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- What Is General Average?
- What Is The History Of General Average?
- What Is The Role Of General Average In Shipping?
- What Are The Principles Of General Average?
- When Is A General Average Declared?
- Who Declares General Average?
- Why Declare General Average?
- What Is The General Average Process?
- Is The General Average Process The Same When Cargo Is Booked Via A Freight Forwarder?
- What Events And Expenditures Are Likely To Be Involved In A General Average Loss?
- What Is General Average Security And Why Is It Needed?
- What Do The Instructions To Collect General Average Security Include?
- Who Is An Average Adjuster And What Is Their Role In General Average?
- What Is The Typical Bill Of Lading Terms On General Average?
- How Does General Average Impact Importers And Exporters?
- Is There A Time When General Average Is Not Used?
- What Is The Difference Between General Average And Particular Average Loss?
- Is General Average Independent Of Insurance?
- Why Is Marine Cargo Insurance Important During Ocean Shipping?
- How Much Does Cargo Insurance Cost?
- What Are Some Examples Of General Average Events?
- Is General Average Applicable To Airfreight?
What Is General Average?
General average is a policy that takes the form of an agreement between the shipowner and cargo owner in shipping.
It is based on the principle that the shipowner is only shipping because of the availability of the owner’s cargo.
The principle further states that an intentional sacrifice or expenditure is subject to contribution by all parties in the voyage.
The sacrifice and expenditure in use aim at providing safety for both individuals on the ship and the cargo against unforeseen contingencies.
As a result, the general average attracts various regulations and demands.
For instance, in case of an accident or a loss, the agreement stipulates that each party contributes to the costs associated with the accident.
What Is The History Of General Average?
The General average principle dates back to 1890 after an official recognition and integration into the York-Antwerp rules.
It was to facilitate international uniformity when it comes to shipping activities.
General average addresses constraints that shippers encounter when shipping internationally. These constraints are a result of the laws imposed on different countries concerning shipping requirements.
However, with a general average, these constraints are averted.
Moreover, rules that govern the general average are subject to revisions. The most recent revisions being those of 2004.
The rules state that the general average act enacts when there is an extraordinary sacrifice or expenditure.
Which helps enhance the safety of the cargo and individuals.
These sacrifices must also be intentional and reveal plausible reasons as to why to enact upon them.
Additionally, the general average was initially part of the maritime law. Today, it is categorized alongside the Admiralty law.
What Is The Role Of General Average In Shipping?
General average displays the following roles upon enactment;
- It ensures the individuals in the shipping vessel are safe, and in case of an accident, they are well compensated.
- General average further ensures your cargo is safe from damage and loss.
In case of damage and loss of cargo during shipping, the cargo owner is also compensated.
Additionally, damages and losses experienced by both the ship and cargo are divided among the participating parties.
Thus, the costs incurred are divided amongst the ship owners and cargo owners.
Therefore, the general average in shipping mainly facilitates shipping for cargo and ensures safety for the cargo, crew members, and the shipping vessel.
What Are The Principles Of General Average?
General average bares the following principles:
Principle Of General Average.
This principle postulates a sacrifice put forth to ensure the safety and benefit for all in the ship. However, the contribution to this sacrifice comes from all parties involved during shipping.
The Sacrifice And Expenditures Involved In Shipping Must Be Extraordinary.
There must be concrete actions that jeopardize the safety of the vessel and its components.
These actions satisfy the criterion for extraordinary.
Example, when a ship experiences mechanical damage while on the voyage, it is subjected to peril; as a result, general damage applies.
However, actions that are enacted to bring the vessel to safety are not termed as extraordinary. As a party in general average, you need to understand that general average applies to only extraordinary situations.
It includes machinery breakdown, heavy weather, collision, and any other situation that results in the detention of a ship at the port.
- General average mandates that the amount of expenditure in general average should be equal to the expenses incurred.
Due to following damage or accident of ship or cargo.
- All rights governing the general average must be fully adhered to. It includes the rights of the shipowner and protection rights under the contract of carriage.
When Is A General Average Declared?
General average is declared when sacrifices and expenditures help avert impending danger to the ship or cargo.
These sacrifices are enacted upon in the event there are dangers such as storms, fires, mechanical breakdown, or any other scenario that calls for sacrifices.
Generally, four conditions satisfy the use of the general average. These are;
Offloading A Ship To Reduce Weight
It involves actions such as offloading a ship to reduce its weight and facilitate floating. Thus, cargo may be lost into the sea to salvage the ship and part of the cargo.
General average applies to a ship exposed to danger, such as sinking into the sea. Thus, both cargo and the ship are subject to getting lost in the sea.
Sinking ship With Cargo
It involves incurring expenses to obtain machinery or materials used to facilitate the ship’s safety. Such includes purchasing tags to help refloat a sinking ship, storage costs at nearby ports of refuge, and even transport costs to the ports of refuge.
Actions That Facilitate Safety For All In The Ship
It is also known as common safety. Thus, any actions implemented to protect all parties in a ship and facilitate their safety call for a general average.
Thus, the actions serve the interests of the ship, cargo, and crew members.
Who Declares General Average?
The general average adjuster declares general average. The adjuster assesses loss and damage and approves an general average contribution.
Why Declare General Average?
General average is beneficial to parties involved in shipping, thus the shipowner and cargo owner.
The general average allows the shipowner to enact necessary measures to salvage the ship and cargo.
It might demand the shipowner to reduce the cargo by jettisoning some cargo into the sea. However, with an average general agreement in place, any expenses or sacrifices are due to compensation.
A calculation is done to determine the expenses used during the time of peril to salvage the ship. Its contents include the crew members.
The shipowner and the cargo owner contribute to settling the expenses and losses incurred during the incident.
Therefore, a general average is crucial in helping settle the losses and costs accrued following an unavoidable circumstance that poses a danger to the ship.
Generally, the general average helps ship owners and cargo owners cater to reparations from shipping accidents.
What Is The General Average Process?
The general average process commences upon a declaration of general average on a shipping vessel following an incident leading to peril.
After that, two documents must be signed by the cargo owners and the cargo insurers. These are the average bond and the average guarantee documents.
Cargo owners sign the average bond documents, and the cargo insurers sign the average guarantee documents.
These documents assurance that the involved party is mandated to pay the contribution assessed by adjusters for the general average.
On the other hand, ship owners are backed up with a possessory lien on cargo. It acts as a general average security for all parties on the adventure.
The ship owners are thus mandated to collect the possessory lien for all parties.
It includes cargo interests for the cargo in sacrifice under the general average act.
The adjuster then collects and works on processing the securities presented as soon as possible.
It is until these securities are finally processed that they will realize the cargo to their final destination.
Delays usually occur when the securities take time to be presented to the adjusters. Therefore, to evade such delays, proper communications and updates to adjusters are crucial.
For insured cargo, the process is swift.
The insurers are aware of the requirements and readily avail the security documents for processing to commence.
After that, insurers make necessary payments to the general average.
For uninsured cargo, the process is a little complicated.
Cargo interests are calculated, and the adjuster further subjugates cargo owners to a certain amount as a deposit for the general average.
This amount is usually a percentage of the cargo value. The general average adjuster then makes final calculations on the exact amount of contribution for the general average.
The general average adjuster then calculates the general average expenditure for the cargo.
It is the cost incurred during the adventure by involved parties. After that, the general adjuster makes payment of allowances concerning the York Antwerp Rules.
The amount for contribution is then calculated concerning all the property involved—credit for all expenses accrued in general average, including losses.
Finally, the involved parties pay or receive the stipulated amount in general average following the final general average adjustment.
Is The General Average Process The Same When Cargo Is Booked Via A Freight Forwarder?
Yes, the process of general average follows the same procedure.
However, the adjuster works hand in hand with the freight forwarder to ascertain the real owner of the cargo.
After that, the process continues. The only disadvantage is that it is time-consuming and might result in delays since the freight forwarder has to seek the cargo owner.
Only then will the adjuster present the final general average to the parties involved to release the cargo to the destination.
First and foremost, the general average adjuster affirms whether a cargo is cleared for general average.
Afterward, the adjuster collects the necessary documents as outlined in the process above.
He then uses the available information to calculate the expenses and losses incurred regarding the general average.
The amount that each party is further determined and made available to the stakeholder parties.
What Events And Expenditures Are Likely To Be Involved In A General Average Loss?
The following events are the main causes for losses and result in expenditures contributing to the general average loss.
- Jettison (This involves throwing off some cargo into the sea or ocean to make the ship light).
- There is also discharge and re-loading cargo.
- Loss and damage associated with the use of fire extinguisher
- Towing services. It applies to ships exposed to mechanical breakdown.
- Salvage services. It includes help from other vessels or property.
These events and expenditures are mostly experienced in a general average loss.
Loss And Damage Associated With Fire
What Is General Average Security And Why Is It Needed?
The value of goods the shipowner withholds while the cargo is undergoing adjustment for the general average to determine its contribution.
It is addressed as a lien for the cargo. It acts as a payment to the shipowner as the cargo is under process for general average.
Requirements for general average security consist of a list of documents and cash deposits for cargo owners with no insurance policies.
For cargo owners with insurance policies, they produce an insurance guarantee document that serves as security.
It can also be in the form of an average bond document signed by involved parties.
General average security ascertains that the general average payments for losses and expenditures are paid to the shipowner.
It also gives the general average adjuster room accurate calculations to give correct figures for the general average contribution.
What Do The Instructions To Collect General Average Security Include?
If owners require adjusters to collect securities from them, then they should follow the instructions below:
- They should send a draft message to consignees with a brief of the casualty and security requirements.
- Owners should define the forms to be in use and give details or security in need.
- The reporting procedures should also be well elucidated
- Lastly, the agents confirm to the owners that they have received the needed documents for collecting security.
For the documents mentioned above, they should adhere to the following instructions:
The Average Guarantee Document
The form should conform to the required structure by the general average adjuster and should not in any way be altered.
If an insurer wants to use their desired document, consultations with an adjuster should first be made.
Full details concerning the description and identity of the cargo, including container numbers, should also be made available.
Ports of loading and discharge need also be indicated.
Full details of the insurance company should be availed. This makes it easier for the adjuster to follow up with the insurance to settle the general average.
Ensure that the insurance company makes the signature to this document. The broker or consignee’s signature is not applicable in this case.
The Average Bond
The receiver should sign it.
The agent should affirm the full details of the cargo, and consignees are provided.
Additionally, the agent ensures that commercial invoice is readily available in case it is required.
These majorly apply to the uninsured cargo. The adjuster, therefore, requires a deposit amount that is usually a percentage of the value of the cargo.
The adjuster, therefore, ensures to produce an open invoice to the cargo owner.
Deposit receipt should be completed carefully.
A photocopy of the deposit receipt is detained for filing.
For the depositor to get a refund and collect his cargo, he must produce the original deposit receipt. It happens after he has made the required general average contribution.
Lastly, any additional requirements and instructions to the depositor are conveyed to the owner.
Who Is An Average Adjuster And What Is Their Role In General Average?
An average adjuster is someone who specializes in conducting general average assessments and calculations.
He prepares the claims and determines each party’s contributions to help settle losses and damages to cargo and ship.
Therefore, it is best to sort help from an average adjuster in the event of a general average claim.
What Is The Typical Bill Of Lading Terms On General Average?
The bill of lading terms for the general average are as follows;
General average adjustment should follow the York Antwerp rules as revised despite the choice of port.
The adjustment applies for all types of goods, whether or not on deck, and this extends to animals.
General average also accounts for all goods, including those in italics that the carrier takes no responsibility for.
The cargo owner should present a cash deposit or other security requirements to the adjuster before making the delivery of the cargo.
If the shipowner delivers the good without claiming for the average bond and other security, he caters for the general average contribution.
The general average contribution is payable according to the York Antwerp regulations unless otherwise stated.
How Does General Average Impact Importers And Exporters?
General average affects importers and exporters in the following ways:
They suffer delays associated with the process of general average.
They may end up losing part or all of their cargo. The contributions for the general average sometimes might be extreme.
They experience extra costs associated with import and export excises.
These include fines, penalties, or reverse charges from clients in need of the supplies from the cargo.
The effects are grievous in an LCL shipment.
If one of the cargo owners fails to adhere to the general average requirements, the whole shipment is detained.
These further result in inconveniences caused by delays.
Cargo owners suffer from expenses, especially when the calculated general contribution exceeds the value for their cargo.
They end paying a higher value than the value of their cargo, resulting in a loss.
Additionally, for a large cargo, the owner is bound to suffer more loss. An average bond is required before the release of the cargo.
Average bond mandates that security is calculated as a percentage of the value of goods available.
As a result, a cargo owner with a large shipment bears a significant value that exudes loss on his end.
Loss of Cargo
Is There A Time When General Average Is Not Used?
No, there are some situations and cases that do not justify applying the average general principle.
These situations include:
Suppose damage or loss of cargo is caused by an individual directly. In this case, the individual is held accountable for the loss.
If the ship is involved in an accident that leads to loss and damage of cargo, then the general average does not apply.
Lastly, you cannot use a general average if the ship and cargo are not directly exposed to danger that leads to peril.
The loss and expenses experienced should portray an act of saving the ship and cargo.
If this is not the case, the general average does not apply.
What Is The Difference Between General Average And Particular Average Loss?
General average and particular average loss might qualify as marine insurance plans for partial losses. But they have aspects that differentiate them from each other.
General average is a loss that results from a general average act.
While particular average losses are unforeseen losses that result from accidents that lead to peril.
General average loss and particular average loss differ in the following ways;
The general average loss is beneficial to all interests.
While the respective average is for any of the interests in connection with the loss.
The general average loss is voluntary, while the particular average loss is majorly accidental.
The general average loss is shared by all those who are partakers in the general average act. While an insurer pays a particular average loss.
General average loss includes sacrifice and expenditure, which contribute to the loss, while particular average loss is caused by damage or loss.
The cause of general average loss does not qualify for insurance, while the cause for particular average loss can be insured.
Is General Average Independent Of Insurance?
No, the general average exists as a separate entity from marine insurance. The general average act protects the cargo, ship, and crew members from the loss of a voyage.
It is upon the owner to take an insurance plan that will enable him to pay the calculated general average contribution calculated by the adjuster.
Why Is Marine Cargo Insurance Important During Ocean Shipping?
Shipping is exposed to many dangers that can cause damage or loss of cargo during the journey. Insurance policies help the owners of cargo recover or rather get compensation due to these losses or damages.
How Much Does Cargo Insurance Cost?
Cargo insurance is based on a percentage of the value of cargo that is under insurance.
What Are Some Examples Of General Average Events?
- Acts of God or unavoidable circumstances such as storms
- Latent defects in the ship’s hull or machinery or machinery breakdown on the ship
- Un-seaworthiness of the vessel. Sometimes the ship is not able to withstand the sea.
- In case of criminal acts or negligence by captain or crew
- Perils, danger, and accidents at sea
Is General Average Applicable To Airfreight?
General average is not yet incorporated for airfreight. Nonetheless, some events and circumstances qualify for a general average policy.
It includes scenarios that prompt an aircraft to jettisons to keep it flying up the sky.
Other events that call for the application of general average in airfreight include;
- When a plan engages voluntary belly landing for safety
- When a plane calls for help in the event, it crashes in the sea
- Airplane making an emergency landing at a nearby port for repairs.
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