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Key factors to consider when assessing lay-up options

Passenger vessels are facing an unprecedented challenge caused by COVID-19. Around the world vessels have been prevented from docking. A number of idle assets are set to go into temporary lay-up, and more may follow as the situation changes from day to day. The following are key elements shipowners must weigh up as they ponder the optimal lay-up condition for each vessel.

While leading cruise lines have opted to suspend operations on a temporary basis, operators of ferries idled due to service closures may also have to consider short or longer-term lay-up while travel restrictions remain in place.

Focus on cost-efficiency and safety

The scale of potential lay-ups is a new phenomenon for the industry, and owners face tough decisions as to what type of lay-up, and where, is appropriate for a given vessel. Owners are advised to seek support from stakeholders with experience in dealing with the lay-up of high-value assets as they evaluate how best to proceed in order to limit costs and execute lay-up in a safe and sustainable way.

There are three main lay-up types to consider: hot, warm and cold lay-up – although it should be noted these are industry terms and not regulatory descriptions. "The cruise industry is determined to bounce back as soon as possible after the present crisis, so the most likely options right now are either hot or warm lay-up as a stopgap measure", Richard Tao, Discipline Leader - Technical Operation at DNV GL - Maritime states. "Cold lay-up of a year or longer may be relevant in exceptional cases for ships likely to be out of service for an extended period, for example with a view to upgrading the vessel when the market recovers, selling the asset at a later date to achieve a better price or eventual recycling. Here the crew is reduced to a skeletal level in line with emergency requirements such as fire, flooding and mooring security watch, machinery is taken out of service, the maintenance regime is postponed, and the vessel is “electrically dead” save for emergency power."

Owners must balance key factors such as the estimated time the vessel will spend in lay-up, what the operational cost savings will be, the cost of recommissioning and how long it will take, the intended destination after recommissioning (will it go back to scheduled sailing or head for dry dock?), as well as its age and potential recycling value.

Layout type is critical

Hot lay-up is suitable for ships that will be out of service for up to three months, remaining as if fully operational in terms of class and flag, with routine maintenance continuing. Machinery and equipment are kept in optimal working order to enable speedy reactivation, but measures can be taken to tighten operational costs. Crew can be reduced to the minimum safe manning level. In respect of safe manning for passenger ships, DNV GL estimates a crew of around 30, half satisfying deck and navigation requirements and half the engineering requirements. A cook and a doctor are also required to be on board. The flag state and local port authorities may have additional parameters. Reductions in hotel crew are beyond the scope of this article. "Recommissioning time can be as short as a week, not including the time it will take to get hotel operations up and running. Hot lay-up is of course ideal for quick market recoveries and very relevant for cruise ships and ferries right now, with discussions understood to be centering on one or two months. Issues such as managing rubbish and disposal arrangements for black and grey water also require investigation, " Tao explains.

Warm lay-up should be considered for ships that will be pulled for up to twelve months. The crew is reduced to below its trading limit in dialogue with flag, port authority and insurance providers, while routine maintenance is reduced. It must be noted that ports only grant temporary permits for warm lay-up and local restrictions apply. Some essential machinery is kept in operation, but deeper measures can be taken to optimize operational costs. Recommissioning will take longer, potentially up to several weeks. For vessels in cold lay-up the process could take a month or longer if the vessel has been mothballed for several years.

Two cruise ships layed up | DNV GL - Maritime
Double-banking is a good way to lower warm lay-up costs.

Optimal lay-up location

The lay-up site for hot and warm lay-up should ideally be close to the vessel’s anticipated sailing route taking into account its present position. Cold lay-up locations are generally remote with limited access to the vessel. Other considerations are how long the lay-up is expected to last, availability and cost of the site, quality of services provided, security, physical parameters including water depth, seabed characteristics and swell affecting anchor security and clearance, and the integrity of mooring arrangements for nearshore mooring. Security is essential for high-value assets such as cruise ships. Shore power supplies are also key for cruise ships if there are local emissions restrictions in place. Shore power is also cheaper than consuming fuel for power. Any limits on discharges to water should also be considered. Local climate conditions are also a key variable in terms of temperature and potential for extreme weather phenomena.

In the present circumstances, areas such as Dubai, the US Gulf, Newfoundland (Canada) and the Norwegian fjords have been considered for lay-up. It is advisable to avoid hot areas with high humidity for long-term cold lay-up.

Controlling lay-up costs

"The main purpose of laying up a ship is to achieve significant savings. To give a rough indication of the cost reduction in percentage, in our experience hot lay-up will cost around two thirds or 74% of the normal running cost for the ship, including port and fuel costs. However, our case studies were performed previously for cargo ships and mobile offshore units, so do not factor in savings in hotel costs for cruise ships," Richard Tao points out. Reactivation costs will be limited, and the vessel can re-enter service at short notice. Warm lay-up can reduce costs to around 62% of the normal running budget, and to around 54% for two vessels double-banked. Total cold lay-up costs are around 34% of the normal running budget, again excluding savings from the absence of hotel crew. There may of course be slight differences between ship types, but these indicative figures can be used in working out the best strategy as to where and how to lay up cruise ships and ferries. Hot lay-up is most expensive from a total cost perspective. Warm and cold lay-up will involve higher initial costs when the ship goes into lay-up and at the recommissioning stage. Dry-docking is also highly likely for ships in cold lay-up. DNV GL’s case studies show that from a total cost perspective, hot lay-up is best for up to four to five months, warm lay-up for 16 to 17 months. For anything after that, cold lay-up is the preferred option.

It must also be noted that some ports are waiving port fees for passenger vessels during this critical period.

Different lay up options for cruise vessel | DNV GL - Maritime The choice of lay-up approach depends on the prospective duration of the lay-up period, the recommissioning time and intended future use of the vessel, and cost considerations.

Technical challenges during lay-up

Technical challenges are likely minimal in short-term hot lay-up, but increase the longer the ship is out of action. In general, there are fewer technical risks than when a ship is in operation, but certain other challenges increase and precautions should be taken. It is also important to adhere to manufacturers’ recommendations for equipment.

To give some specific examples, emphasis should be given to the integrity of shore-based mooring systems. Given the large side windage area of cruise ships, the loads acting on the mooring system are very high, requiring careful analysis of the dynamic effects. If anchors and shore bollards are used in tandem, the system must have sufficient capacity to hold the ship safely throughout the lay-up period.

Water may build up in engine chambers, while corrosion and rusting are ever-present risks. Others include unintentional mistakes, such as the application of preservation oil in systems where it can do damage. The multitude of deck equipment on cruise ships and ferries can also be subject to internal corrosion, leading to frozen machinery at reactivation. Lack of availability of spare parts could cause significant delays at reactivation, so careful monitoring is vital.

Lastly, in a cold lay-up there is a danger of the vessel listing due to water leaking into sealed spaces, so it is crucial to check water integrity throughout the lay-up period.

Class requirements of lay-up

Owners must inform class in writing of the vessel’s operational status change. If there is no overdue survey, there is no need for class attendance. In hot and warm lay-up of under twelve months, annual surveys will be performed but with a reduced scope, while at recommissioning overdue surveys will be conducted, and possibly a sighting survey if the ship has not been subject to continuous preservation. Fire safety requirements will remain as if the ship were operational, but may be limited to high-risk areas. The same goes for life-saving appliances, but with requirements potentially reduced due to fewer crew.

For lay-up periods longer than twelve months, annual surveys will be performed, but again with reduced scope. The vessel will also need to be surveyed before going back into service. The recommissioning scope will include all outstanding surveys and a sea trial, with postponement possible due to issues with the hull bottom, tail shaft and machinery. The scope may have to be extended if little or no maintenance has been carried out.

Other class services to be considered include a clean lay-up declaration if the lay-up location is in an environmentally sensitive area, a recommissioning declaration and a statement of compliance for lay-up service providers.

Validity of ISM and ISPS certificates

Regarding the vessel’s ISM/ISPS certificate, if the periodical audit window has expired within the first six months of lay-up, the certificate will be considered invalid and the ship will be required to undergo interim verification as part of the recommissioning process. The continued validity of the ship’s ISPS certification will be a key element in its reactivation. It is strongly recommended that the vessel’s International Ship Security Certificate (ISSC) is also maintained throughout the lay-up. It should be noted that for ISM, if the interruption period of the Safety Management System Manual (SMS) on board the vessel is more than three months old, but less than six months old, the flag may require an additional audit and will issue appropriate instructions. The SMS will be endorsed on satisfactory completion of the additional verification.

For lay-ups of more than six months, ISM certification will be withdrawn. If a vessel later re-enters service, an interim verification will be required treating it as if it were new to the owner’s fleet. An interim ISM and ISPS certificate will be issued on successful completion of verification.

Case study cost class scope ISM ISPS | DNV GL - Maritime The lay-up type and duration have implications for the classification regime of the vessel.

Insurance considerations for vessels in lay-up

Typical lay-up factors as regards insurance are the type of lay-up and location, mooring and stability, supervision of the vessels in terms of security, power supply, water integrity, fire and other safety measures, and minimum crewing level. For insurers a ship being taken out of service represents an alteration of risk versus normal trading. A declaration of lay-up must be made to the insurer in order to effect potential returns on insurance premia, provided that the ship’s class status is maintained. A lay-up plan describing intended preservation and maintenance, as well as anticipated reactivation procedures, is generally required to be submitted to the hull and machinery insurer for verification either by the owner or a third party. In the case of DNV GL-classed tonnage, providing a preservation declaration may reduce the recommissioning scope and could have a positive effect on insurance risk. However, class-related surveys and declarations will likely cover all insurers’ documentation requirements.

Bringing the vessel back into service

"The quality of maintenance and preservation during the lay-up period is a determining factor when bringing a vessel back into operation effectively when the market turns," Richard Tao summarizes. "DNV GL has worked with a broad range of owners and operators on implementing cost-effective practices for recommissioning, including assurance of non-class equipment and systems. Reactivation can potentially take longer than initial lay-up preparations and it is easy to underestimate potential bottlenecks, especially if external services are required," he adds. In the event of an economic bounce-back after the COVID-19 crisis has passed, there may be high demand for such services at the very time owners are eager to get ships back to work. Crew issues are also important, as taking over a fully operational vessel is quite different to being part of the team getting it back into shape. Owners are urged to prepare in detail beforehand.

For more information, please refer to our Recommended Practice publication or please get in touch with our regional contacts for further support.

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