Charter coverage turns a vessel sale into a cash-flow purchase
Two identical ships can sell for very different numbers if one arrives open and the other arrives with contracted earnings. The charter is not background detail. It is part of the asset.
A ship sale with charter coverage is really two purchases: the vessel and the contract. The vessel value is shaped by age, type, yard, size, features, fuel profile and recent comparable sales. The charter value is shaped by rate, duration, charterer credit, off-hire assumptions, market comparison and discount rate.
Above-market charter coverage adds value. Below-market charter coverage subtracts value. Long coverage magnifies both outcomes.
Charter coverage value calculator
Use this tool to compare the same ship sold open, sold with a 24-month charter, and sold with a five-year charter.
Ship Sale With Charter Attached Calculator
Change the charter rate versus current market to see when coverage becomes a premium or a liability.
Model note: This calculator estimates value from charter-rate spread only. Real valuation also depends on vessel condition, charter-party wording, off-hire, drydock timing, sanctions, fuel and emissions allocation, purchase financing, residual value, taxes, and charterer credit.
Simple model for three identical ships
Assume a charter-free vessel value of $40 million, current market of $22,000 per day, 98% paid utilization, and a 9% discount rate.
| Ship | Attached employment | Fixed rate | Market spread | Estimated value effect |
|---|---|---|---|---|
| Ship A Open vessel |
No charter attached | Market exposure | No fixed spread | Base vessel value only |
| Ship B 24-month charter |
Two years of fixed income | $27,000/day | +$5,000/day | Roughly $3M positive value before deal-specific adjustments |
| Ship C Five-year charter |
Five years of fixed income | $27,000/day | +$5,000/day | Roughly $7M positive value before deal-specific adjustments |
| Below-market case Same ship, bad contract |
Fixed charter below current market | $18,000/day | -$4,000/day | Negative value because the buyer inherits capped earnings |
Deal takeaway
Charter coverage is valuable when it protects cash flow above market or de-risks the first ownership period. It is harmful when it locks the buyer below market and blocks better employment.
Five numbers that decide the premium
The spread is the first value driver. Above-market rate equals potential premium. Below-market rate equals potential discount.
A small spread over five years can be worth more than a larger spread over six months.
A top-tier charterer can support financing. A weak charterer deserves a haircut.
Coverage loses value if the ship will be off-hire for survey, repairs, or drydock during the charter period.
A five-year charter protects the downside, but it also blocks spot upside if rates run higher.
Buyer pricing table
| Charter situation | Buyer interpretation | Likely price effect | Negotiation move |
|---|---|---|---|
| Above-market charter with strong counterparty | Contracted earnings reduce risk and may support debt. | Premium to open-vessel value. | Pay for the DCF spread, then haircut for off-hire and credit risk. |
| At-market charter | Coverage gives visibility but little rate advantage. | Small premium or neutral value. | Focus on charterer quality and residual value. |
| Below-market charter | Buyer inherits an earnings cap. | Discount to open-vessel value. | Deduct DCF of lost rate spread or demand seller adjustment. |
| Long charter with weak credit | Income may be visible but not fully bankable. | Premium reduced by credit haircut. | Check parent guarantee, payment history, assignment rights, and termination language. |
| Charter ending near drydock | Cash flow may stop just as capex begins. | Lower premium than headline backlog suggests. | Model off-hire, drydock, and restart before valuing the charter. |
Documents to request before paying for coverage
- Full charter party with all addenda, side letters, options, redelivery language, and assignment rights.
- Rate comparison against current period market for a similar vessel, size, age, fuel profile, and duration.
- Charterer credit file including payment history, parent support, guarantees, and counterparty risk review.
- Off-hire history covering drydock, repairs, performance disputes, cargo claims, and charterer deductions.
- Capex schedule showing drydock, class, BWTS, IHM, emissions, and near-term technical work during the charter.
- Cash-flow model comparing open-market trading, 24-month coverage, and five-year coverage under low, base, and high market cases.
Do not pay for backlog as if every dollar is profit. Pay for the discounted spread above market, adjusted for credit, off-hire, capex, operating cost, and upside lost during the fixed period.
