General Average

We’ve always been advocates for marine insurance. Whether you are moving a small LCL (less than container load) shipment, or a full container, it is imperative that you have marine insurance to cover you from any losses or damage that may occur.

Recently an avid reader of EES’ blog commented that our readers should be informed of the term “general average”.  Any kind of legal terms and principals can be confusing, so we’ll try and keep the explanation simple.

The law of general average is a legal principle of maritime law according to which all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency (for instance, when the crew throws some cargo overboard to lighten the ship in a storm).

Crew members on board vessels have very little time during an emergency to determine which cargo they are jettisoning (throwing overboard). To avoid quarreling, this practice arose whereby all the merchants that cargo arrived safely from a voyage would contribute a portion, based on a share or percentage to the merchant or merchants whose goods had been tossed overboard to avoid peril to the voyage.

General average doesn’t only apply to goods being jettisoned. It can be utilised for vessels suffering mechanical breakdowns like engine trouble. General average can also be declared when a vessel suffers damage from a fire, collision or stranding . Additionally, if a vessels engines have to be run at high speeds to avoid running aground, the sacrifice of additional fuel (along with the damage that is caused by running engines at a high speed) can be the cause of an ocean carrier declaring general average.

It must be remembered that General Average can only be declared in the event that the voyage is saved. In the event that the ship sinking, no general average can be declared as the voyage was not saved from peril.

All participants (vessel and cargo owners) contribute to offset the losses incurred in the case of any catastrophic event . General Average claims can be in the millions of dollars.

What does this mean to you?

  • All cargo is seized.
  • All cargo owners are held responsible to share in the loss.
  • Such cargo is generally delivered free of lien when the cargo owner puts up a security deposit or bond.
  • Typically the security deposit must be cash.
  • General Average computations are so complex normally a General Average adjuster is retained to determine the total General Average loss amount. The additional expenses for the General Average adjuster are billed on a shared basis to those with cargo on the vessel.
  • General Average claims can take years to resolve.

General Average was declared in the last few years when there was an explosion in the main engine room on board container ship Hanjin Osaka.

Sources:Wikipedia and Shapiro

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