While the concept of General Average (GA) is widely utilized and is as old as maritime transport itself, it is a commonly misunderstood process. Insurer TT Club has published a new guide to help shippers and forwarders understand the concept.
Its application as a result of a maritime accident often takes shippers (beneficial cargo owners, BCOs), and sometimes forwarders by surprise. Especially those without adequate cargo insurance.
GA’s complexities, owing to the amount and variation in value of cargo onboard modern-day large container ships, 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,” Yarwood said.
“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.”
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 declares it, as well as the process of declaration and the appointment of a GA adjuster. It goes on to outline the role of the adjuster 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.
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 effecting any of their cargoes.
The guide can be downloaded for free here.