Rating Manual section 5a: valuation of all property classes

Section 911: ship repairing yards

This publication is intended for Valuation Officers. It may contain links to internal resources that are not available through this version.

1. Co-ordination

Ship Repairing Yards as a class are subject to co-ordination arrangements as outlined in the relevant Practice Note to this Section.

2. Description

2.1 History of the Industry

Ship repairing was originally a service provided by ship builders for vessels they had built and in many cases the necessary facilities formed an adjunct to the building yard. The ship repairing industry is now quite separate to shipbuilding. Some of the most important considerations for trade are the yard’s location (whether near to major trade routes), the capacity of the yard (determined often by the type and size of dry dock), availability of constant and experienced labour and the ability to compete for work in a competitive and often international market.

Competition for repair work is intense in particular from repair slips and floating docks on the Continent, and therefore repair yards on the South and East coasts of England are more directly affected by competition from the Continent than elsewhere. The cost of diverting vessels to repair yards is now a significant factor in determining whether owners will use British repair yards and, if so, which.

Broadly, the years 1850-1914 saw the first generation of dry docks built. These were constructed mainly of stone block walls stepped back from the flagged stone floor of the dock to ground level. Lock type gates were fitted and operated by wire hawsers and winches. Dry docks of this period were commonly in the region of 105-140 metres long by 12-18 metres wide by 4.75-6 metres depth of water over cill. Each yard usually had two docks each accommodating vessels up to 7110 tonnes deadweight. These dry docks which were built to take ships of narrow beam and deep keel, are of unsuitable dimensions for modern requirements and are now mainly used for docking smaller vessels.

In the years 1920-1930 it became evident that the pre-first World War docks were too small to accommodate the ships being built and dry dock facilities needed to be extended. Second generation docks were constructed during this period either by extension of the existing docks or by new construction. The former design of stepped walls continued but considerable improvement was effected in gate design and hydraulic operation was introduced. Dry docks of this period were in the region of 167 metres long by 21 metres wide by 7-8 metres deep over cill. These accommodated vessels of up to 50,800 tonnes deadweight and comprise the bulk of repairing dry docks in use today in the UK.

In the 1940-1960 period the construction of the welded steel ship was perfected, and vessels progressively increased in size. The existing docks were not of sufficient capacity to take these larger ships, so a third generation of docks was constructed, but this time with straight steel sheet piled and reinforced concrete walls and ‘drop flap’ gates or floating caissons. These docks were essentially rectangular in cross section to accommodate the changed shape of ships, which by now had a very broad beam and no perceptible keel. Improved pumping machinery and ancillary equipment was installed, in some cases including hydraulically adjustable keel blocks and bilge keep supports. The docks of this period are in the region of 215 metres long by 29-36.5 metres wide by 8-9 metres deep over cill.

2.2 Rationalisation

Most rationalisation that has taken place up to the late 1970s has been incidental to shipbuilding regrouping and has occurred where a shipbuilding yard with a ship repairing section has been formed into a shiprepairing or composite group.

The major ship building yards were nationalised under the Aircraft & Shipbuilding Industries Act 1977, and a large number of ship repair yards were also taken over by British Shipbuilders. A number of smaller yards continued to operate under private ownership, in particular Bristol Channel Ship Repairs Ltd which in 1973 operated 4 yards in South Wales.

Since 1977 the industry has continued to contract, with large redundancy programmes and dock closures. It could be argued however that although the total amount of repair business has fallen, that which remains has been sufficient to sustain the surviving yards.

In 1983 a decision was taken to sell British Shipbuilders repair facilities, and during the course of the 1983/1984 financial year a number of ship repair yards were closed and or disposed of, the largest being the Tyne Shiprepair Group.

After privatisation a number of repair yards returned to modest profitability in 1984/1985, although the industry continues to experience difficult trading conditions.

By 1986 the Royal Naval Dock Yards at Rosyth and Devonport had been privatised and these repair facilities entered into direct competition with the other yards.

2.3 State of the Industry

The ship repairing industry was historically tightly connected to the shipbuilding industry. However, it has had to become more independent, particularly since the decline of shipbuilding.

The larger operators can be in direct competition with shipbuilding yards for larger repair contracts for naval and merchant shipping. There is competition from foreign yards for this business. Repairs afloat are now more common, taking a team of engineers to a vessel for repair rather than bringing that vessel to a dry dock. There has also been a growth in the number of floating docks; in-water surveys and cleaning services have developed. All of the above have reduced demand and profitability within the shiprepair industry. In addition the requirement for an annual hull survey (an “MOT” for ships) has been modified to longer intervals reducing the frequency of out-of-water inspections.

The smaller operators are not affected by world trade; the business is wholly domestic. The work tends to be predominantly maintenance and refits.

See the relevant Practice Note for comments on the state of industry as at the appropriate valuation date.

2.4 Process of Shiprepairing

Shiprepairing involves 2 major activities:-

  1. work above the water line or inside the vessel, and
  2. work below the water line including inspection of the hull.

Work above the water line or inside vessels can be carried out with the ship moored at a quay. Power services from the quay are available at most yards.

Most work below the water line, including scraping and painting the hull, can only be undertaken in a dry dock. The ship must be manoeuvred into the dry dock at a state of tide or level of water in an impounded basin sufficient to allow the keel to clear the cill of the dock. The dock gates/caisson are then closed and the trapped water is either pumped out of the dock or allowed to flow out through the sluice gates as the tide ebbs. The ship will settle onto the keel blocks and is strutted as necessary off the sides of the docks to ensure stability. After completion of the work the dock is flooded and the vessel is moved out.

There is no rigid pattern of work in the shiprepairing industry as this is dependent upon the repairs required. Yards are equipped with buildings and plant which provide most of the repair services but some specialist work is sub-contracted. In some cases repair services are provided at sea, and as Dry Docking Regulations are relaxed this is becoming an increasingly common practice.

3. Survey Requirements

3.1 Basis of Measurement

The basis of measurement for buildings within this class is Gross Internal Area (GIA). Reference should be made to the VO Code of Measuring Practice for Rating Purposes in England and Wales.

3.2 Dry Docks

A major feature in ship repairing yards is the dry dock. The wetted volume needs to be calculated which is:-

Internal length x width measured across the entrance with the gates open x depth of water over cill at mean high water of spring tides.

Volumes quoted by the shiprepairing industry are calculated in this way.

3.3 Plant and Machinery

The walls and floor of dry docks are rateable as part of the hereditament (see Manchester Marine Ltd v Duckworth (VO) 1973 RA 345) and, as such, they do not constitute plant & machinery. However the dock gates, winches, keel blocks, etc do constitute plant and machinery. RM 4:3 provides guidance on the rateability of plant & machinery.

The VO Cost Guide gives details of the cost of general items of plant and machinery.

4. The Basis of Valuation

The basis of valuation for this class of hereditament is by means of the rental method. Given the small number of yards that are rented, such evidence as exists should be fully examined and adjusted to accord with the rating hypothesis before being followed.

Dry docks should be compared on the wetted volume as calculated in 3.2 above. Regard should be had to the valuation considerations in 5 below. Buildings within the ship repair yard should have regard to local rental levels where appropriate.

Rateable plant and machinery which is not reflected in the rent passing or for which there is no separate rental evidence should be valued on the contractor’s basis in accordance with the VO Cost Guide.

Of paramount importance to the effectiveness of a dry dock is the performance of the dock gate (caisson). Although this is not rateable, it is a highly expensive item, and valuers may be faced with claims for reduced assessments due to its inadequacies (eg leakages). These should be resisted on the basis of para 2(b) of The Valuation for Rating (Plant and Machinery) Regulations, wherein it is stated that “the value of all other plant and machinery in or on the hereditament shall be assumed to have no effect on the rent …”. RM 4:3 should be consulted for a full explanation.

5. Valuation Considerations

5.1 Site

A shiprepairing yard requires sufficient depth of water both for easy passage of a vessel into dry dock, and at the quay to float a vessel under repair. Restrictions may be inherent in the dock - the width at the entrance may be inadequate - or external to the dock - sand banks etc at the river or estuary entrances. In the highly competitive world market the location of a shiprepairing yard relative to major ship trading routes is an important factor. The bulk of the repair trade is obtained in open competition on the international market, in particular in competition from dry docks, slipways, and floating docks on the Continent.

5.2 Dry Docks

The design of dry docks has changed substantially to reflect the changes in ship design. The older type of docks are not suited to ships of modern design and cannot accommodate the tonnage of vessels for which they were designed. In addition, a contracted world demand has led to surplus docking capability in most yards.

The effect on valuation of dry docks of the following factors must be considered:-

1. Size<

Modern ships have a broad deep beam and relatively short length compared with earlier ships which were relatively long and narrow. It is therefore important to note the width at the gate/caisson, the depth of water over the cill, and width of the floor at cill level of the dock when considering dock utilisation. The length of the older docks is of less importance than the width which is usually the limiting factor. Shape as well as size is of great importance, as is the presence or otherwise of support services at the dock side.

2. Occupancy

There is no clearly defined pattern between rents and occupancy, but it is a crude indicator of comparability between docks and was accepted as a relevant factor to be considered in the case of Westminster Dredging v Legg (VO) and Others v Same 1981 RA 280 LT.

In making comparison it is essential to determine on what basis a quoted occupancy rate has been calculated. Historically this was against an annual working year of 254 days. As practices change and competition for work increases the traditional working week has become a thing of the past. Occupancy rates could therefore also be quoted against a 365 day working year. As occupancy rates are usually quoted as a percentage it is essential to determine what 100% represents before making any meaningful comparison.

Some large docks have been built for an anticipated demand which may not have completely materialised at the date of valuation; this has resulted in a degree of underuse. It is also unlikely that such docks would have been built without substantial government financial assistance. The value adopted in such cases should be arrived at having regard to all the relevant facts.

It should be noted that occupancy will never be 100%. There will always be some days ‘lost’ because of postponements (usually unloading problems at cargo berths or stress of weather), regulating days (days preparing the dock before vessel entry), wet berth days (vessels afloat but awaiting suitable conditions, tides etc before moving from the dry dock) and a 2% loss of occupancy can be expected because of obstructions at cills, mechanical breakdowns etc. A well used dock might be expected to have an occupancy rate of some 70% available days.

Occupancy rates must be taken as at the AVD having regard to the trend and to the tenant’s expectation as to whether the trend may be expected to continue, when considering his rental bid for a tenancy from year to year.

Occupancy figures should not be slavishly adopted without close examination and making proper allowance for abnormal factors etc.

3. Port Statistics

At one time it was thought that a study of rents for dry docks, including the number of vessels visiting each port and the quantities of cargo handled, would yield a pattern so that from the information that was available it would be possible to value any dock on any river. In fact there was no correlation or pattern, and the use of vessel movements and of cargo handled will only illustrate the relative prosperity of the different ports which may have no bearing on the level of ship repairing activity in those locations. To take the extreme case, the bulk of cargo handled by Milford Haven is associated with the oil trade. Most oil tankers are too large to be accommodated in any British dry docks and are repaired and serviced abroad. Any fluctuation in tonnage of cargo or vessel movements may therefore have little or no effect on ship repairing work in yards in Britain, and therefore no effect on rental value. Any claim that the number of vessel movements or cargo tonnage handled by a port has an effect on rental value of ship repair facilities in that area should be referred to CEO (Rating) for advice.

5.3 Unit of Dry Dock Comparison

  1. In the case of Westminster Dredging v Legg (VO) and Others v Same 1981 RA 280 LT the Member accepted that a ‘notional’ wetted volume based on 6:1 ratio of length to width at entrance should be adopted for dry docks in Birkenhead and Liverpool, based on evidence given by the appellant’s surveyor of the size of vessels actually using the dry docks at the time of the valuations. That ratio should not be universally applied to all dry docks, but must be established by factual evidence. The notional length of any dry dock must be sufficient to accommodate the largest vessel using the dock during the period under consideration, and a notional wetted volume should not be calculated by reference to average sizes of vessels. For comparison purposes actual wetted volume based on actual physical dimensions must be distinguished from notional wetted volume.

  2. As an alternative to wetted volume, dry docks may be compared by reference to the actual width across the entrance with the gates open. As the vessels which use dry dock repair facilities in this country have become wider in the beam relative to their length, the length of the dry docks has become less crucial than gate width.

The unit of comparison should not be used as a direct valuation method, but to support or check a calculation made on the basis of wetted volume.

6. Dry Docks within Statutory Docks and Harbours

Reference should be made to RM 5:350 and particularly to Part 2.

The number of shiprepair dry docks operated under statutory enactment is thought to be small but if problems are experienced reference should be made to CEO (Rating) via Technical Advisor.

It should be noted that Schedule 6, para 3(1) of the Local Government Finance Act 1988 enables the Secretary of State to make Orders in respect of such statutory undertakings. The relevant Order is the Docks and Harbours (Rateable Values) Order 1989 which applied with effect from 1 April 1990 for the purposes of the 1990 Non-Domestic Rating List.

Practice note: 2017 - Ship repairing yards

1. Market Appraisal

Over the past 30 years, the UK shipbuilding, repair and conversion industry has seen substantial rationalisations, mergers and consolidations. This has been set against a background of increasing shipbuilding capacity in China and South Korea, and continuing debates about shipbuilding subsidies in the UK and in the European Union.

The industry in the UK is currently heavily reliant on MOD contracts for work, and there is a lack of balance between defence versus commercial business. The Government’s Defence Industrial Strategy was published in December 2005. In this regard the Ministry of Defence embarked on the largest procurement programme of new ships for the Royal Navy and the production period for this work was 2007-2011.

While this and other work has dried up on the ship building front, there may be consequential benefits for ship repair facilities as the newer stock ages. A positive for the repair market is that the global fleet continues to grow. This should continue even if the shipbuilding orders dry up. Ship repair is a service industry and it needs a healthy ship owner market to survive. The traditional view is that ship repairers’ fortunes mirror those of their ship owner clients - but with a time lag.

New capacity worldwide

China has completed much of its shipbuilding / repair expansion - though a few more yards still appear to be in the pipeline. However there looks to be a slowdown for at least the next 2-3 years. Meanwhile, two major new sites (in Qatar and Oman) have opened in the Middle East. Also as there has been expansion in the repair sector in Turkey in recent years, world wide, very little repair capacity has been lost.

2. Changes from the last Practice Note

There was no Practice Note for 2010.

Regarding the valuation basis recommended in the 1995 Practice Note and the Rating Manual, the following is now suggested for 2017.

The criterion for classification as a 248S is that the hereditament has a dry dock, otherwise the property is really little different from many other industrial hereditaments in or near docks areas.

Many properties with SCAT codes of 248S however do not appear to have dry docks which is clearly a key feature.

There is also a potential conflict with the valuation methodology employed for Ship Repair Yards [SRY] valued on a rentals comparison basis and Ship Building Yards (SBYs) valued on a contractor’s basis.

However, it would appear that there are very few (if any) clean rents on SRY’s and even less rental information on dry docks. Consequently it is recommended that the following changes be made to the basis of valuation adopted.

In the case of small SRY’s with dry docks, the basis of valuation should be to adopt the local rental tone/basis on the “industrial” buildings, as is the case at present, with a contractor’s basis on the dry dock and the plant and machinery. On larger SRYs which in many respects are similar to SBYs, there may be scope for a wholly contractor’s basis approach.

3. Ratepayer Discussions

There have been no ratepayer discussions with the ratepayers themselves or industry representatives.

4. Valuation scheme

a. Basis of Valuation

Rental evidence has previously been available upon which to establish levels of value. However it is anticipated that rental evidence is very limited which may be insufficient to enable such values to be established. Consequently in the case of small SRY’s with dry docks, the basis of valuation should be to adopt the local rental tone or basis on the “industrial” buildings, as is the case at present, with a contractor’s basis on the dry dock and the plant and machinery. On larger SRYs which in many respects are similar to SBYs, there may be scope for a wholly contractor’s basis approach for most of the hereditament if not for the dry dock element.

The rental evidence needs to be analysed carefully to judge what it actually covers and whether the dry dock needs to be valued separately. Where there is no helpful evidence the contractor’s basis should be adopted for the dock.

The basis of measurement for buildings within this class is Gross Internal Area (GIA). Reference should be made to the VO Code of Measuring Practice for Rating Purposes in England and Wales and the dock should be valued by reference to its ‘wetted volume’ if not already taken account of in the rental comparison basis. This basis takes account of the internal length x width measured across the entrance with the gates open x depth of water over cill at mean high water of spring tides. The cost data should be provided on this basis.

b. Plant and Machinery

The relevant regulations for the purposes of the 2017 Rating Lists will be the Valuation for Rating (Plant and Machinery) Regulations 2000 [SI 540]

These regulations are considered in detail in RM 4:3 Practice Note 2, to which reference should be made for guidance as to the rateability of plant and machinery.

c. References to Cost Guide

The Rating Cost Guide (RCG) should be consulted for updated costs and advice. Where there are no costs available then guidance may be sought from NVU (I & C) or BAMS.