In this issue...

Interview
	Michael Drayton
State of the market
	Tanker update
	BIMCO update
	Dry bulk
	S&P
FFAs & FSA
	A new angle on FFAs?
	Oxford Analytica
Ice Class
	The ice ship cometh Will shipping’s ice age start to thaw, asks Clive Woodbridge
	Class societies Providing training for companies – and even competitors – is becoming a way of expanding services and winning new business
Cargo focus
	In short supply Oil demand growth is not enough to allay short-term tanker fears
	Doing business in the United Arab Emirates A thriving economy and well-regulation commercial environment make the United Arab Emirates an increasing popular choice for business
Regional focus
	South America The fast-developing oil and biofuel industries are driving the renewal of South America’s shipbuilding industry, but ports need to keep apace
Port focus
	Rotterdam Construction delays on the Maasvlakte expansion programme have finally been overcome. But will it be enough?
IT
	Getting into the flow A new computer application aims to streamline short sea supply chains and cut congestion throughout Europe
Maritime City
	Dublin Vision Coordination, determination and ambition will ensure Dublin’s success
Insurance news
	Insurance parlance ITIC
	Ship valuations
Out to lunch
	On the river The Baltic watches the Master Shipbroker take on the Thames Waterman in The port of London Challenge

Ship Valuations

Andrew Jamieson of the International Transport Intermediaries Club, looks at how the broker should vary the wording of the valuation to cover different situations

“As is, where is” forms should be carefully worded

Shipbrokers’ pro-forma valuations will normally contain the same basic provisions. These refer to the valuation of a single ship, on a charter-free basis, as at the date of the certificate. The vessel will be assumed to be in good and seaworthy condition and the valuation will be for the private use of the client. But how should the broker proceed in circumstances where one or more of these factors are not present?

Multiple ship valuations

Standard form ship valuations are drafted on the basis that they will be used for one vessel. Shipbrokers are often asked to value a fleet and will place all the vessels on one document rather than issue a series of individual certificates. The certificate will give an individual value for each ship on the basis of each one being individually sold. When producing a certificate for a fleet, the broker should consider whether it would be appropriate to add that “the vessels have been valued individually. If all, or a substantial number, of the vessels were placed on the market at the same time, no assurance can be given that the amount realised would be equal to the total of the individual valuations”.

Valuing ships with employment

Standard valuation wordings provide that the vessel is sold on a charter-free basis. When analysing the effect of employment on the vessel’s market value, assumptions are made in relation to the charter. In effect, the broker will assume that the charter will be performed. Wording should be included to the effect that “this valuation does not include any assessment of the validity of the charterparty or the financial standing of the charterers. These are assumed to be in order”.

Historical valuations and future predictions

Although the majority of valuations are done on the basis that they are valid at the time they were given, sometimes the client will want a historical view of what the market was at a certain date, or a forward prediction as to what the vessel may be worth in the future.

Historical valuations tend to cause less concern. The broker should amend the certificate to make it clear that the value given was as at a specified date. Brokers should make sure that they have sufficient historical data to back up their opinion, but otherwise this type of valuation does not cause any difficulty.

A forward prediction is, however, a different matter. Shipping markets are volatile and any prediction of future values can be wholly undone by factors that were not apparent at the time. If brokers have to make such forward predictions – and this is an exercise best avoided – then it is essential that they make it clear that “the figure given is an opinion of what the market may be in the future. While the prediction has been made in good faith, markets are highly volatile and may also be affected by factors we have not been able to foresee. No assurance can therefore be given that the prediction will prove accurate”.

Good and seaworthy condition

Shipbrokers provide desktop valuations. They are not making any physical judgement of the actual state of an individual vessel. This does not mean that characteristics of the vessel will not be taken into account when reaching the value. One example is that certain types of engine have proved more popular with buyers than others. There are however occasions when a broker may be asked to provide a valuation of the ship “as is, where is”. Brokers should carefully consider what they should incorporate into the wording to reflect the factors taken into account.

Private use or public circulation

Valuations should provide that they are for the client’s private use. Sometimes the client will want to circulate the valuation. A bank obtaining a valuation in connection with a proposed loan may wish to syndicate that loan to other lenders. Frequently the banks will wish to make express provision that these other lenders may have access to the valuation. The broker, when consenting to such circulation, should make it clear that such third parties should be provided with the full text of the valuations. ITIC has seen a trend towards banks requiring shipbrokers to enter formal contracts and brokers should seek appropriate advice on the wording of these agreements.

If the valuation is to be used in a share prospectus or other financial document, shipbrokers should check with their insurers whether any additional premium is required for them to be covered. In conclusion, the wordings of valuations are important and brokers should not simply fill in the blanks on a pro-forma certificate without considering whether the wording needs amendment.

 

 

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