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Pre-sale vessel inspections put S&P in the clear

by Paul Howe

In a buoyant S&P market, up to one third of transactions now make use of pre-sale ship inspections. With transparency increasingly attractive to buyers, Campbell Johnston Clark (CJC) directors Jonathan Campbell and James Clayton, and associate Francesca Norman, explore the consequences with help from inspection company Idwal.

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.

Global inspection company, Idwal, reports that it has been an unprecedented year in terms of inspections related to S&P activity. UK-headquartered Idwal reports a 224% increase in transactional-inspection activity compared to 2020 and has seen a 34% increase in sellers’ conducting their own inspections and circulating reports to interested buyers.


Idwal Surveyor Stephen Grist conducting a Pre Sale Inspection in Port Talbot, Wales

One significant difference to previous shipping booms is the presence of the pre-sale inspection which is now commonly reflected in the sale agreement for a vessel. 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. This results in a clear commercial advantage for all parties as sale and purchase transactions are not delayed by having to wait for an inspection at the next port the vessel visits, which may be some weeks away. In a hot market, not many parties want to contract “subject to inspection” due to the potential delays. Buyers and sellers can now contract with each other quickly and effectively on the basis of these pre-sale inspections.

In the current pandemic climate, 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. Enlisting a company to conduct an independent pre-sale inspection limits the need for potential Buyer representatives to board planes and travel internationally. In fact, given attitudes to climate change and the environmental impact linked to commercial flights, business travel is likely to become even less prevalent regardless of restrictions being lifted. In light of this, the pre-sale inspection will become more and more important in S&P transactions.

Idwal’s data suggests that a third of all S&P transactions are now conducted using the pre-sale method, with reports on average distributed between 2-3 times per inspection to interested buyers, although often this can be higher for specific ships in a rising market. In 2021 alone, almost 600 Pre-Sale Inspections have been conducted by Idwal, with approximately 1,600 inspection reports distributed to interested buyers through the Pre-Sale service.

Pre-sale activity is a growing trend which can be seen clearly in the below chart.


Two main reasons are driving the trend. Firstly, potential buyers can immediately see the condition of the vessel in great detail, using a standard, recognised format from an independent service provider: the condition of the vessel is therefore presented impartially and transparently to the benefit of all associated with the transaction.

A strong pre-sale report will represent the candidate vessel in its true condition and will provide interested buyers with a thorough evaluation of the condition of all critical areas, including its hull and coatings, main and auxiliary machinery, cargo areas and cargo gear, speed and consumption performance data, environmental compliance and more. Pre-sale reports must be in depth and should present an accurate supporting suite of critical documents and supporting photographic evidence of the ship.

Secondly, the pre-sale report can be very important contractually as part of the sale agreement for a vessel which will typically be a Memorandum of Agreement or “MOA” on the Norwegian Sale form. For example, a typical clause 4 of an MOA would read as follows (and there would be similar provisions in the Nipponsale form which is favoured by Japanese and other Asian-based parties):

“The Buyers have inspected and accepted the Vessel’s classification records. The Buyers have also reviewed and inspected the Vessels pre-purchase report at/in [x] (state place) on [x] 2021 (state date) and have accepted the Vessel following this inspection and the sale is outright and definite, subject only to the terms and conditions of this Agreement.”

Therefore, this inspection report then becomes the basis for the condition of the ship when it is eventually delivered to the buyers. Under clause 11 of the MOA the sellers must (among other things) deliver the vessel to the buyers in the same condition as when it was inspected with fair wear and tear excepted. The inspection report would therefore become very useful in resolving condition arguments and price renegotiations that often take place right up to the moment of delivery.




Condition disputes are unfortunately an all-too-common occurrence in a sale and purchase transaction. A buyer will often claim that it has the right to walk away from the purchase, or demand a significant reduction in purchase price, if a defect under Clause 11 of the MOA is not corrected. On the other hand, the sellers will typically argue that either the claim is frivolous as the ‘defect’ doesn’t exist or has no substantial impact and that the buyers must accept delivery in proper performance of the MOA or the buyers can only claim the cost of repair and no more. An inspection report would therefore assist in this area as both parties have the same ‘jumping-off point’ from which to make their analysis.

The over-riding feature of the Pre-Sale Inspection is that it adds greater transparency to the sale and purchase process. The report gives any potential buyers a true and sensible assessment of the vessel at the time of purchase. This allows the buyers to make an informed decision regarding the vessel and its condition as well as highlighting areas which may need investment in the future to build an accurate investment analysis picture. The transparency offered is not only advantageous to the buyers but also to the sellers. By investing in a Pre-Sale Inspection, the sellers are equipping themselves with sufficient evidence of the condition of the vessel (including any deficiencies), allowing them to defend any claim from the buyers for defects which were not present at the time of inspection. 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 ship owners can answer that call.

One final point to consider is the role of financiers in a ship sale and purchase transaction. The value of a Pre-Sale Inspection report will not be lost on any potential lenders who typically rely on valuations. The greater transparency offered by the Pre-Sale Inspection report could well result in such reports being a requirement for any future financings in relation to second-hand ship sale and purchases.

For further information on Pre Sale Inspections, visit our information page here.

Press Release

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