On March 13, 2020, the Cruise Lines International Association announced a voluntary 30-day suspension of all cruise operations in the United States. The CDC issued a Level 3 advisory on March 17, recommending against cruise ship travel worldwide.
Article from CruisesNews magazine no. 52 – June 2020
Cruise ship owners have since faced an enormous challenge: to halt, or at least keep in a dormant state, vessels designed to operate continuously. COVID-19 has led to cruise lines gradually dismantling their ships, either temporarily or permanently, in a desperate attempt to save costs, maintain liquidity, and be able to resume offering cruises as market demand returns.
Laying up a ship is a cost-saving measure and a way to adapt to market conditions, typical of maritime management. American immigration restrictions in 1922 and the Great Depression of 1929 forced passenger ship owners to lay up large parts of their fleets. The 1973 oil crisis meant that many of the supertankers sailing at the time ended up idle, many even brand new from the shipyard, and it nearly wiped out the cruise industry. But the scale of the current situation, with more than four hundred cruise ships inactive, is unprecedented. Neither SARS, nor the Iraq wars, nor the attacks on the Twin Towers in 2001 had achieved what Covid-19 has: bringing the global cruise industry to a standstill.
Reducing Costs with Efficiency and Safety:
While traditionally used by shipping companies, what's truly new for the industry is its real (or potential, if the situation persists) scale: its global reach. Shipowners face difficult decisions about how and where to decommission a given vessel. But cruise ship owners are accustomed to operating their ships 365 days a year, not laying them up. Therefore, they need to seek support from other stakeholders, including some of their traditional partners like ports, with experience in managing high-value assets, to assess the best way to limit costs and maintain the vessel safely and sustainably.
On an unarmed cruise ship, two essential aspects must be guaranteed:
1) Maintaining the safety and security of the ship, the crew, and the environment.
2) Preserving and maintaining the ship's structure and machinery, protecting it against corrosion and technical inactivity.
Two of the critical questions currently being asked in all shipowners' technical offices are: When will a specific vessel in the fleet be able to return to its scheduled itinerary after a "hot lay-up"? Or will the shipping company have to permanently decommission it if the situation continues?
There are essentially three main ways to decommission a ship: temporary, permanent, and mixed, although in English a historical thermal metaphor is used, referring to the temperature of the boilers that formerly provided steam to ships: “hot, warm, or cold lay-up.” It should be noted that these are colloquial terms and not regulatory descriptions.
Despite the successive postponements by the various shipowners regarding the return to activity of the ships, it seems that the cruise industry is determined to recover as soon as possible after the current crisis, so the most likely options at this time are to disarm the ships temporarily, or a mixed (Cold or warn Lay-up) as a provisional measure.
Permanently dismantling a vessel for a year or more may be advisable in exceptional cases: for ships likely to be out of service for an extended period, with a view to upgrading the vessel when the market recovers, selling the asset at a later date for a better price, or selling it for scrap. Some shipowners, such as TUI, have quickly done the math and announced the sale for scrap of the Marella Celebration, a 1984 vessel, 36 years old. It won't be the only one, and some similarly aged ships will likely also end up on a beach in Pakistan or India, reduced to scrap.
In this case, the crew is reduced to a minimum, only for emergencies such as fire safety monitoring, water leaks, or checking the condition of mooring lines and cables. Machinery is taken out of service, the maintenance plan is postponed, and the vessel is stopped and cut off from electricity, except for emergency power.
Shipowners must strike a balance between several key factors, such as the estimated time the ship will be idle, the operating cost savings, the cost of commissioning and how long it will take, the intended fate after commissioning, as well as its age and potential value as scrap if they decide to recycle it.
For the shipowner, the safety of an unarmed vessel is essential because it is a high-value economic asset.
The time it takes for a ship to return to service depends on the level of maintenance and preservation it receives during its decommissioning period. This ranges from a couple of days (for a temporarily decommissioned or "hot-laid up" vessel) to several weeks. However, it can take several months for a shipowner to bring a vessel back into service after a long-term decommissioning period. The legendary France is a prime example. The 1974 oil crisis led to its inactivity for six years in a Le Havre dock. NCL had to spend almost a year converting it into the Norway in Bremerhaven.
Getting the decommissioning process right is critical.
Temporarily decommissioning a cruise ship is only an option for those that will be out of service for up to three months. During that time, they will remain fully operational with regard to classification society and flag state requirements, maintaining the maintenance plan unchanged. All installations and equipment must be kept in perfect condition to allow for a quick reactivation, but measures must be taken to reduce operating costs.
If shipowners anticipate a prolonged stay, they reduce the crew to the legal minimum required for each vessel, typically between 30 and 50 people, half on deck and the other half in the engine room, plus other key personnel such as the head of security, the environmental officer, etc. A minimum catering crew and a doctor on board are also required. Regulations from the ship's flag state, or from Maritime Authorities, Port Health Authorities, or other relevant authorities, may increase the minimum crew requirements. In this situation, the entire "hotel" crew would be redundant, or at least drastically reduced. For example, Aida Cruises has announced it will decommission the AidaBlu in Hamburg with only 110 crew members, down from its usual 634. Similarly, Phoenix decommissioned the Deutschland in Caen with 54 crew members, compared to its normal 270.
Reactivation time can be as short as a week, not including the time it will take to get hotel operations up and running. To restart these operations, the shipowner will need to have a full complement of waiters, porters, kitchen helpers, entertainers, etc., and all the necessary supplies and provisions. This option of temporarily decommissioning a ship is, of course, ideal when considering rapid market recovery, and it is the most relevant for cruise ships at the moment, with the US CDC's maximum cruise ban period of 100 days. The management of black and grey water and solid waste is also important. That is why ships adrift in the Bahamas must periodically return to Miami or Port Everglades.
A Mixed Approach to Decommissioning Cruise Ships:
If the current situation continues as it seems likely, shipowners will opt for a "warm lay-up." Despite restrictions on air travel, they will try to minimize the ships' operating expenses, which means repatriating surplus crew members, almost all of whom would be involved in onboard hotel operations. To make this transition from "hot" to "warm," shipowners are using the cruise ships themselves to repatriate crew members: the Regal Princess, Mein Schiff 3, and Carnival Panorama are examples of this. The AidaPerla called at Santa Cruz de Tenerife and Las Palmas in early May to pick up crew members from the AidaNova and Aida Stella, respectively, and take them to Germany.
Generally, crew members, especially those from developing countries, are only paid while on board. The crew is reduced below the commercially necessary minimum (but never the legally required minimum), always in accordance with the ship's flag state authority, the insurer, and the maritime authorities of the port or anchorage where they are laid up. In Spain, the Port Health Authority advises that a ship should not have more than 40 crew members in this situation. Only equipment essential for the ship's operation and safety, such as auxiliary engines, servomotors, communications, etc., remains operational, but the shipowner will try to take measures to reduce the other major operating expense, such as fuel costs. It is important to note that there are onboard systems that must not be shut down, such as dynamic positioning, because they are very expensive to reactivate. Reactivating the ship in "warn lay-up" will take longer, up to several weeks.
“Cold lay-up” or permanently decommissioning a vessel:
If the period during which the vessel will be decommissioned exceeds one year, the shipowner must opt for a “cold lay-up.” This is a situation no one wants, because it means that the source market has not recovered, that the vessel is unattractive (perhaps due to its age), or that it is inefficient in its operation (also typical of older vessels).
Cruise ships are starting to change "cold lay-up" ports, such as Los Angeles, for "warn lay-up" ports such as Oakland (San Francisco).
In this condition, the ship's crew is reduced to the minimum necessary for emergency situations such as fire, flooding, broken ropes or cables, anchor dragging, or security issues. The port or anchorage can be located anywhere, even remotely, with limited access. Historically, Piraeus was the port of choice, especially for Greek shipowners, to dismantle their vessels for years until they decided to put them into service.
When reactivation is decided upon, the vessel may need to go directly to dry dock before commercial operation, depending on the extent of fouling and hull contamination. It is crucial that all operations and processes performed during the vessel's permanent decommissioning are thoroughly documented (valves, tanks, seawater intakes, etc.), as crew changes can be significant.
If there is no foreseeable future for the vessel, and its scrap value is less than its book value (something that is currently happening), the shipowner can choose to permanently decommission (or "long-term lay-up") the vessel to avoid selling it at a loss. This was the case with Pullmantur's Atlantic Star, which languished for almost four years in Marseille awaiting a reactivation that never materialized. In this case, the unit of time is years, and if we are talking about reactivation, months (with a minimum of three months in the shipyard).
This is an extraordinary situation that occurs very rarely in the cruise industry, but is common in other types of shipping, such as oil tankers, LNG carriers, etc. In this prolonged situation, the ship's preparation must be intensive: the official technical service deactivates the systems, all hull and superstructure openings are sealed, and some electronic equipment is even stored off-board. Only the fire detection and protection system should be operational. The ship will lose all its certifications and will have to be reclassified upon reactivation. Generally, ships anchor or dock alongside each other to save costs.
Where should the ship be decommissioned?
The ideal location for temporarily or partially decommissioned vessels is as close as possible to the destination where the owner will operate them. That's why the Bahamas and Barbados are full of ships waiting to sail the Caribbean; Marseille and various Italian ports are hosting vessels that should be sailing the Mediterranean this summer. Tilbury and Southampton welcome ships belonging to British owners who use them as home ports. If there's also a shipyard nearby for repairs, easy refueling and resupply, and an international airport to facilitate crew changes, then we're talking about an ideal situation.
With these criteria, Spanish ports are in a privileged position: they are home ports for cruise destinations such as the Mediterranean or the Canary Islands; our airports normally offer numerous air connections; Navantia's facilities in Cadiz and Ferrol are among the best in the world for repairs and dry-docking, in addition to the proximity of Spanish ports to others in Setúbal, Marseille, Genoa, etc.; and the ports have dedicated docks with all ISM/ISPS guarantees, MARPOL services and even the possibility of using LNG, in addition to other fossil fuels.
If we're talking about permanently dismantling a cruise ship, the location is less important, to the point that they can be remote locations.
Under current circumstances, areas such as Dubai, the Norwegian fjords, or Newfoundland may have significant potential for dismantling ships. Hot, humid areas should be avoided for cold lay-up or long tern lay-up because these environments promote corrosion and algae growth on the hull.
The quality of maintenance during the "lay-up" period is the determining factor when a cruise ship has to be returned to active service, when market demand begins to grow.
Environmental factors are another very important consideration, which also has further implications. The paradigm of an eco-friendly lay-up is a cruise ship connected to a shore power supply. Currently, two Viking Ocean ships (Viking Sun and Viking Jupiter) are laid up in Kristiansand, Norway, connected to a cold-ironing facility, as are several Hurtigruten ships in Fiskarstrand (Fram and Spitsbergen) and Bergen (Fridtjof Nansen). The Europa 2 also uses cold ironing at the Altona terminal in Hamburg. The Europa 2 requires only 2.2 kWh of electrical power while laid up and is thus able to reduce its emissions to zero. The electricity used is supplied by Hamburg Energie and is 100% renewable. These vessels maintain all necessary services, but with their auxiliary engines off, which also allows for a reduced crew, avoidance of local pollution regulations, and even lower port fees. Unfortunately, “cold ironing” is not yet sufficiently implemented in most ports, although it would be ideal for the current situation.
Savings from Decommissioning a Ship: Cost Control.
The main purpose of decommissioning a ship is to achieve significant savings. The specific percentage will depend on each vessel, but a rough estimate of the cost reduction can be given. According to several classification societies, a "hot lay-up" can result in savings of 20%. Some shipowners, by reducing sailing hours and maneuvering, have managed to keep their costs in this situation to 74% of the ship's normal operating cost, including port and fuel costs. Reactivation costs will be limited, and the vessel can return to active service in a short time.
A “warm lay-up” can reduce costs by up to 62% of the normal operating budget, and by around 54% if vessels are moored alongside, something typical in Canary Island ports when they have hosted inactive drilling ships, or fishing vessels.
Finally, a “cold lay-up” can mean a saving of two-thirds in the ship's operating costs, so that the budget will represent around 34% of the normal operating budget.
There may always be slight differences depending on the type of ship (a megaship is not the same as a yacht-like exploration vessel), but these percentages are used to develop the best strategy for how much, where, and how to decommission cruise ships. Clearly, temporarily decommissioning a ship is more expensive from a total cost perspective. However, a warm lay-up or cold lay-up will involve higher initial costs when the ship is taken out of service and during the commissioning phase. Dry docking is another very likely expense for ships decommissioned using a cold lay-up method. Studies by the classification society DNV-GL show that, from a total cost perspective, hot lay-up is the best option for a period of four to five months, while for periods between five and sixteen or seventeen months, a mixed decommissioning or warm lay-up method is more logical. If the inactivity lasts longer, a cold lay-up is necessary.
It should also be noted that some ports are reducing port fees for cruise ships during this critical period.
Technical Aspects to Consider When Disarming a Cruise Ship:
When temporarily disarming a cruise ship, the technical challenges will be minimal, but they increase the longer the ship is out of service. In general, a disarmed ship presents fewer technical risks than when it is operational, but other challenges arise, and precautions must be taken. It is essential to comply with the equipment manufacturers' recommendations.
For an insurer, a vessel out of service represents an alteration of risk compared to when it is sailing normally.
Specific risks include mooring and anchoring equipment. Cruise ships have a large freeboard and a significant lateral area, which creates a strong sail effect that is very dangerous in high winds, as it can cause mooring lines and cables to break, leaving the ship adrift. A careful analysis of the dynamic effects of wind must be carried out. If the ship is anchored, with anchors forward and buoys aft, in tandem, the system must have sufficient capacity to keep the ship secure while it is undetached. For example, in April 2015, while undetached following the bankruptcy of its owner, Peter Deilman, the cruise ship Deutschland first docked at the Levante Wharf in Málaga, assisted by tugboats, until a gale caused the mooring lines to break. It was then moved to Wharf 9, where the storm caused it to damage the fenders, break a pipe, and damage the quayside.
The engine room and bilges are other areas to consider. Water accumulation in engine combustion chambers must be prevented, while corrosion and rust are ever-present risks. Deck equipment can also suffer internal corrosion, or even freezing in cold climates. A lack of spare parts could cause significant delays in restarting operations, so careful monitoring is vital.
Finally, in a “cold lay-up”, there is a danger of the ship listing due to internal water leaks, so it is crucial to check the integrity of the hydraulic systems and the level of the bilges throughout the entire disassembled period.
Another aspect that shipowners often consider is concentrating their fleet in lay-up. This allows them to reduce costs related to crew, shipping agents, crew changes, and stock maintenance. Fred Olsen has all four of its ships anchored in Rosith (Scotland), Hapag-Lloyd also has all four of its fleet in Hamburg, C&MV and Saga Holidays have almost their entire fleet in Tilbury, and Marella, Cunard, and P&O have opted for Southampton.
Classification Society Requirements:
The shipowner is obligated to inform the classification society of any change in the cruise ship's operational status. If there is no overdue inspection, there is no need to renew the ship's classification. For "hot lay-up" and "warm lay-up" periods of less than twelve months, annual inspections will be carried out, but with a reduced scope. During reactivation, overdue inspections will be performed, and possibly a five-year inspection if the ship has not received continuous maintenance. Fire protection requirements will remain the same as if the ship were operational, but may be limited to high-risk areas. The same applies to life-saving appliances, but with reduced requirements due to the absence of passengers and, even more significantly, crew.
For vessels that will be decommissioned for more than twelve months, annual inspections are required, but again, these are of a reduced scope. The vessel must also undergo a pre-commissioning inspection. This inspection covers all overdue inspections and a sea trial, which can be postponed if problems arise with the double bottom, the stern shaft, or the propulsion equipment. The scope of the inspection may be greater if onboard maintenance has been interrupted while the vessel has been decommissioned.
Other services that the classification society can provide include a declaration that the decommissioned vessel meets all environmental criteria (e.g., the Bureau Veritas “Green Lay-up label”), if it is located in an environmentally sensitive area, a commissioning declaration, and a declaration of compliance for “lay-up” service providers.
Validity of ISM and ISPS Certificates
: Regarding the ISM/ISPS certificate for the security of ships and port facilities, if the validity of the periodic audit has expired within the first six months of lay-up, the certificate will be considered invalid, and the ship will be required to undergo a provisional verification as part of the reactivation process. The validity of the ship's ISPS certification will be a key factor in its reactivation. Furthermore, it is recommended that the ship's International Ship Security Certificate (ISSC) also be maintained throughout the lay-up period. It should be noted that for ISM, if the validity period of the Safety Management System (SMS) Manual is interrupted by three to six months, the flag authority may require an additional audit and issue the relevant instructions. The SMS will be approved upon successful completion of the additional verification.
For lay-up periods exceeding six months, the ISM certification will be withdrawn. If the vessel subsequently returns to active service, an interim check will be required to treat it as new to the owner's fleet. An interim ISM and ISPS certificate will be issued upon successful completion of the check.
Insuring a vessel in “lay-up”
Factors to consider regarding the insurance of an unarmed vessel are the type of “lay-up” and location, mooring and stability, physical security, power supply, hull integrity, fire protection and other safety measures, and minimum crew level.
The shipowner generally has the right to negotiate a reduction in the insurance premium during the time the ship is disarmed.
The insurance company must be notified that the vessel is decommissioned, as it may be possible to obtain a partial refund of the insurance premium, provided the vessel's class is maintained. Generally, the owner or a third party (their technical manager) is required to submit a lay-up plan outlining the planned maintenance and anticipated reactivation procedures to the hull and machinery insurer for verification. However, inspections related to vessel classification usually cover all insurers' documentation requirements.
The main underwriter of hull and machinery insurance, and the P&I club, should be consulted by the shipowner to clarify their criteria before laying up a vessel. The change from normal operation to lay-up implies less attention from the classification society, flag state inspection, other authorities, etc. Furthermore, changes in maintenance plans and, most importantly, permanent mooring or anchoring near the coast can represent an alteration of risk or coverage for the insurer. Therefore, it is preferable to explain the change beforehand and agree on certain conditions to ensure insurance coverage remains uninterrupted.
Most insurance policies require you to submit a lay-up plan to the main hull and machinery insurer for their review and approval. This plan must include a description of the vessel's berth location, the arrangement of moorings/anchors, and plans for minimum crew and supervision. Once the lay-up plan is approved and coverage is agreed upon, it becomes part of the insurance terms.
If any changes occur while the vessel is decommissioned, the insurer must be informed. Furthermore, it is crucial that the vessel's maintenance and upkeep are carried out according to a planned schedule. The scope of maintenance is not a direct insurance requirement, but all planned and executed work must be reviewed and documented to provide documentation in the event of a breakdown or damage. This maintenance record will significantly impact the scope of the vessel's reactivation work when it returns to service, as required by the classification society and the insurance company.
The ecological lay-up is only possible with a ground power supply, and connections for evacuating waste and effluents of all kinds.
The premium adjustment will depend on the reduction in risk exposure, whether the vessel is permanently or temporarily decommissioned, and an individual assessment of each case. Liability and insurance (P&I) coverage may also vary depending on the specific P&I club, but under certain conditions, such as there being no passengers on board, shipowners also reduce their liability premiums during periods of inactivity.
Conversely, the Port Authorities of the port where the vessel is decommissioned will generally request a letter from the P&I club to confirm that the ship's insurance covers port risks; hydrocarbon pollution, salvage of the vessel in case of shipwreck, etc.
End of Layup and Reactivation of the Cruise Ship.
However, it is not during the period of inactivity that the most insurance claims are filed. The most problematic process for a ship in layup is reactivating it. The shipowner may be tempted to look for shortcuts, reduce costs, or shorten timelines, and the results are rarely positive. This process can take longer than preparing the ship for layup and requires significant resources: the shipowner's technical office, and/or external ones; shipyards, but also shipping agents, provisioners, etc.; and a travel department capable of re-crewing the ship. These services may be in high demand after the critical phase of COVID-19, which is when shipowners will want their vessels back in service. Therefore, the shipowner must be proactive and secure their ship slot at the shipyard, or the reactivation of their vessel may be delayed even further. Bottlenecks, or critical paths, must be prevented, especially if they are related to external parties.
Gard, a Norwegian insurer, recommends that restarting operations after a long period of inactivity be carried out with extreme care and in accordance with the recommendations of the classification society and the equipment and facility manufacturers. Not only should all machinery be inspected, but particular attention should be paid to the quality of the fuel and lubricating oil.
When a vessel is reactivated, the classification society must carry out a complete inspection of the various technical systems on board: propulsion, steering, climate control, etc. Depending on the length of the layup, the vessel may need to enter dry dock or at least undergo a sea trial. A full audit of the Safety Management System is also generally required. The scope of the required inspections will depend to some extent on the maintenance performed during the period of inactivity.
Shipping companies are using the docks on their private islands in the Bahamas to keep some of their ships in "hot lay-up".
Insurers can include specific reactivation clauses as part of the coverage during lay-up. The main requirement is, once again, the participation of the classification society, but on a cruise ship there are many systems that are not vital to a classification society, but are vital to the passenger: it would be unthinkable, for example, not to check during a reactivation the card-operated opening of cabin doors, balcony doors, or the toilet vacuum system.
Crew-related complications are also very important. A ship will only be fully operational with a complete and trained crew. In the current situation, the first condition for a ship to go from cold lay-up to fully operational is the existence of air links to embark the crew. Without regular air routes, cruise ships will not sail again. And for that crew, it's not the same to find a fully operational ship as it is to be part of the team that has to return a ship to active service. The latter situation is tempting to save costs, but it usually leads to delays and/or complaints from passengers.
Geography of unarmed vessels:
The main "hot lay-up" area is, logically, the Caribbean. The vessels are either adrift or anchored near ports like Miami or Galveston, where they dock on a rotating basis.
Another "hot lay-up" area is Manila, due to the Philippines' importance as a supplier of cruise ship crew. Dubai is another port full of inactive vessels.
But when a shipowner moves from "hot lay-up" to "warn lay-up," they generally choose a dock, or perhaps an anchorage, in Europe or the United States, where an asset worth billions of euros has legal protection or proximity to the essential technical resources to guarantee its preservation. Thus, Aida has ships in "warn lay-up" and even "cold lay-up" in Sweden (the AidaAura and AidaCara are in Visby), Denmark (the AidaDiva is in Skagen), and Germany (Hamburg is home to the AidaBlu and AidaMar). The flagship AidaNova is in Santa Cruz de Tenerife, and the AidaStella has been in Las Palmas since March. Virtually the entire Costa European fleet is based in Italian ports, while Marseille has been selected to host the flagship Costa Smeralda.
MSC Cruises has its Caribbean fleet anchored around MSC Ocean Cay Marine Reserve, its private island in the Bahamas, while the rest are decommissioned in Italy, France, Brazil, Dubai, etc.
Ponant has repatriated a significant percentage of its fleet to France: it has three decommissioned ships in Marseille and two in St-Malo.
German shipowners such as Hapag-Lloyd, Phoenix Reisen or Plantours already have virtually 100% of their fleet disarmed in Hamburg, Emden and Bremerhaven.
The main objective of dismantling a ship is to achieve significant savings.
NCL is another shipowner that has unequivocally opted for "cold lay-up", using North American ports such as Norfolk (where the Bliss, Encore and Spirit are decommissioned), or Jacksonville.
Royal Caribbean and Carnival have their ships in the midst of transitioning from "hot lay-up" to "warn lay-up", always close to their home ports of Florida, Texas or California, but anchored or adrift, never permanently docked.
Interestingly, in Spain, despite having magnificent infrastructure that could be leveraged for this purpose, and offering an enviable geographical location, we only find references to the two Canary Island capital ports, both operating under "hot lay-up" and "warm lay-up" conditions. Their main clients are the German shipowners Aida and TUI, and shipping companies dedicated to the ultra-luxury segment (Silversea or Hansa), or to exploration (Quark). Málaga, for its part, has been hosting the Sovereign since March under "warm lay-up.".
