What is General Average?

According to Allianz Global Corporate & Specialty, cargo related accidents are the most common type of maritime incident and the numbers are increasing.  Statistics show that importers will be involved in a General Average claim once every 8 years.

This is a huge fact that importers, carriers, and other shipping key players cannot ignore because it could potentially affect their business. One of the principles involved in this type of cases is the General Average.

According to Duhaime’s Law Dictionary General Average refers to “a principle of maritime law where in the event of an emergency, if cargo is jettisoned or expenses incurred, the loss is shared proportionately by all parties with a financial interest in the voyage”.

The origins of this ancient principle go back to the great body of law of the Island of Rhodes, circa 800 BC (known as the Lex Rhodia).

Later, the General Average was formally codified into the York-Antwerp Rules, in 1890. Since then, it has been updated several times, with the most recent update being 2016.

The York-Antwerp rule states “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.”

How could General Average affect your operations?

If the General Average principle applies to a situation that involves your containers and it’s content, you could face the loss of the cargo or delays in the delivery. If the owner of the cargo does not have Marine Cargo Insurance, the cargo will not be released until the owner post a cash bond. If there is cargo insurance, the insurance company put up a guarantee.

The percentage that every party must pay is based on the total value of the ship and the cargo onboard. The process of a General Average claim could take around 5 years. At the end of this period, the importers must pay their contribution.

Sources:

http://shippingandfreightresource.com/what-is-general-average/

http://shippingandfreightresource.com/what-is-general-average/

http://www.duhaime.org/LegalDictionary/G/GeneralAverage.aspx

https://traderiskguaranty.com/trgpeak/general-average-means-importers/

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