What is Marine Valuation and Why is it Required?

Marine is a term referring to the sea, ships, and sailing. It refers to the water-based transport of people or goods. This blog focuses on how marine valuation is done and its requirements.

What is Marine Valuation?

It is the process of determining what is the actual value of the marine assets.  It helps in ascertaining what is the financial worth of the marine assets. The maritime industry is quite vast, which includes marine assets like ships, boats, offshore platforms, cargo, port facilities, vessels, fishing assets, and many more. It stipulates an estimated value on the basis of time assessment or enables one to know what a buyer would pay for the maritime business. It helps in understanding what is the value of the company in the market.

In earlier times, marine valuation was easy to determine by just knowing the market value and what one would get if one bought it. With the evolving environment, one has to look into various circumstances before accounting for the market value of the marine business. Valuation is a complex process involving a thorough examination of all the technical details, the situation of the asset, and its operation.

What does Marine Value depend upon?

The marine value can depend upon various factors: –

• Condition of the asset
• Type of asset
• Number of trips of ships and boats
• The number of years the asset is been used
• Demand and supply in the market
• Technology
• Economic Factors
• Environmental factors
• Legal framework

Methods of Marine Valuation

Sales Comparison Approach

This method compares the assets with the sales of the same or similar assets in the market to determine the price one would get in case of selling the asset. It is kind of difficult to find the same, so it can look for a similar asset to get an idea and then proceed. This method involves considerations of factors like age, size, condition, technicality, operationality, and many more.

Income Approach

This approach requires one to get an estimated value of what an asset would generate in terms of income and then try to accumulate a value of the asset. In this one can make a decision based on what are the benefits in future one would reap in the near future with the asset.  This method is basically used for assets that don’t have long operation lives and the ones that do are valued by the method that is similar to it, which is called the Discount Cash Flow method.

Cost Approach

It involves determining the asset valuation by trying to get a rough idea of the cost of replacing the same asset with a new one at the current market prices of the same. This method considers various factors, such as depreciation, technology, operational, labor, and other costs.

Why is there a requirement for Marine Valuation?

Purchase and Sale Valuation

Marine valuation is essential when one wants to sell or buy any kind of marine assets. Their actual valuation is important to know their fair value so that neither buyer nor seller faces any wrongdoing.

Taxation

The marine valuation would be required to assess the taxes that are liable to the owner related to marine assets, be it property taxes, import or export duties, or any other form. It provides with taxable value of assets as well as tax liabilities.

 Insurance

For insurance purposes, one needs to get a marine valuation. It helps in determining the insurable value, what one would get in case of loss or damage, and what assets are covered under the insurance and which are not.

Legal Framework

Marine assets are required to be valued for various legal purposes, be it litigation, arbitration, insurance claims, or any other disputes. Maritime companies are also required to have proper financial reporting and asset management as per the regulatory framework.

Company Requirements

The company needs marine valuation for strategic planning of the assets to optimize their value and risk management to ease risk and work towards betterment.

What are Condition and Valuation Surveys in the Maritime Industry?

In the maritime industry, surveys are conducted to determine the value and conditions of assets. A comprehensive assessment provides an estimated value of the assets, which is a guide for the owners for selling purposes or maybe insurance purposes. This assessment evaluates the overall state, structure, function, and other features. It also considers factors like the economy and market. These are varied surveys and can be conducted on various assets. 

These surveys’ main purpose is to know what the actual value is and if there is any risk related to it and to provide for managing risk and planning for the future, and in turn help the investors and shareholders to make any decision accordingly. The process of condition and valuation surveys starts with what objective the survey is to be conducted, then a physical inspection of the vessel. After this, all the aspects related to the vessel are assessed to reach for the value, these aspects include state, machinery, related documents, and many more.

Specialized people conduct these to get the best results. This, in turn, provides us with an evaluation of the vessel’s safety level and would let us know about defects or any kind of malfunction with the vessel, which in turn could lead to the avoidance of any kind of marine casualty.

The surveys conducted let us know what is the monetary value depending on age, condition, and operations. This is important in the case of financial transactions and insurance purposes as well as help in long-term financial planning. 

These surveys are considered great tools for concluding, but they have certain limitations. These processes are expensive in terms of time and resources, and there is no guarantee of data accuracy because of market fluctuations. 

Marine Valuation Under Marine Insurance

Marine insurance is the insurance covering the marine assets, in the maritime industry. A marine valuation under marine insurance refers to the specific value of the insured assets under the marine business. In case of loss or damage the marine policy will pay according to marine valuation, which is generally a predetermined value.

In some marine policies, the value is predetermined. Thus, in case there is any form of depreciation, it does not affect the value to be paid to the insured because the value is predetermined. However, there are some other marine insurance policies in which the valuation of assets is done after the damage is done and a claim is filed.

Marine insurance protects the customers against a premium paid by the insurer to insure anything from cargo to ships. The policies are either pre-valued or valued afterward, thus making the reimbursements accordingly. The pre-valued is generally preferred as it tends to avoid any kind of disputes that seek to reassess the assets. In India, marine insurance is governed through the Marine Insurance Act, of 1963, which regulates the various insurance contracts and provides the important features one insurance contract must contain.

Conclusion

Marine valuation is the valuation of assets related to the maritime industry. It helps in finding out the financial worth of the business. It stipulates an estimated value based on time assessment or enables one to know what a buyer would pay for the maritime business. Valuation is a complex process involving a thorough examination of all the technical details, the situation of the asset, and its operation. 

The marine value can depend upon various factors like condition, age, demand and supply, and legal framework. The methods of marine valuation are the Sales Comparison Approach, Income Approach, and Cost Approach. A marine valuation can be done for reasons like purchase or sale, taxation, insurance, and legal frameworks.

Frequently Asked Questions

Q1. What is Marine Valuation?

Ans1. Marine valuation is the valuation of assets related to the maritime industry. It helps determine a business’s financial worth. It stipulates an estimated value based on time assessment or enables one to know what a buyer would pay for the maritime business. 

Q2. What are various methods of Marine Valuation?

Ans2. The methods of marine valuation are the Sales Comparison Approach, Income Approach, and Cost Approach.

Q3. Why is there a requirement for marine valuation?

Ans3. Marine Valuation may be required for any of the purposes like Purchase & Sale Valuation or Tax, Capital Gains & CG Tax, Reporting or Banks, Loans & Insurance or Company Compliance, Reporting & Audit orLegal, Courts, Divorce, Family Partitions & many other reasons.

Q4. What is Marine Valuation under Marine Insurance?Ans4. Marine insurance is the insurance covering the marine assets, in the maritime industry. A marine valuation under marine insurance refers to the specific value of the insured assets under the marine business. In case of loss or damage the marine policy will pay according to marine valuation, which is generally a predetermined value.