What is ‘general average’?

General average losses are losses, damage and expenses, which occur as a result of voluntary action taken by the ship’s master/captain in a time of genuine peril when the entire voyage is in danger. The action taken must be for the greater good of all parties concerned with the voyage, and finally, the voyage itself must be saved.

Circumstances may occur during a sailing voyage, when cargo needs to be thrown overboard in order to lighten a ship, which is stranded on a reef. In another situation, water may have to be pumped into the ship’s hold to put out a fire, and this may cause damage to the cargo, which was not damaged by the fire. Alternatively, an engine breakdown may result in the towage of the ship to a port of refuge where repairs could be carried out, and the costs so incurred will be a general average expense.

What are the implications of general average to you?

Cargo, which was not damaged or lost as a direct result of the danger and the consequential action, will be covered by the normal terms of the marine insurance policy. Cargo, which was lost or damaged as a result of voluntary action taken by the ship’s crew will be covered by general average and will result in what is know as ‘General Average Sacrifice’. Those general average expenses and/or sacrifices must be made good to the person/s who incurred such losses, by a contribution levied upon all the parties who have an interest in the saving of the voyage. The calculation of a general average claim may take many months and therefore cargo owners must at the port of discharge, complete a general average bond, valuation certificate or pay a cash deposit before the vessel owner’s will release the cargo to them. These amounts are usually expressed as a percentage of the value of the goods being released.

The contributions due under general average are payable by insurers. Strictly speaking, the liability for the general average deposit remains with the exporter/importer/cargo owner. In, practice however, insurers will sign a general average guarantee to obtain release of the goods at the port/place of destination and settle the contribution directly with the general average adjusters when this amount has finally been calculated by them.