Render opinions on vessel valuations.
- Assist in the obtaining of ship finance.
- Act as escrow agent.
- Assist in the negotiation of the sales contract.
- Draft the S and P agreement.
- Assist in obtaining the vessel’s inspection and survey.
- Obtain abstracts of title and render opinions on any title issues.
- Resolve any preexisting maritime lien issues.
- Preparation of documentation for vessel registration.
- Assist in resolving any disputes arising out of the transaction.
Someone working as a Sale and Purchase Broker might be retained by a
potential seller or a potential buyer. He/she needs to get the best price for the
client and assist in negotiating favorable contract terms.
A ship can be sold directly by the Seller to a buyer without
the services of a broker. However, most sale and purchase transactions for
vessels are conducted through a sale and purchase broker because of the scope of
the services and expertise.
Setting up sale and Sale and Purchase transaction
Vessels are routinely sold for cash, free of charters, mortgages and maritime
liens. No two sale and purchase transactions are completely alike. However, a
fairly routine transaction might involve the following:
- The listing of the vessel for sale with an S and P Broker.
- Negotiation of the price and other terms of the sales contract.
- Preparation of the sales agreement.
- An inspection by the buyer of the vessel.
- The payment of funds and the closing of title.
The sales contract can be drafted from scratch, often by an attorney
conversant in S and P matters. However, standard forms of contract are
available – one of them being the well used Norwegian Saleform. There are other
standard forms of agreement in use – such as the Singapore Sale form. These standard forms are meant to provide a fast track towards agreeing.
S and P contract forms set forth contract terms such as:
- The details of the vessel.
- Amount and method of payment.
- Any escrow money required.
- The nature of the vessel inspection (drydock, underwater, sea trials, etc.).
- Inspection of the vessel’s documents such as classification society
records.
- Time and place of delivery.
- Spare parts, bunkers, or other items included in the vessel’s sale.
- Condition of the vessel on delivery.
- Responsibility for any taxes or fees.
- Documents required at closing.
- Remedies in the event of the seller’s or buyer’s default.
- Arbitration or other dispute resolution clause.
The contract will also contain language that the vessel is being sold free and
clear of all liens and encumbrances, for example:
“The Seller warrants that the vessel at the time of delivery is free and clear from
all charters, encumbrances, mortgages and maritime liens or any other debts
whatsoever. The Seller hereby undertakes to indemnify the buyer against all
consequences or claims made against the vessel, which have been incurred
prior to delivery of the vessel”.
Liens could have been incurred against the vessel for any number of
Seller, as the Seller shipowner, may owe wages to the crew or may not
have paid for vessel repairs or drydocking. Similarly, the vessel may have allided
with a dock or a bridge causing extensive property damage or
damaged a shipper's cargo on an earlier voyage.
Besides, certain maritime liens may have arisen against the vessel
through no fault of the Seller. For example, the Seller (shipowner) may have time
chartered the ship to a time charterer that failed to pay for bunkers, or
stevedoring or other goods and services ordered by the time charterer on behalf
of the vessel.
The existence of a lien can delay or thwart a sales transaction.
It is, therefore, sale and purchase of vessels can be complicated.
Great professionalism and expertise is needed in this important business.
Resources:-
A free copy of the Norwegian Saleform is available on the BIMCO website. A comparison with the new Singapore Ship Sale form help able to identify the differences.
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Jacq. Pierot and Sons is a well- known S and P Brokerage firm. Their web site
describes the history of the firm as well as services provided.
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Braemar ACM are active S and P brokers and have offices in the U.S.A. and
around the world. Provides chartering, S&P, operations, research and freight derivatives services, worldwide, across most commercial shipping sectors.
Note of Reference
Types of losses - Total or Partial or general average losses
A Loss can be described as being either Total or Partial (Particular Average). A Total Loss may be either an Actual Total Loss (ATL) or a Constructive Total Loss (CTL). An Actual Total Loss is where the vessel is actually destroyed or wrecked or where the owner is irretrievably deprived of his vessel e.g. when a ship is sunk in deep waters where any salvage attempt would be impossible. A Constructive Total Loss is when it appears that the vessel is unlikely to be saved or recovered or when she can only be recovered and repaired at a cost, which exceeds her insured value....
P&I Clubs guideline
The P&I Clubs are correctly called Protection and Indemnity Associations and number around 20 worldwide, with the majority being the United Kingdom-based. The shipowner in taking out insurance with a particular association becomes a member of that Club. The Clubs are mutual, which means that all costs involved in providing cover or paying out a claim to anyone are shared by all members. This is achieved by setting a rating or premium for the owner, known as an "advance call," and is based on the owner's history and exposure to risk.
War risks areas -related advisory
There are additional trading restrictions placed on the ship regarding so-called war risk areas. War risk areas do not necessarily mean an area where there is a war and may include hostile environments such as areas where civil commotion or revolution is taking place.
Cargo ship procedure - Deviation clause and port of refuge
A deviation is a departure from the intended voyage or contract of carriage. This can occur either where the course of the voyage is specifically stated and is departed from or where the course of the voyage is not stated, but the usual route or customary route is departed from. However, it should be noted that deviation does not necessarily mean a physical change in the course. It can occur in a simple case of slowing down to receive stores at an intermediate off-port-limits call. ...
Salvage contract -Using The Lloyd's Open Form for "No-Cure-No-Pay" salvage contract
The Lloyd's Open Form or "LOF" is the most widely-used "No-Cure-No-Pay" salvage contract. In return for salvage services, the salver receives a proportion of the salved value (the ship, its cargo, and bunkers).
Role of ship classification society
Classification societies verify the structural strength and integrity of the ship's hull and its fittings, as well as the reliability and function of the propulsion steering systems, power generation, other systems on the ship....
The Master’s Responsibility during Salvage Operation
Request for Salvage -
The Master shall normally request salvage after consultation with the Company. However, he has complete authority to seek salvage assistance without referencing the Company if he considers this necessary.
Requirement of towing arrangement in oil tankers, readyness, & training onboard
All Oil, Chemical and Gas Tankers above 20000 DWT, constructed on or after 1st July, 2002, are equipped with an “Emergency Towing Arrangement (E.T.A.) both Forward And aft to provide the ship with a rapidly deployed towage capacity in an emergency.
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