General Average – an introduction

This guest post about General Average is written by Alexander Robertson from Robertson’s Cargo Consultancy (Pty.) Limited

GENERAL AVERAGE

In the marine insurance industry claims are divided into two categories, particular average and general average.  General average claims relate to losses directly related to a sacrifice made as a result of a catastrophe at sea, all other losses are known as particular average losses.

The definition of a general average is:

rena-breakup2Rule A. “There is a General Average Act, WHEN and ONLY when, any EXTRAORDINARY SACRIFICE or EXPENDITURE is INTENTIONALLY and REASONABLY made or incurred for THE COMMON SAFETY for the purpose of PRESERVING FROM PERIL the property involved in a COMMON MARITIME ADVENTURE”.

There is a lot of misconception that for a general average to be declared, cargo has to be jettisoned.  This is not the case. There can be any type of incident where the master of the vessel has to take action to make an extraordinary sacrifice for the common safety of the vessel, and all that is within her.

The extraordinary sacrifice could be having to cut a hole in the side of the ship and then fighting a fire through that hole.

Any cargo which may be damaged as a direct result of this fire fighting will be considered an extraordinary sacrifice, but that which is burnt from the fire will not be considered a sacrifice but will be a particular average claim against insurers.

There can also be the cost of running the engines at high speed to remove her from being aground. The extra fuel which is used plus the extensive damage which this can cause the engines for running at these high speeds will all be considered as a sacrifice in terms of a general average as if it were not for the engines running at the high speed using the excessive fuel plus the resulting damage to the engines, the voyage would not have been saved.

It must be remembered that the voyage has to be saved.  In the event of a shipping sinking no general average will be declared as the voyage was not “preserved from peril”.  Should there have been the successful salvaging of cargo from the vessel prior to her becoming a total loss, there can be declared a salvage award to the salvors as was the case with the “MSC Napoli” back in January 2007 when she was purposely run aground to save her.

Cargo was discharged with the help of barges and salvors.   There was the successful salvaging of a large portion of the cargo.  The ship later sank off the coast after splitting in two but the salvors claimed a 60% salvage award for the successful salvaging of the cargo.

Whenever a general average is declared there are numerous documents which need to be completed by the cargo owners.  No cargo will be released to any party without the authorisation from the ship’s agent or owners representative at the following ports of call.

The following is an extract from the manual which I have written:

Image for insurance claim formGENERAL AVERAGE PRACTICE

  1. If a vessel arrives at port having made a General Average Act during the voyage the vessel is said to have arrived “UNDER AVERAGE”.
  2. The Master of the vessel will advise the owners or ship’s agents as soon as possible to allow for arrangements to be made for the discharge of cargo and the necessary security for General Average Contributions to be obtained from the ‘cargo owners’. NOTE:  Until adequate security is lodged to the satisfaction of the ship’s owner(s) there will be a lien on the cargo.
  3. The ship’s owner(s) will appoint an Average Adjuster who will make a rough calculation in order to estimate the percentage of contribution which the ship’s owner(s) may demand.
  4. Surveyors may be called in by the ship’s owner(s) and/or cargo underwriters to assess any damage to the cargo and to protect the interests of the various parties. NOTE: The damage to cargo must be properly assessed as this will form an allowance in the actual General Average adjustment.
  5. If the General Average proves to be small the ship’s owner(s) may dispense with formality and adopt one of two options:-

(A) Approach the Hull underwriters and obtain agreement from them to settle without contribution from other parties.  In turn, the Cargo underwriters will settle any General Average sacrifice under direct liability.

This practice is one of pure convenience which is based on economies of scale and which has no legal sanction.

(B) The ship’s owner(s) may release the cargo under a General Average GUARANTEE secured from cargo insurers

There are many forms of guarantee but, in its most basic form,  a guarantee merely states that the insurers will guarantee the due payment to the ship’s owner(s) of any contribution for general average and/or salvage and/or any other charges which were properly incurred and chargeable against the cargo in return for the immediate delivery of the cargo to the consignees. The vessel’s name, voyage and date, and a brief description of the goods insured will be included in the guarantee.

NOTE: It is not required to include the value of the goods or any monetary amount in the guarantee.

Should the underwriters find that the cargo has been insured for less than its contributory value to the General Average, the underwriter may, in turn, require counter guarantees in respect of the difference from the cargo owner.

  1. In most cases of General Average the ship’s owner(s) will release the cargo on payment by the consignees of a General Average Deposit under a General Average Bond.  The amount of the deposit will usually be a percentage of the actual net value of the property at the termination of the venture. See Rule XVII & XXII of the York Antwerp Rules.
  2. In the event of there being more than one General Average incident the latest incident will be the first to be adjusted.

Image for General Average Forms

About the Author of this post : Alexander Robertson has over 35 years Maritime Insurance experience including Lloyd’s of London SA cargo survey and claims agent. He is also a member of the Maritime Law Association of SA and currently the only marine insurance expert who is accredited with TETA as both an assessor and moderator.  He has written the only cargo insurance workshop manual which is endorsed by the Insurance Institute of South Africa as well as the South African marine insurance market.

He is also a fully accredited trainer by the SAICC in Incoterms ® 2010 rules.  His company Robertson’s Cargo Consultancy (Pty) Ltd has been established for 6 years  being involved in cargo insurance and Incoterms training and consultancy work which includes recoveries from liable carriers and surveying of damaged cargo.

If you have any useful and educational topics or experiences that you would like to post on this blog, please email it to me.. 

What did you think of the above article..?? Comment below..

13 comments on “General Average – an introduction

  1. The cargo owner/responsible party cannot just abandon the cargo to get out of paying their contribution. The average adjuster will continue to hold the liable party responsible for their general average contribution.

  2. Icarus says:

    Dear Sir,

    many thanks for the well explanation, does it mean cargo owner does not need to be responsible for the general average if they decided to abandon cargo? many tks

    Icarus

  3. ASHISH KUMAR ROY says:

    Nicely explained.
    Sir can u enlightened us about, what is allowable and non allowable general average losses???
    Thanks in advance

  4. Sérgio Tinoco says:

    Many thanks for your explanation that made me take a second look to insurance contracts we sign for the shipment of our goods.
    Never heard about this before.
    I’ve just started dealing with sea shipments and sounds awkward that even today a vessel voyage is regarded as an adventure!
    Is there any statistical information on how often these events occur in, for instance, a cross atlantic route?

  5. Shyamtanu Banerjee says:

    Thanks a lot for the clear explanation, much appreciated.

  6. DEVRAJ says:

    It is very useful. In a very simple language it is explained . Even a layman get a fair idea about the general average. would like to thank the author. thanks a lot

    1. Thanks Devraj, credit to Mr.Alexander Robertson, the author of this post..

  7. Yousuf says:

    Very interesting post, thanks for sharing valuable information. Still we are not sure what will happen in the event if vessel sunk. For e.g. in the case of MOL COMFORT how cargo owner will claim their loss?

    Your kind and valuable comments will help us to understand more.

    Thanks in advance!

  8. The article contains very useful information for those who are directly connected with international shipping business. Thanks

  9. Cos says:

    I have just experienced this first hand with a shipment from India.
    We had shipped a small LCL consignment on behalf of our client. Halfway to Singapore the vessels engine blew up causing the vessel to become adrift. A special rescue operation was arranged to save the ship and its cargo and the captain claimed General Average.

    The information provided above is spot on, this is exactly what took place.

    In my case our client did not have transit insurance and was forced to pay Average Bond quantified at 13% of the CIF value.
    My client was lucky in this instance as his cargo was of low value , His Average bond came to USD 700.
    If the shipment was valued at USD 50,000 he woudl have had to pay USD6000.00

    Please reiterate to your clients that transit insurance is very important and general average is REAL !!!!

    Great Post

    1. Thanks for sharing your practical experience with us Cos.. Shipping is unpredictable business and such things are very real and could happen to anyone anytime and it is always good to be sufficiently covered..

  10. vaibhav sharma says:

    It’s very useful information for us………Thanks..

  11. Michel says:

    Very interessant post. Thanks

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