Supplement | HBS Case Collection | July 2010

Vereinigung Hamburger Schiffsmakler und Schiffsagenten e.V. (VHSS): Valuing Ships (CW)

by Benjamin C. Esty and Albert W. Sheen


After booming for more than five years, the global shipping (maritime) industry experienced a dramatic crash in late 2008 as the global financial system froze and the global economy slid into recession. Ship charter rates (revenue) fell by as much as 90% causing prices of used ships to fall by as much as 80%. As ship prices (values?) fell, ship owners began to default on loans and new purchase contracts while banks holding loans secured by ships faced the possibility of increasing defaults (violations of loan-to-value covenants), foreclosures, and write-offs. In the midst of this crisis, VHSS, the German Shipbroker's Association, introduced a proposal to value ships using discounted cash flow analysis (to determine a long-term asset value, LTAV) rather than market prices from comparable transactions. Thomas Rehder, the Chairman of VHSS, argued this approach was necessary because market prices did not reflect fundamental values in the current environment. After announcing the alternative valuation methodology in September 2009, he must convince industry participants--ship owners, appraisers, and bankers--to adopt the new valuation methodology and bank regulators and auditing firms to approve its use.

Keywords: Fair Value Accounting; Economic Slowdown and Stagnation; Capital Markets; Cash Flow; Financial Liquidity; Banks and Banking; Price; Price Bubble; Contracts; Crisis Management; Market Transactions; Valuation; Shipping Industry;


Esty, Benjamin C., and Albert W. Sheen. "Vereinigung Hamburger Schiffsmakler und Schiffsagenten e.V. (VHSS): Valuing Ships (CW)." Harvard Business School Spreadsheet Supplement 211-701, July 2010.