Ocean Shipping General Average: What is it and how do you protect your cargo?
There are countless scenarios in which general average might be declared. Examples include if a ship is caught in a storm and the captain needs to jettison cargo to lighten the load, or if the ship runs aground and the crew needs to salvage part of the cargo – these would both be considered general average situations. At FGN, we have also worked through an instance where a fire broke out on a ship and general average was declared to help cover the losses.
So what happens when general average is declared? Typically, the captain will appoint an adjuster to assess the losses and determine how much each stakeholder owes. The adjuster will consider a number of factors, such as the value of the ship and cargo, the amount of cargo that was sacrificed, and the cost of repairing the ship. Once the adjuster has determined the total loss, each stakeholder will be billed for their calculated share.
There are obviously pros and cons to the general average principle, let’s dive into a few of these:
Pros of general average
- It encourages captains and crews to take all necessary steps to protect the ship and its cargo. Knowing that they will be reimbursed for any losses they incur, captains and crews are more likely to take risks to save the ship and majority of cargo in an emergency.
- It spreads the risk of loss among all stakeholders. Rather than having one party bear the entire loss, general average ensures that everyone involved in the sea venture shares the burden equitably whether your cargo was impacted or not.
- It is a well-established and widely accepted principle of maritime law. This means that there is a clear and predictable framework for resolving general average claims.
Cons of general average
- It can be complex and time-consuming to assess and settle general average claims. This can lead to long delays in the release of cargo (sometimes over a year!) and additional costs for all stakeholders.
- It is a financial burden for shippers, especially those who have lost cargo in the general average situation, but also for those who did not experience a loss.
Overall, general average is a necessary evil in the unpredictable world of ocean shipping. So how can shippers protect themselves from a potential general average situation?
The best way to protect yourself from costs associated with general average is to purchase cargo insurance. FGN can help match your shipments with the right insurance that will cover the value of your cargo in the event of loss or damage, including loss due to general average.