Valuation of Fleet

Milovan Grdinic

Montenegrin Journal of Economics, 2009, vol. 5, issue 10, 129-137

Abstract: Special procedure of assessing ship's value usually precedes ship insurance for the sake of determining price of insurance. Comparing to goods insurance, where value of the insurance object is rather easily determined, as the invoicing price is taken for its basis, ship insurance in most cases is not possible unless previous valuation of amount to which the insurance applies has been assessed . In this way, the interests of insured party in respect of ship are protected. This previous procedure is called ship valuation or valuation of ship owners' fleet. Assessment of ship's value in current conditions is one of the most controversial and practically most complex issues as far as conclusion of contracts on ship insurance is concerned. This is to a great extent influenced by instability of world maritime market with great fluctuations relating to market values of ships. It relates to world maritime market and inevitably reflects on our maritime market. Value of ships on market does not solely depend on costs of their construction but also on the level of viability in dealing with maritime entrepreneurship, opportunity to be employed on board ship, expenses of its exploitation and a range of other circumstances. In consequence, there is a substantial disparity between invested funds for ship acquisition on one side and their market value on the other. Adequate valuation of ship's value is of prime importance for operation of insurance in conditions of sudden depreciation of currency in which insurance is concluded in relation to currencies which can be freely exchanged on the money market. Also, there is big impact of inflation which reflects on the growth on ship construction prices as well as on repair costs. In these conditions only periodical correction of insured amounts, depending on inflation rate, may tackle the need for insured amount to keep real value of interests at risk. Bigger inflation leads to more frequent corrections of value. Despite of such practice, it is almost impossible to adequately maintain insurance in its basic economic function. What is the real value of insurance compensations in domestic currency for sustained loss of one thing if in such case acquisition of the same or similar thing on the market is not covered by such compensation? Don't these aspects make every discussion on valuation of ship's value superfluous? Answer is negative. In every and even in above elaborated situation principles confirmed in practice are to be obeyed. The aim of this paper is to explain these principles and experiences.

Date: 2009
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