Lay-up

From time to time the cyclical nature of international trade and the shipping market leads to periods of depression and this may become so severe that vessels are withdrawn from service to be laid up.  This sort of situation calls for close co-operation and understanding between owners and managers, with a view to maintaining the asset value of the owner’s investment and ensuring the prompt and problem-free reactivation of the ship when the market improves.  The costs associated with the proper care and preservation of a large sophisticated vessel in lay-up are not inconsiderable. It is certainly not just a case of paying off the crew, switching out the lights and locking up.  Indeed, the vessel’s insurers will normally require not only the Classification Society but also their own surveyor (such as the Salvage Association) to inspect and approve mooring arrangements, alarm systems and preservation procedures. The daily cost of a ship in lay-up may be less than a quarter of the normal operating cost after allowing for return of insurance premiums and other cost savings.  However, reactivation expenses are usually heavy, probably involving drydocking and extra survey work to ensure that the vessel is once more properly “in Class”. From a ship manager’s viewpoint the laying up of tonnage causes particular problems relating to manpower requirements.  Although some management agreements contain provisions whereby owners contribute towards lay-off or redundancy costs, generally these risks remain with the managers.  The longer-term effects of a prolonged shipping recession can have far-reaching effects especially in terms of a diminution of the worldwide pool of merchant navy manpower. At one end of the scale the contract could be simply for the supply of the crew whilst at the other, the contract could extend to include involvement in commercial operations, chartering, etc.  Indeed, in some management contracts certain cost elements are “fixed” so that the ship manager accepts the direct risk of getting his sums wrong.  This lesson has, however, concentrated on those areas which are generally accepted as “core” ship management functions, assuming the conventional cost-plus method of working.