We have all seen pictures of cargo vessels on fire, damaged from collisions or stormy weather or high and dry on a reef.
These are not isolated events. The oceans are vast dangerous places and accidents are far from uncommon occurrences.
When a vessel is in peril due to a misadventure or cargo hazard, it can put both the ship and all cargo on board at risk of total loss.
An event like this can lead to a declaration of General Average by the vessel's owners, charterers, or operators.
The principle of general average is essentially where some of the cargo/containers on board are sacrificed to save the entire vessel and remaining cargo. The cost (losses suffered) of this sacrifice is shared amongst the parties involved in the voyage including the vessel owners and cargo owners. The cost contributed by each party involved is usually a percentage of the total value that has been saved by the sacrifice.
Depending on the nature of the event, this can be a very costly exercise. A cargo owner will be required to provide security in the form of an average bond or guarantee in respect of their contribution to an Independent General Average Adjuster who manages the collection and distribution of funds to the organisations conducting salvage operations. Provision of this security is required prior to release of their cargo for delivery.
An ocean bill of lading will contain a clause specifically relating to general average which binds the shipper, consignee, or cargo owners to contribute to the salvage. The good news is that virtually all Marine Insurance Policies cover these General Average Contributions and associated claims. The Insurer provides the security required by the General Average Adjuster to ensure cargo is released without further delays.
Uninsured cargo owners are normally required to submit a cash bond or bank guarantee to secure the release of their cargo.
Always insure your cargo. General Average is just one of the many financial risks that Marine Insurance covers.
