Tagged: Hull and Machinery, lay up, shipowner, shipping

As freight rates and trade volumes have dropped, an increased number of vessels are being laid-up whilst owners reduce costs and sit out the current downturn. Some estimates suggest this is affecting up 9% of the world container fleet. So, what’s the most premium efficient way to manage a lay-up?
The Institute Time Clauses – Hulls 1/10/83 allows for lay-up returns to be reimbursed by underwriters. A lay-up return is a return of premium for the period a vessel is laid-up either in a port or a specified lay-up area.

The amount of return will depend on whether the vessel is under repair or not and the number of crew on board. Theoretically, the percentage is fixed at the outset of the policy, however the underlying annual rate is usually higher where such lay-up returns are allowed. This is in contrast to a “Cancelling Returns Only” (CRO) designated policy where the annual rate will be lower but the Assured continues to pay full premium during the lay-up. This decision, which must be taken at the outset of the policy, has in recent times not been an issue for the majority of owners because freight rates were high and vessels were rarely being laid-up, hence CRO was almost invariably being taken to reduce annual premium costs.

However, in the current climate, we are advising owners to consider whether or not, during the policy period, any of their vessels might be laid up and if so, to consider their options. It is worth noting that if lay-up returns are excluded, owners may not have a right to cancel an ITC – Hulls policy if the vessel does enter lay-up. This may be a matter for negotiation with underwriters who are now seeing a general decline in premium volumes, given the reduction in vessel values.

To assist owners, we have also created an insurance facility to allow our clients to reduce their insurance premium for vessels entering short or long-term lay-up, whether under repair or not. The facility is directly focused on owners who have any part of their fleet out of service and can be utilised easily and cost-effectively where a complimentary underlying hull policy is in place.

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