In the current pandemic scenario, any mechanism which reduces the requirement for prospective buyers or investors to fly around the globe and attend inspections can only be of benefit. Further, it has also become far more difficult and expensive to freely move around between countries due to extra protocols enforced. Due to this, the buoyant S& P market has experienced a notable increase in transactions that make use of the pre-sale ship inspections.

A pre-sale inspection is organized by sellers to assess the condition of their vessel and present the report to their potential buyers. The pre-sale report represents the vessel and provides buyers with an evaluation of the condition of its critical areas. However, as pre-sale inspections are commercially controlled by the vessel’s sellers, the reliability of these inspections and the S&P procedure is always questioned. Let’s discuss the advantages and disadvantages in detail, but first, understand the difference between pre-purchase and pre-sale inspections.

Difference between Pre-Purchase and Pre-Sale Inspection

Pre-purchase inspections typically refer to a buyer’s inspection where they engage with a 3rd party inspection company for a general condition assessment of the ship. Based on the surveyor assessment report provided by the inspection company, the buyer makes the decision and bids for purchasing the vessel. Whereas, in a pre-sale inspection, sellers engage a third-party inspection company to evaluate the condition of their ship.

Pros of Pre-sale inspections

The advantages of a pre-sale inspection differ for the seller and buyer of the ship. Read along to find out-

For sellers-

1. Complete control of the vessel’s sale in the seller’s-controlled market.
2. Sellers get the opportunity to correct the defects or address pertaining issues before presenting the ship to its prospective buyers.
3. There are no multiple surveyor attendances. Furthermore, there is less distraction to the shipboard crew and a reduced risk of COVID-19 infection to the crew.
4. Confidential reports of the ship are only made available to serious buyers.
5. Crew motivation is preserved.

For Buyers-

1. Buyers get inspection reports of the vessel at a relatively lower cost as the cost of the inspection is shared amongst all prospective buyers.
2. The inspection report is readily available. There is no requirement of conducting a pre-purchase inspection.

Cons of a Pre-Sale Inspection

Like advantages, the sellers and buyers have different disadvantages when it comes to pre-sale inspections.

For sellers-

1. As the inspection is controlled by sellers, buyers are not able to trust the inspection reports.
2. By presenting a pre-sale inspection report, sellers lose some serious buyers who prefer to conduct the inspection by their representatives.

For Buyers-

1. As the inspection is controlled by sellers, there is a risk of evaluating a biased inspection report.
2. Buyers have no control over the inspection procedures.
3. Buyers must compromise with the information provided and then make a decision based on it.
4. There is no competitive advantage to the serious buyers. All buyers are provided with the same information.
5. Lack of transparency in the S&P process from the perspective of the buyer.

As both buyers and sellers must face some risks and losses due to pre-sale inspection, Sinotech Marine’s outlook to SNP due diligence whether it is by pre-sale method or pre-purchase method, it shall be totally transparent and diligent assessment. Such assessments are crucial for making a right decision therefore never be commercially controlled. A clear reporting totally tamper proof shall be the preference for the buyers and sellers for any kind of SNP due diligence.

Sinotech Marine as leader of SNP condition assessment worldwide has observed due to rapidly changing dynamics of second-hand vessel sale and purchase market, the demand for methods for SNP assessment keeps shifting from pre-sale to pre-purchase inspections or vice versa.

Disclaimer: The views expressed above is the independent opinion of the author and should not be taken as reference or factually.

Source: Sinotech Marine