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Exactly! Puting the '0'-line on the waterline hides it into the dark area of the hull. Not much use there. I think it is used better to see which part or mast is at the very top, while keeping the scale to the side of the ship's image, like right next to the sharp distinctive bow.
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... as was done in real life with the periscope
The horizontal line is placed at the top of the mast because it is much easier to match it with that part of the ship, while the waterline is so long that it will intersect the scale always.