If you don’t work in the logistics and transportation industry, chances are you’ve probably never heard of “general average.” While the term doesn’t seem complex, there is nothing general about it. With 90% of all freight shipping by sea, you may want to know a little more about this elusive term.
First things first…what is General Average?
General average is a principle of maritime law whereby all stakeholders in a sea venture proportionately share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency.
When is General Average declared?
When there is an impending danger where the entire ship or cargo is at risk, the master of the vessel, or the shipowner, has a moral obligation to preserve the safety of the ship, the cargo, and most importantly the crew. This may entail something extraordinary has to be done in order to do this. In these extreme cases, sacrifices are enacted, and general average is declared.
What are some examples where General Average may be declared?
- A fire on board the ship;
- The ship gets stranded or grounded due to mechanical failure, breakdown, or fault of the ship’s pilot;
- There is a stack collapse of containers on board the ship;
- The ship is caught in heavy weather and some of the containers on board shift and jeopardize the stability of the vessel; or
- Any other life-threatening situation caused by a natural or unnatural circumstance.
These extraordinary events above may involve:
- Jettisoning some of the cargo (intentionally throwing containers overboard) to reduce weight on the ship in an attempt to refloat the vessel or help increase the stability of the ship itself during a storm.
- Making a distress call at the closest port to salvage the situation on board; or
- Needing to perform emergency repairs to the ship due to which some cargo may be damaged.
Do I need to be concerned about General Average?
In short, “yes,” you should have some concern about it. Statistics show that importers will be involved in a General Average claim once every 8 years.
Since 2006, General Average has been declared seven times with the most recent occurring in March 2022 when the Ever Forward was grounded in the Chesapeake Bay for 35 days before being successfully refloated.
If your cargo is insured, it’s usually a swift process to recoup the costs of your freight. On the other hand, if your cargo is uninsured, the process is long-winded and can take up to 5 years for the claim to be finalized. That’s because the adjuster needs to determine the percentage each party must contribute based on the total value of the ship and the cargo on board. So even if your cargo has a low CIF (Cargo + Insurance + Freight) value, the cargo in the container next to yours may have a very high one.
How do I protect myself from General Average?
The best and only way to protect yourself is by purchasing All-Risk cargo insurance. Without proper protection, you will be held fully liable for your portion of the claim, which may be much more than the cost of your freight.
- General Average (Wikipedia)
- General Average: What is it and How to Calculate it? (Shiphub)
- What is General Average? (Shipping and Freight Resource)
- What is General Average? (TRG)
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