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30 September 2009
Faced with plummeting freight rates and the possibility of more vessels on hand due to early redeliveries from charterers, many owners have already decided to lay up some of their tonnage. Laying up a vessel is a last resort. All other commercial ways of employing the vessel should be explored before taking such a step.
A vessel may be placed in either long-term 'cold' lay-up or short-term 'hot' lay-up, with or without cargo.
The choice depends primarily on the prospect of future employment, with re-commissioning time ranging from 24 hours to three months. However, with both options, factors such as the age and condition of the vessel must be taken into account. This update looks at some of the legal implications that may be relevant when considering the lay-up of a vessel.
Most protection and indemnity clubs offer returns on the premium in consideration of the decrease in risk when a vessel is laid up. For vessels that are laid up cold without cargo, one might find returns of up to 50%, whereas a hot lay-up may give a 25% return.
However, returns are almost invariably subject to the vessel being laid up in a manner conforming to club rules or guidelines. Similar returns may also be given under hull and machinery insurances.
Many clubs require an inspection upon re-commissioning to reassess the risk. Proper maintenance is vital to avoid an increase in risk (and premiums) when the vessel is returned to employment.
Many classification societies require the vessel to undergo lay-up surveys in addition to regular surveys, but will often agree to reduce the scope of regular surveys. The level of maintenance and preservation during lay-up will affect the re-commissioning and the risk of receiving class recommendations.
Owners should therefore carefully review guidelines on preservation and maintenance routines, dating back to the extensive use of lay-up in the 1970s and 1980s. If such guidelines are followed, it will simplify both the re-commissioning procedure and subsequent class surveys. An owner that decides to lay up a vessel would be well advised to notify its classification society as soon as possible so that the status of the vessel can be updated.
Both the safety management certificate (under the International Safety Management Code) and the international ship security certificate will be suspended if the vessel is laid up for more than three months and both will become invalid after 12 months. Other certificates may also expire if the vessel is laid up. Time may be saved in re-commissioning the vessel if at an early stage the owner prepares for the different audits and procedures which must be undertaken to reinstate such certificates upon re-commissioning.
Many flag states have requirements applicable to laid up vessels. Such procedures vary, but may include requisition of survey reports and plans covering security aspects during the period of lay-up. Owners would be well advised to notify and cooperate with the flag state from the start to allow for a smooth lay-up procedure.
Furthermore, many port authorities will require confirmation from the vessel's protection and indemnity club that the vessel is properly covered before allowing it to be laid up within the port limits.
Many shippers are now looking for cheap storage and it may be commercially desirable to utilize a vessel's cargo capacity for this purpose. However, the Hague-Visby Rules liability scheme may apply. In addition, many protection and indemnity clubs may give little return on the premium.
Nevertheless, for some vessels this may be a better alternative than a cold lay-up with no earnings. In particular, owners of roll-on/roll-off vessels may use their vessels as parking spaces as many car manufacturers struggle to find cheap parking spaces for unsold vehicles. However, such employment of a vessel demands strategic planning with one or more of the vessel's insurers, class, charterers, port authorities, flag state and cargo interests.
The decision to put a vessel in lay-up will mainly be driven by market prospects. However, the decision also has legal implications, some of which may be best dealt with by pre-emptive, rather than reparative steps. Exploring possible legal problems beforehand may help to avoid unpleasant and possibly costly surprises.
For further information on this topic please contact Gaute Gjelsten, Oddbjørn Slinning or Morten Baggerød at Wikborg Rein's Oslo office by telephone (+47 22 82 75 00), fax (+47 22 82 75 01) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). Alternatively, contact Torgeir Hovden at Wikborg Rein's London office by telephone (+44 20 7236 4598), fax (+44 20 7236 4599) or email (email@example.com).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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