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Ship valuations are a source of huge divergence and frustration for many. While submitting a car owned by one of our editorial team for a valuation on multiple sites yields a variance of 12.9%, a simple exercise carried out Splash Extra - seeking the price of one famous ship - showed a near doubling - 25.66% - in terms of the divergence in prices from just two well-known ship price appraisal service providers. One of the most important data points for banks and financial institutions in shipping are prices provided by brokers, but they vary widely and face little or no regulation. Most issues and disparities in ship valuation are due to the relative illiquidity of the market and poor data quality. Most brokers claim that market indices are assessments, not actuals – the same goes for valuations as well. Common methodologies for evaluating ships include estimating the value of one type of vessel and then adjusting values for actual ships based on differences in age, specification, retrofits, and time since or until a special survey or drydocking, among other features. Most valuations assume that the ship is in class, of sound condition, etc which inevitably introduces errors into models. And since there is no global standard in valuations, it gives rise to differences in valuation outputs. Banks tend to accept appraisals from any broker, without requiring any qualifications Mark Williams, founder and managing director of Shipping Strategy, tells Splash Extra that ships are a relatively illiquid market. According to him, there are about 80,000 ocean-going ships and about 2-4% change hands each year which does not provide a great amount of data, and the greater the data volume the more accurate the analysis will be. This data set gets thinner when the total number of ships is divided into the many different types of ships there are like bulkers, tankers, boxships, and ferries. “Out of each different type, there are many different designs, sizes, and specifications from different shipyards. A capesize might be a fairly homogenous type, but smaller ships display a much greater variety of specifications. So, the population of sales is even smaller, making benchmarking much harder,” says Williams. Four-tier pricing He adds that the price a buyer is willing to pay for a ship value depends on current and expected freight market conditions which can vary considerably depending on who you ask, so valuations can vary from buyer to buyer or broker to broker. The whole concept of ship valuation used to be a lot simpler a decade ago. Back then, there was a two-tier market with eco-vessels commanding a premium over non-eco ships. Now, with a whole host of impending International Maritime Organization and European Union-led regulations, ship valuation is becoming a lot more sophisticated and nuanced. “In 2020, with the desulphurisation of fuel, this became a three-tier market, with scrubber-fitted vessels commanding another premium. With the implementation of CII, EEXI, and EU ETS, we are essentially looking at a four-tier market, with less carbon-intensive ships commanding a further premium depending on dual-fuel propulsion and EST retrofits,” Abhishek Pandey, global head of transportation finance at Standard Chartered, explains. Oracle forecasting So how do banks and financial institutions get their estimates as most often they are the ones providing loans or insurance for the vessels? As several experts from the industry revealed to Splash Extra, it is definitely not as scientific as one might think. What most do is similar to something called oracle forecasting, a method in which you ask a crowd a question and the average from the answers you get is in most cases, very close to reality. For ship valuations that would require a bank, for example, to ask for five valuations, ignore the highest and lowest, and take the average of the remaining three. Now, some types of vessels are challenging to appraise under certain conditions, such as in distressed or dislocated markets, or for highly customised vessels. But other times, even for conventional vessels, differences in estimates of value are notable. The best way to look at that is to compare valuations for a certain vessel, so Splash Extra looked at several ship valuations for one of the most famous, or infamous, ships around, the Ever Given containership, a vessel that did what the Houthis have yet to be quite capable of, blocking the Suez Canal in its entirety three years ago for six long days. The 2018-built, 20,124 teu ship went in for repairs after the accident and now sports a new bulbous bow. The current value of the Ever Given according to Maritime Strategies International’s MSI Horizon platform is $145m. On the other hand, VesselsValue has the price tag at a considerably higher number – $182.52m. That is a discrepancy of over 25% between the two estimates for the same vessel. Interesting fact, while it stood stuck in the Suez the Japanese-built Ever Given increased its value on VesselsValue by $13m, even as legal bills to the tune of hundreds of millions of dollars started to rain in. After the increase three years ago, the price of the vessel stood at $183m, very similar to the current day. Why do prices vary? So why are prices for the same ship different between brokers and data platforms? Khalid Hashim, managing director of Thai dry bulk owner Precious Shipping, says that VesselsValue, for example, simply values ships based on their historical database. That means that in a rising market, their values will always be behind the curve while in a falling market, they will always have a higher price for the ship than it realistically is. “When sale and purchase markets are flat, then there will be a consensus amongst all brokers. However, in a rising market, there will be differences between valuations from different brokers. Some that are more optimistic will value ships at a higher price. While others who have a more conservative view of the market will value the ships at a lower value,” he says. Speaking with Splash Extra on the condition of anonymity, one broker says that the divergence with VesselsValue comes from the use of historical data and reported ship sales, so the platform lags the real market. The same broker explains that valuations by Clarksons, one of the industry’s most important sources for ship prices, is done only by their its research department, which is more number than market-driven. The most accurate valuations, according to the source, come from a broker that does not have owners as clients or friends, is active in a particular market, and knows “what is going on”. Another broker tells Splash Extra that each broker evaluates a ship according to vessel characteristics, type, and sale benchmarks and that it is very debatable how many important parameters are used, like trading status, the time to the next class special survey or drydocking. The source also said that, due to those exact reasons, prices both increased and decreased without real justification. Time to regulate? Basil Karatzas, CEO of Karatzas Marine Advisors, reckons there could be bias when brokers appraise ships. “The marine appraisal profession is not regulated in the international shipping market, and banks tend to accept appraisals from any broker, without requiring any qualifications – just the premise that brokers have the pulse of the market. Brokers make more money in brokerage commissions than in appraisal fees, thus, some appraisals may be biased,” Karatzas warns. He adds that an unregulated market where shipbrokers can issue certificates at will, with preferably high vessel values, also suits the borrowers as they can get larger loans or better loan-to-value ratios. Karatzas questions why international shipping banks and bank regulators do not require any qualifications from the appraisers of vessels , happy to accept one-page certificates from brokers. In the US, American banks and lessors only accept appraisals from certified appraisers with accredited senior appraiser qualifications. They also require a marine survey of the asset at the time of the appraisal which has to be conducted by qualified surveyors holding the certified marine surveyor qualification. It is obvious that is not the case everywhere and that, for now at least, it is not considered much of a problem by the financial sector. Until certified appraisers and surveyors are the norm, and until a standard for appraisal is created these disparities will continue to exist. Or is this simply yet another task the industry can offload to the all-seeing eye that is artificial intelligence? Perhaps the topic for another in-depth feature later on.

Just how much would you pay to buy the Ever Given?

Assessing the price of the world’s most infamous ship highlights a gaping flaw in shipping. Vessel valuations vary wildly

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