SHIP, VALUATION OF. When a ship, or part of a ship. is offered to a banker as a security, the questions immediately arise, What is the approximate present market value, and what change is likely to take place in the value in subsequent years ? Upon the correct answers to those questions depends the amount which may with safety he lent upon the security. Where the value of a security diminishes year by year, any arrangement as to a loan against such a security must necessarily provide for that diminution, and, therefore, when the value of a ship is written down yearly in the books of the bank, the amount of the limit should also be written down.
The valuation of a ship is dependent upon so many points requiring special knowledge that a banker who has not this knowledge may easily go far astray in making a valua tion, if he applies the same rule in the case of every ship that floats. In the absence of an opinion by an expert, the following remarks may serve to indicate some of the points which should be observed when con sidering the value of a ship.
It is very important that the person who attempts to place a value upon a ship should " know " the ship, because there may be circumstances which will affect its value quite apart from the original cost or any recognised system of depreciation.
A ship may be built of iron or of steel. An iron vessel does not wear out so rapidly as one of steel (the corrosion being less), and, therefore, its life is usually a longer one. Most ships, however, are now built of steel, and the following figures refer more particu larly to them.
The different classes of steamers are passenger boats, cargo and passenger boats, cargo boats or tramp steamers, as they are commonly called, trawlers, and tugs. In making a valuation, each class requires different treatment, but the boats which are most frequently submitted to the judgment of a branch manager are trawlers and cargo boats.
The cost of building a boat depends principally upon two things : 1. The state of the shipbuilding trade.
2. The size of the vessel.
With regard to the former, if trade is boom ing, a boat might cost ZS per ton, dead weight (the dead weight is its carrying capacity), to build, whereas in normal times the cost might only be Z5 per ton. With respect to the second point, a smaller boat costs more per ton to build than a larger one, because the cost of the most expensive parts (the machinery, etc.) does not increase in pro portion to the size of the boat ; that is, in a large boat the average cost per ton is reduced because the cost of providing merely additional bulk is much less than the cost of the expensive portion.
A ship depreciates in value, and, there fore, a sufficient deduction for depreciation must be made. After each four years a boat must undergo a survey to the satisfaction of Lloyds' Registry Surveyors. The survey which takes place at the end of the first four years is called No. 1 Survey ; at the end of the second period of four years, No. 2 Survey takes place ; and at the end of the third four years, No. 3 Survey is made. The survey which takes place after another four years is called the Special No. 1 Survey, and then follows Special No. 2 Survey, and afterwards Special No. 3 Survey. It is worthy of note that in the best lines the owners usually try to take the first four or eight years out of a boat, and then to sell it immediately after the No. 1 or No. 2 Survey is passed.
In normal times the cost of building a cargo boat of 8,000 tons, dead weight, is, say, 15 per ton, which would make the total cost Z-I0,000. At the end of the first year 10 per cent. depreciation should be written off ; at the end of the second year nothing need be deducted, but at the end of the third and fourth years, 5 per cent. of the reduced value should be deducted. At the end of the fifth year, the deduction may be omitted, because in that year the boat must be put into thorough repair and any appre ciable wear and tear made good, in order to pass No. 1 Survey to the satisfaction of the surveyors. At the end of the sixth, seventh, and eighth years the 5 per cent. deductions should be continued, but at the end of the ninth year the deduction may be omitted, because in that year the boat must again be put in order so as to pass No. 2 Survey. The deductions should go on in the same way for the next three years, and again be omitted in the year (the thirteenth) when No. 3 Survey is passed. The 5 per cent. deductions may be continued for the fol lowing four years, including the seventeenth year, when the Special No. I Survey must be passed. From this point the deductions should be considerably larger, say 7i per cent, each year, so as to bring down the value, by the time the Special No. 3 Survey is due (that is in the twenty-fifth year), within Z12,000, as by that time the vessel is worth not more than 30s. per ton, dead weight. The scrap or breaking-up value of an 8,000 tons cargo boat may be taken to be from about £7,000 to 18,000.