How are ships valued?

What is the value of a ship? It is a particularly difficult question, with the values of most types of ship fluctuating wildly depending on the demand for that vessel at any moment in time. A ship might be hugely in demand one week, with charterers screaming for such tonnage, but the next week, the market could be flooded with similar vessels and the value slumping. It is a nightmare for ship brokers trying to establish a rational ship value, whether for a potential seller or purchaser, but also for financiers who are being asked to lend money on such a purchase.

Does the age and condition of a ship matter? Clearly it does, but it would not be the first time that an owner, desperate to acquire a ship with a cargo in the offing, bought a ship and paid more than it was worth because of the demand for the vessel. An owner contemplating a purchase for a more longer-term objective would be more likely to take his time and wait for the right ship to come along. Age may well matter, as older ships may attract higher insurance premiums, be more likely to break down, and be perhaps less efficient than a newer vessel. On the other hand, if the demand is there, a well-maintained older ship may attract a good price from a discerning owner.

The value, thus, is effectively a comparison, and a valuer will keep in mind recent sales and purchases of similar ships that may provide some indication, although it is the prevailing market conditions that will have the greatest effect. Important in assessing the value will be the surveyor’s expert assessment of the condition of the ship, its technical history and, very important, the proximity of the ship’s classification society Special Survey, which can be very expensive if it reveals serious deficiencies. A ship which has just completed a Special Survey will offer rather more comfort to a prospective buyer than one which is soon to experience this important milestone in a ship’s career. (Seascapes 8 & 25)The position of the ship may well affect its value. If the vessel is in some remote part of the world, far from the operational area a new owner needs it to be in, its value may well be diminished, where a ship on the spot may not be so technically ideal, but its proximity to a buyer may work in its favour.

Other matters that may affect the value of a ship might include the estimation of the vessel’s future value. There might be some regulatory change in the offing that will make the vessel redundant or expensive to alter. An owner might buy a ship because he believes its value will increase because of an increased demand for that type in the future, but he may mentally see a reduced future value if, for instance, a large number of similar vessels will be entering the market from the shipyards in the coming months or years. In the end, the value of a ship is exactly what somebody is prepared to pay for it, at any particular time!
Source: Bimco