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Old English scip "ship, boat," from Proto-Germanic *skipam (cf. Old Norse, Old Saxon, Old Frisian, Gothic skip, Danish skib, Swedish skepp, Middle Dutch scip, Dutch schip, Old High German skif, German Schiff), "Germanic noun of obscure origin" [Watkins]. Others suggest perhaps originally "tree cut out or hollowed out," and derive it from PIE root *skei- "to cut, split."
Now a vessel of considerable size, adapted to navigation; the Old English word was used for small craft as well, and definitions changed over time; in 19c., distinct from a boat in having a bowsprit and three masts, each with a lower, top, and topgallant mast. French esquif, Italian schifo are Germanic loan-words.
Phrase ships that pass in the night is from Longfellow's poem "Elizabeth" in "Tales of a Wayside Inn" (1863). Figurative use of nautical runs a tight ship (i.e., one that does not leak) is attested from 1965.
c.1300, "to send or transport (merchandise, people) by ship; to board a ship; to travel by ship, sail, set sail," also figurative, from ship (n.). Old English scipian is attested only in the senses "take ship, embark; be furnished with a ship." Transferred to other means of conveyance (railroad, etc.) from 1857, originally American English. Related: Shipped; shipping.
word-forming element meaning "quality, condition; act, power, skill; office, position; relation between," Middle English -schipe, from Old English -sciepe, Anglian -scip "state, condition of being," from Proto-Germanic *-skapaz (cf. Old Norse -skapr, Danish -skab, Old Frisian -skip, Dutch -schap, German -schaft), from *skap- "to create, ordain, appoint," from PIE root *(s)kep- (see shape (v.)).