Updated on July 18, 2023
When shipping cargo across the oceans, cargo loss and damage can come in various forms. One of the most financially devastating types of cargo loss occurs when General Average is declared. But what is General Average in maritime insurance, and how can cargo owners protect themselves against losses due to a General Average claim?
In this article, we will explore everything you need to know about General Average shipping, including what it means, why it exists, and how you can shield yourself from financial losses due to General Average claims with marine cargo insurance from FreightMango.
General Average is a rule that was introduced in the York Antwerp rules of 1890 and amended again in 1994. General Average is declared when cargo is lost "only if the reason of sacrifice is extraordinary or the sacrifice is reasonably made for the purpose of common safety for preserving the property involved." One example of an instance when General Average would be declared is if a ship capsized due to extreme weather. Another classic example of when General Average would be applied is if a ship's crew has to jettison cargo to lighten a stranded vessel.
When General Average is declared, all participants (including the vessel owner and the owner of any cargo on the vessel) are required to split the financial losses equally. Even if your own cargo were not lost, General Average would still require you to help cover the costs of any losses or damage that fall under the General Average claim.
General Average maritime claims are relatively rare but can often amount to millions of dollars when they do occur. And if your cargo isn't insured, you'll be required to foot this bill yourself.
First and foremost, General Average is intended to protect a vessel's crew. In an emergency where crew safety is at risk, crew members don't have time to decide which cargo to jettison and which to save. General Average ensures that losses are split equally in these situations, so that crew members don't have to worry about financial liability when their safety is on the line.
While General Average can often prove incredibly costly to cargo owners, the rule also offers them some protection. Without General Average, there would be constant disputes over lost cargo and who is responsible for covering the liability of those losses. In some cases, it is impossible to determine the specific owner of lost cargo. When General Average is declared, though, these disputes never arise.
Typically, when General Average is declared, average adjusters appointed by the vessel owner calculate the cost of damages. Once the adjusters determine the total amount of the claim, their focus shifts to calculating each cargo owner's required contribution as a percentage based on the commercial value of the cargo they had on the vessel.
For example, a cargo owner shipping $1 million worth of goods on a vessel where General Average was declared will have to pay twice the contribution of a cargo owner shipping $500,000 worth of goods on that same vessel. Throughout this process, the vessel owner will have a lien on the cargo that is not released until the cargo's owner pays their required contribution.
Two events in recent years underscore the enormous importance of General Average: the Ever Given ship that blocked the Suez Canal for six days in 2021 and the Ever Forward ship that ran aground in Cheasapeake Bay in March of 2022. In each of the events, the ship owners declared a General Average, which required the ocean shippers to contribute to cover the costs of freeing the vessels plus damages.
Marine insurance covers General Average claims. Cargo owners who insure their shipments do not have to pay General Average contributions out of pocket. Instead, their insurer pays the cargo owner’s contribution. However, you must pay your contribution out of pocket if you don't have marine insurance when General Average is declared.
General Average claims can devastate cargo owners who have not insured their ocean freight. Thankfully, FreightMango can ensure you never have to worry about a General Average claim costing your business untold amounts of money. With an industry-leading marine insurance policy from FreightMango, you can completely eliminate your General Average liability while at the same time insuring your cargo against other forms of loss or damage.
To learn more about how a marine insurance policy from FreightMango can reduce your burden and risk, be sure to contact us today!