Developing a combined qualitative ship valuation estimation model

The concept of value is as old as the history of humanity and is being discussed on that every period. The complex structure of maritime trade, the high uncertainties, and the lack of transparency of commercial data make ship valuation difficult. There are three most preferred approaches in maritime market to determine ship's valuation. These are marketing approach, income approach and cost approach. However, these approaches do not provide the fair value of the ships. The fair value is depending on the economy of scales. Particularly, determining of the fair value becomes more difficult in times of crisis. The determination of the direction in which supply-demand balance will occur due to instability in periods of economic crisis, and the volatility of the market, necessitate the use of combined mathematical methods. Brokers experience difficulty in determining a ship's real value because of the lack of instant and unbiased data that can be accessed at anytime and anyplace in the world. Mostly, brokers use a marketing approach to determine a ship's value. However, a marketing approach does not give an accurate solution under all conditions. Ships, especially those ranging in age from 6-25, that is, more than five years old, need to be evaluated with a combined method which differs from marketing approaches. There is no systematic and standard mechanism to determine a ship's value worldwide. The aim of this study is to develop a reliable ship valuation mechanism using namely the "Combined Qualitative Ship Valuation Estimation Model (CQSVEM)" to validate the ship's actual price. Within this model, the ship's fair value can be calculated more accurately. According to concrete result of analysis, on average the second-hand price of bulk carriers' sales from 2014 to 2017 in the range of 18,233 dwt -172,549 dwt increases by $17.313 per 1 DWT while it loses $671.278 in value per 1 AGE annually. Hence, analysis indicated that the depreciations of these bulk carriers suffer from 5.2% to 7.2% per year. As a result of the analysis, it was found that a price difference in the range of $ 2.68M to (-) $ 2.49M was reasonable, while transactions outside this range were subject to excessive or low pricing. However, reasonable prices that are 40% of whole transactions are realised in the high volatile market. By running CQSVEM, the reasonable value of a ship can be calculated more accurately. This model, composed of eleven stages, will be useful in determining the fair value and to provide decision making support for willing buyers, willing sellers and other related third parties.