Could it Work? Profit Share on Vessels

Two hundred years ago, it was common for mariners to be paid not in salary, but in share of revenue from the ship’s voyage. Depending on the trade, a captain might collect a long draw of 1/8^th, and an ordinary seaman perhaps 1/200^th of the ship’s earnings on a voyage.

Looking back to the 1920’s, this practice had become obsolete for the most part. In the whaling trade, this practice continued. Many vessels used in the whaling trade were purchased secondhand. Most trade routes had shifted from sail to steam between 1890 and 1910, leaving many sailing vessels available for reuse in longer-haul trades. Thus, the cost of labor was significant compared to the cost of capital equipment, such as the vessel, sails, and whaling gear. The mariners were an integral part of the value chain, as they sailed the ship and refined whale oil onboard, during their long voyage. In contrast to the cargo trade, where sailing routes were fixed, and cargos assigned by agents ashore; the nature of whaling incentivized captains to engage in the profit-seeking motive of finding the whales, even if it took them far from homeport.

It is still common in the fishing industry to practice profit-sharing, whether it is the San Diego fishing fleet or the Alaskan trade. A small crew works long hours to produce seafood.  

Today, crew costs for a large cargo vessel represents perhaps just 10 percent of vessel operating costs. On foreign vessels, labor accounts for perhaps $1 million for $10 million in costs, not including mortgage payments on the vessel.  Yet labor cost is the realm in which international shipowners try to pare down costs. Fuel costs, on the other hand, can represent 50% of a vessel’s operating expense, and is highly variable. It therefore is impractical to assign the profitability “risk” to crewmembers, when other factors affecting vessel profitability are much more variable than a fixed salary.  

How else can mariners profit from voyages beyond their salary? In sailing ship days, ship’s masters often owned their own vessels; and this owner-operator culture still exists on rivers and bays. Many deep-sea ships are incorporated as their own Limited Liability Company under a shipping firm’s umbrella. Bondholders and bank lenders on ship’s equipment will prefer a fixed return, but preferred shares of stocks in a particular vessel, with dividends paid on voyage earnings, could offer a more entrepreneurial investment for knowledgeable mariners. Currently, this format is not practiced for large ships, although inland boats may be paid for through this “crowdfunded” method.