Compass Maritime Services, Llc: Valuing Ships

Compass Maritime Services, LLC: Valuing Ships

1. Case and industry Overview

On May 6th, 2008, Compass Maritime Services’ (CMS) Basil Karatzas and Tom Roberts faced the challenge of assisting a client with identifying a ship, valuing the ship and making an offer on it. The ship has been identified as Bet Performer and it meets the client’s desired physical characteristics. Bet Performer has been used for 11 years, with 170,000 deadweight tons (deadweight tons are the total weight in metric tons, and 1 DWT=1,000 Kg). According to the industry’s convention to categorize the ships based on their cargo type (Table 1a) and size (Table 1b), Bet Performer is classified as a capsize, dry bulk carrier.

Table 1a: Category of ships and corresponding products

Table 1b: Category of dry bulk ships and corresponding deadweight tons

1. Agenda

After finding the ship that meets the client’s requirements, Karatzas quickly changed his focus to the valuation and recommendation of bid price to client. Karatzas needed to figure these out before the client called back later that down. He broke down his work into the following sections:

1. Case and industry overview:

1. Condition of Bet Performer
2. Shipping industry

1. Data description

1. Statistics summary
2. Qualitative relationships between price and age, DWT, and DBI

1. Analysis

1. Valuation method alternatives and selection
2. Valuation using market approach
3. Regression check

1. Conclusion and recommendation

1. Data Description

1. Statistics summary

The dataset contains information on 48 ships sold, within a time horizon of 18 months, ranging from January 2007 to May 2008. As the summary table below shows, the sales price for vessels has a wide range, and so does the Baltic Dry Index. Also, the scatter plot (Exhibit 1) of sales price versus date of sale shows that the vessel market has been volatile over the past 2 years.

Table 2: Description on Vessel Data Provided