Linking Chartering and Sale & Purchase: Where Opportunities Meet Tension

My name is Davide Ramponi, I am 20 years old and currently training as a shipping agent in Hamburg. In my blog, I take you with me on my journey into the exciting world of shipping. I share my knowledge, my experiences, and my progress on the way to becoming an expert in the field of Sale and Purchase – the trade with ships.

When we talk about buying and selling vessels, we often imagine the deal as a single, isolated transaction. A buyer, a seller, a ship—and the money changing hands. But the reality is much more complex. In many cases, the vessel being sold is already tied to a charter agreement—a time charter, a voyage charter, or even a bareboat lease. And that’s where things get interesting.

The intersection between Chartering and Sale & Purchase (S&P) isn’t just technical—it’s strategic. Charter rates can significantly influence a ship’s market value. Long-term charter deals can attract buyers, but they can also create complications. Some vessels are sold with charter attached, others are bought because of the charter. There are even financial structures like sale-and-lease-back models, blurring the lines between ownership and operation.

So what does this mean for S&P professionals, brokers, and buyers? In this post, I’ll walk you through:

• Why charter agreements matter in a sale

• What sale-and-lease-back really means for both sides

• How charter rates shape vessel valuation

• What buyers should ask when existing charters are involved

• And how to smartly align the chartering and sales process to avoid pitfalls

Let’s dive into the world where contracts, timing, and strategy collide.

Why Charter Agreements Matter in a Vessel Sale

A vessel on the market isn’t always “free and clear.” Often, it's already deployed under a charter agreement—which makes things more complex, but also potentially more valuable.

So why does this matter to a buyer?

Because chartering isn’t just a side note. It affects earnings potential, risk profile, and even regulatory obligations.

1. Cash Flow Continuity

A vessel under a solid time charter comes with a guaranteed revenue stream. For buyers, this can be a huge advantage—it reduces uncertainty and shortens the payback period. It’s especially attractive in markets where spot rates are volatile.

2. Risk Sharing (or Inheriting)

Buying a vessel with an attached charter means you’re inheriting the good, the bad, and the ugly. A lucrative charter can boost the deal. But a badly-negotiated or low-paying charter might lock the new owner into a suboptimal arrangement for years.

Example: A dry bulk carrier on a three-year time charter at below-market rates will fetch a lower price, even if the physical asset is in top shape.

3. Legal & Operational Considerations

When charter agreements carry over to new ownership, the buyer must ensure the charter party terms:

• Are assignable

• Don’t restrict resale or usage

• Comply with current regulations (especially environmental ones)

Sale-and-Lease-Back Models: A Hybrid Deal Structure

You might have heard of sale-and-lease-back in finance or real estate. But it’s becoming increasingly common in shipping—especially among companies looking to free up capital without losing operational control.

Here’s how it works:

1. The owner sells the vessel to a financial entity (often a leasing company or investment fund).

2. Simultaneously, the vessel is leased back to the seller (now charterer) under a long-term bareboat or time charter.

3. At the end of the charter, the seller often has the option to repurchase the vessel.

For Sellers:

• Pro: Injects liquidity without losing fleet capacity.

• Con: Loses ownership control and may face higher long-term costs.

For Buyers:

• Pro: Guarantees income from day one (thanks to the lease-back).

• Con: May face limitations on resale or re-chartering.

Real-life insight: In 2022, several tanker owners used this model to raise cash after pandemic-related cash flow issues. The vessels stayed in operation, but the ownership transferred on paper.

How Charter Rates Influence Ship Valuation

This is where chartering directly impacts S&P decisions.

A vessel's value isn't just about steel, tonnage, or age—it’s about future income. And that’s where current and projected charter rates come into play.

Let’s break it down:

1. Market Rate Benchmarking

If a ship is on a long-term charter at rates above current market levels, its valuation can increase. Conversely, below-market charters will drag down the price.

2. Residual Value Calculation

Buyers don’t just look at the vessel’s current earning potential—they calculate:

• Remaining charter duration

• Expected residual value at the end of charter

• Re-chartering prospects

A premium rate for 12 months? Great. But what comes after?

3. Speculative vs. Strategic Buying

Some investors buy ships to ride the spot market. Others look for stable long-term cash flows. Charter rates help define which category a vessel falls into—and who will be interested in the deal.

Key tip: Always factor in bunker clauses, off-hire terms, and performance guarantees when analyzing charter-linked valuations. Small details can make or break a deal.

What Buyers Should Know About Existing Charter Agreements

Imagine you're buying a second-hand tanker. It's currently on a 2-year time charter with a major oil company. Before you get excited, ask yourself:

• Is the charter assignable? Some charters include change-of-control clauses. These require charterer approval before transfer.

• What are the earnings terms? Are the rates fixed or indexed? Are bonuses or penalties tied to performance?

• Any hidden liabilities? Outstanding claims, off-hire disputes, or maintenance backlogs?

Conducting Due Diligence

Before signing anything:

• Review the charter party in detail.

• Ask for a breakdown of past hire payments and performance reports.

• Speak to the charterer if possible (or ask your broker to facilitate it).

A smooth sale can quickly turn sour if charter obligations aren’t crystal clear.

Tips for Seamlessly Aligning Chartering and Sales Processes

When S&P meets chartering, timing and communication are everything. Here’s how to keep things smooth and strategic:

1. Involve All Parties Early

The seller, buyer, charterer, brokers, and legal teams should all be informed from the beginning. Delays often happen because a charterer is surprised by a change of ownership.

2. Use Flexible Charter Clauses

For owners planning to sell, it’s wise to include “assignment allowed” or “early termination with notice” clauses in charter agreements.

3. Lock in the Upside

If a vessel has attractive earning potential, highlight that in the sale materials. Include a valuation report with charter-adjusted metrics to support your asking price.

4. Plan the Handover Strategically

Coordinate the vessel’s delivery location, crew change procedures, and documentation handover with both the charterer and buyer in mind.

Pro tip: Consider using a Memorandum of Understanding (MoU) outlining charter transition terms. It creates clarity without binding legal commitments during the pre-sale phase.

Conclusion: Navigating the Crossroads of Charter and S&P

The sale of a ship isn’t just about hull condition or classification status—it’s about context. Charter agreements, lease structures, and market rates add layers of opportunity—and risk.

Let’s recap:

• Charter agreements can enhance or hinder a ship's value—depending on their structure and rates.

• Sale-and-lease-back deals offer financial flexibility but come with strategic trade-offs.

• Buyers** must analyze charter terms just as carefully as hull condition and drydock history.

• A well-integrated sales + chartering strategy can boost your returns, reduce headaches, and create competitive advantages.

Whether you’re a broker, owner, or investor: understanding the links between chartering and S&P is no longer optional—it’s essential.

Have you navigated a charter-linked ship sale before? What lessons did you learn—or pitfalls did you encounter?

Share your experiences and insights in the comments—I look forward to the exchange!

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