Lay-up means taking a ship out of service and anchoring it in a port. When shipping demand declines and fares drop, in some cases revenue from transportation services does not cover the ships costs. In such cases, shipping companies can save on fuel, operation costs, and other shipping expenses by anchoring the vessel. However, lay-up does not affect depreciation costs and interest payments, and creates expenses associated with anchoring procedures. Therefore, when the loss incurred by operating a ship is less than the expense of anchoring, the shipping company is better off continuing the operation at a loss. The level of shipping fares at which the loss from operating the ship is equal to the anchoring expenses is called the lay-up point. In Japan, ship crews are hired on a lifetime employment basis and cannot be laid off to reduce labor costs. This factor increases the costs of anchoring, and, in turn, lowers the lay-up point.
The consortium system
Consortium is a system in which several container ship companies join forces and conduct a joint operation to more effectively utilize the vessels of each company. Generally, such arrangements are made among companies involved in the same conference. There are several variations. Companies may, for example, form a joint entity or conclude space charter contracts to make distribution of charter spaces more flexible. Some people regard the consortium system as a technical agreement on the flexible use of equipment, while others view it as an economic agreement encompassing service operation and commerce aspects. In recent years, the trend is toward realigning consortiums to cope with falling freight in the container shipping market.