General Average, what is it.

General average is well recognised in all maritime juridstictions and is as old as maritime transport itself. It is the fact that it has been around for as long as shipping which has meant it is often the forgotten problem. A lot of freight forwarders, NVO's, NVOCC's as well as shippers do not fully understand general average and as such are unaware of the risks it poses and the best way to deal with it when it arises.

What is a general average loss?

General average losses arise whenever property in a voyage is voluntarily sacrificed or extra-ordinary expenditure is incurred to enable the vessel to complete it's voyage. A good example of a general average sacrifice would be jettisoning cargo to help the vessel to re-float when running aground. An example of generalaverage expenditure in the same vessel grounding would be employing salvage tugs to help the vessel re-float. These days instances of general averag are rarer as modern technology and higher operating standards mean vessels are much safer but they do still happen.

How does general average work?

If a general average situation arises the ships owner will normally appoint a firm of average adjusters to collect the general average contributions from all the parties liable within a general average claim. The adjusters work out how much each party has to pay based on the total value of the property rescued and the values of the property sacrificed and any expenditure to save the rescued cargo and vessel.

This process takes a considerable period of time and as such a general average bond is usually sought in the interim from those liable before cargo is released. This general average bond is effectively a promise to pay whatever contribution is assessed, backed up by a general average guarantee form a bank or insurance company.

It is important to remember that the bond covers whatever contribution is assessed and is in relation to the cargo saved and not the value of your cargo on board.

If you need to know more?

We would strongly recommend if you are involved in moving cargo by sea that you understand general average and we would also recommend discussing this with your insurance company. Whether you are a shipper, manufacturer or freight forwarder you can all be caught out by general average if you are not ensuring that the cargo you move by sea is insured.

Cargo Insurance Services have volunteered their services to assist those customers who do not have a thorough understanding of general average and can be contacted through their website or on 0161 498 4908.