While the concept of General Average (GA) is widely utilised and is as old as maritime transport, it is a commonly misunderstood process.
Due to a maritime accident, its application often takes shippers (beneficial cargo owners, BCOs) and sometimes forwarders by surprise. Especially those without adequate cargo insurance. Due to the amount and variation in value of cargo onboard modern-day large container ships, GA’s complexities can be baffling. The additional financial burden and extended delays in cargo delivery are also frustrating.
“This situation gave TT and our partners ample motivation to create one of our StopLoss advisory publications on the issue, as there is obviously a need for a clear explanatory guideline,” said Mike Yarwood, MD of loss prevention at TT.
“Experience shows that the system is an effective means of dealing with large and complex casualties. However, with container ships now capable of carrying in excess of 23,000 TEU, GA adjustment is likely to be an extremely complex calculation, and the administrative burden placed on the interested parties is significant.
GA is a globally applicable legal principle of maritime law by which extraordinary additional expenditure incurred during a voyage because of a defined incident can be recovered from all parties involved in the ‘maritime adventure’ on a pro-rata basis against the ‘arrived’ value of goods and other property aboard.
“The concept of ‘maritime adventure’ sounds quaint,” comments Yarwood. “But describes the total group of stakeholders involved in the voyage. GA is the system whereby the ship owner can recover the extraordinary expenses that are necessarily incurred following some maritime incident in protecting the cargo and/or preserving the ship. The costs are apportioned between the ship, its bunkers (sometimes owned by a charterer of the ship) and stores, and the cargo (including the containers) in proportion to their value.”
Efficiently managing matters
The StopLoss publication is directed at an audience of freight forwarders, NVOCs and BCOs, explaining in detail the circumstances in which GA can be declared and who declare it, as well as the process of declaration and the appointment of a GA adjuster. It outlines the adjuster’s role, including how bonds and guarantees are assessed and lodged and how uninsured and LCL (less than container load) cargo is dealt with.
“It is essential that all freight forwarders understand GA to efficiently manage matters and set realistic expectations for their clients and represent their interests effectively. Equally, BCOs need to understand their obligations, particularly where they have chosen not to purchase cargo insurance,” concludes Yarwood.
“As such, a section of the StopLoss is dedicated to the actions required by each party and includes a useful checklist of preparations each can make in anticipation of a GA declaration affecting any of their cargoes.”