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

Posted: 28 Feb 2012

See all articles by Benjamin Esty

Benjamin Esty

Harvard Business School

Albert Sheen

University of Oregon - Department of Finance

Date Written: April 25, 2011


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.

Learning Objective: This case illustrates two valuation methodologies: mark-to-market (comparable transactions where value equals market price) and mark-to-model (discounted cash flow analysis where value equals calculated net present value). This analysis leads to a discussion of why and under what conditions market prices should be equal fundamental or intrinsic values. This case can be used to discuss a wide variety of capital markets (market efficiency, liquidity, limits to arbitrage, and the formation and collapse of asset price bubbles), banking (Basel II), accounting (measuring fair value), value investing, and valuation issues (valuing illiquid assets or valuing assets with cyclical cash flows). Although set in the shipping industry, this case provides a way to discuss the impact of and possible solutions to the US "subprime" crisis.

Suggested Citation

Esty, Benjamin C. and Sheen, Albert, Vereinigung Hamburger Schiffsmakler und Schiffsagenten e. V. (VHSS): Valuing Ships (April 25, 2011). Harvard Business School Finance Case No. 210-058, Available at SSRN:

Benjamin C. Esty (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States

Albert Sheen

University of Oregon - Department of Finance ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

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