Death by Ship Value

By Rik van Hemmen

Martin & Ottaway has been performing ship values since its formation in 1875. Our records go back to the late 1800’s and we have hung onto our historic records through all our office moves. A lot of our actual project work has now been digitized which is a huge space saver, but other paper records are more difficult to manage. During our last move we were handling a large number of bound Fairplay volumes of the 1920’s. Wayne opened one randomly and came across a four foot long fold out plot of representative vessel values between 1900 and 1929. It was a plot associated with a very interesting ship valuation article.

It was also an excellent illustration of the difficulty of dealing with the storage and retrieval of old data, since random scanning would not ensure that tidbits like this will reveal themselves when needed most. Undoubtedly this book had been untouched for many decades in our office, but this small article within it was an excellent illustration of a reality that we sometimes find difficult to explain to our clients.

From a personnel point of view, the least stable part of maritime is ship finance. Banks and financiers tend to move in and out of the maritime market. They move in when they perceive there is money to be made and they move out when they have lost their shirt on the last downturn. Shipowners are a different breed; they have to have a longer term outlook and often have ridden out three or four cycles. This does not make financiers shortsighted, it is actually related to the commodification of loaning money. Banks compete against other banks, but they can shift their money to any type of asset, whether it is ships, aircraft, mines, real estate or tulip bulbs, so they tend to go where the action is. Ship owners cannot do that as easily and therefore learn to ride their market cycles.  And when the cycle is warming up and there is a need for new money in shipping, young bankers move in and they do not always have a full understanding of the variability of ship values. Meanwhile, this 1929 Fairplay article provides a cautionary tale.

So we carefully cut the plot out, and Mirna managed to scan it in pieces and digitally resplice it.

Now please scroll down on this plot.

Yes, that is quite a spike in value.

In the span of 6 years, the new construction cost of a 7,500 tonner went from 45,000 to 259,000 Pound Sterling. An increase of over 500 percent! Admittedly this was in wartime, but the highest price occurred in 1920.

This is a very dramatic increase and obviously that is the illustrative purpose of this fold out graph. The Fairplay plot was definitely drawn for effect, and even uses the old trick of truncating the vertical axis below the lowest value. A simple Excel plot with a proper full value vertical axis would look like this for that period.


Still scary, and no doubt to a careful reader this Excel graph would have been able to get the message across too, but the magazine was looking for something a little more dramatic and here I am reusing it to make the same point about 100 years later: “Ship values can fluctuate dramatically and anybody predicting the future value of a ship is on very thin ice.”

The accompanying 1929 article itself is a font of valuable information with lots of details and I copy it at the end of this blog.

Some of the adjustment percentages, when converted from pounds and shillings to dollars, and adjusted for inflation, we still use today. As a naval architect I am particularly charmed by the discussion on speed affecting value through block coefficients, ship length and cargo carrying capacity, something that is rarely explained in general maritime publications today.

However, as ship valuers we just want to point out that providing loans on ship purchases in hot markets is a very dangerous game, especially when one considers this article was published on July 4, 1929. On September 4, 1929 stock prices started to fall and on October 29, 1929 the Great Depression started for real with Black Tuesday. Meanwhile, if you read the article that follows this article (the Shipping Sale Market, see below), the author is noting that the market forecast was optimistic in July 1929!

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