More and more shipowners are now arranging inspection reports on their own vessels before they sell them.
This saves time in booming secondhand markets for containerships and bulkers especially, according to UK law firm Campbell Johnston Clark (CJC) and inspection company Idwal.
Up to one third of transactions now make use of pre-sale ship inspections, the companies revealed.
UK-headquartered Idwal reports a 224% increase in sale-and-purchase inspection activity so far this year, compared with 2020.
And a total of 34% more sellers are commissioning their own inspections, the company said.
'Substantial increase'
CJC directors Jonathan Campbell and James Clayton, and associate Francesca Norman, said: "Over the last six months, we have seen a substantial increase in sale-and-purchase transactions, particularly in the container and dry bulk market."
The value of ships as well as charter rates in these sectors have considerably increased, which has resulted in interest from shipowners and investors looking to capitalise, they added.
Pre-sale inspections are now commonly reflected in the sale agreement for a vessel, the lawyers explained.
"In practice, this means that a seller will organise an inspection by an independent surveying company, which is then included as part of a marketing package to potential buyers," they said.
This results in a clear commercial advantage for all parties, as deals are not delayed by having to wait for an inspection at the next port the vessel visits, which may be some weeks away.
Impatience in a hot market
"In a hot market, not many parties want to contract 'subject to inspection' due to the potential delays," the CJC team said.
They also argue that any mechanism that limits the need for people to fly around the globe to attend inspections can only be of benefit.
"It has become far more difficult (and expensive) to freely move between countries at a moment's notice due to the threat of Covid-19 and the extra protocols enforced," the lawyers said.
"In light of this, the pre-sale inspection will become more and more important in S&P transactions," they added.
In 2021 alone, almost 600 pre-sale inspections have been conducted by Idwal, which says reports must be in-depth and present an accurate supporting set of critical documents and photographic evidence.
A starting point for dispute resolution
These would become very useful in resolving condition arguments and price renegotiations that often take place right up to the moment of delivery, CJC said.
Condition disputes are unfortunately an all-too-common occurrence in a S&P transaction, the lawyers said.
"An inspection report would, therefore, assist in this area as both parties have the same 'jumping-off point' from which to make their analysis," they added.
"The shipping world, in general, is facing calls for greater transparency at all levels and the pre-sale inspection report is just one way in which shipowners can answer that call," the CJC team said.
And the lawyers argue that such reports could be a requirement from lenders seeking to fund deals in the future.
