General Average: Essential Protection for Cargo at Sea

Cargo safety isn't always guaranteed. Especially in the event of severe weather, mechanical failure, or other emergencies, the captain may resort to sacrificing portions of the cargo or the hull to preserve the vessel. The term "general average" often evokes concern and skepticism.

As a leading third-party fulfillment service provider, Chinadivision will demystify general average and explain how our services can protect your business from unforeseen maritime incidents.

What is general average?

General average is a centuries-old principle in maritime law. It is a unique insurance concept whereby if a shipowner voluntarily makes a sacrifice to protect the ship and its cargo from common risks, the costs are shared proportionately by all parties with an interest in the voyage (shipowners, cargo owners). This may include jettisoning cargo to lighten the vessel, employing emergency towing services, or incurring other additional expenses to avert a greater disaster.

When a vessel encounters a real and significant common danger (such as fire, grounding, collision, or severe list caused by inclement weather) during a maritime voyage, and the captain intentionally and reasonably makes extraordinary sacrifices (such as jettisoning cargo) or pays additional expenses (such as salvage) for the common safety and to rescue the vessel, cargo, and other property on the voyage, the resulting sacrifices and expenses should be shared by all beneficiaries (shipowners, cargo owners, etc.) in proportion to the value of the property salvaged.

Typical Scenarios of General Average

Jilting: Throwing cargo overboard to stabilize the distressed vessel.

Fire onboard: Damage caused by firefighting efforts to save the vessel and remaining cargo.

Breakdown or Grounding: Costs incurred to refloat a stranded vessel.

Port of Refuge Expenses: Costs associated with moving to a port for emergency repairs or assistance.

Salvage Operations: Expenses paid to third-party salvors who salvage the vessel and cargo.

While these actions are not accidents, they are "reasonable sacrifices" made for the common safety, and therefore the associated costs should be borne by all cargo owners.

Why is general average such a pain point for shippers?

Unexpected Expenses

Even if your cargo is intact, you may still be legally obligated to pay compensation. This can be a significant, unforeseen expense.

Cargo Detention

The shipowner will not release your cargo until you pay the premium (or your insurer provides a guarantee). This can cause costly delays in your supply chain and impact delivery times for your customers.

Complex Calculations

Calculating the correct contribution is a lengthy and complex process, often handled by designated "average adjusters." This can take months, even years, and leave you stranded.

Tight Cash Flow

Without the right shipping insurance, you may be required to pay a large cash deposit before your cargo is released. This can severely impact your business's cash flow.

Why is General Average Important?

For businesses engaged in international shipping, general average can have significant financial implications. Imagine a ship encountering severe weather, and the crew is forced to abandon some cargo to save the vessel. Under general average principles, all cargo owners on board, including those whose cargo remained intact, will bear a share of the loss. In this situation, purchasing comprehensive marine insurance becomes crucial.

Marine Insurance and General Average

Marine insurance, also known as cargo insurance, shipping insurance, or maritime insurance, provides financial protection against loss or damage to cargo while in transit at sea. It covers a variety of risks, including but not limited to theft, piracy, natural disasters, and, importantly, general average contribution.

What is the difference between marine insurance, shipping insurance, and cargo insurance?

These terms are often used interchangeably, but generally speaking:

Marine insurance is the broadest term, covering risks associated with maritime transportation, including the vessel (hull and machinery), cargo, and liability.

Cargo insurance is a specific type of marine insurance that focuses solely on the cargo being transported. Transport insurance is a more general term that applies to any mode of transport (air, sea, road, rail), and is intended to protect the value of the cargo. For sea transport, cargo insurance is generally the default.

How can Chinadivision help you with general average?

Expert Guidance on Cargo Insurance

We educate our clients on the nuances of marine insurance and guide them in choosing the right policy. We help you understand that carrier liability is generally limited and does not cover every possible eventuality, especially general average.

Facilitating Seamless Coverage

Leveraging our extensive network and extensive experience, we can help you customize a reliable cargo insurance policy to your specific needs. Our strong relationships with reputable insurance companies ensure you easily access competitive rates and comprehensive coverage. This ensures your cargo is protected against unforeseen events, including those triggering general average.

Quick Response and Recording of General Average Incidents

If your cargo is subject to a general average incident, our team will act swiftly. If your cargo is insured through us or through your own policy, your insurance company will typically provide general average security (often called a "loss bond"). This security, rather than a cash deposit, ensures the timely release of your cargo, avoiding significant delays and cash flow issues. We will assist you in coordinating with the claims adjuster and insurance company, ensuring that all necessary documentation is processed efficiently.

Reduce Financial Risk and Simplify Recovery

By purchasing appropriate marine insurance, the financial responsibility for your contribution to general average is essentially transferred to your insurance company. The insurance company will handle the complex negotiations with the losses adjuster and ultimately pay your share, allowing you to focus on core business operations. This protection is crucial for maintaining healthy profit margins and protecting against unforeseen losses.

FAQs and User Pain Points

What situations may trigger general average?

Common triggering events include: intentionally admitting water to extinguish a fire, resulting in damage to other cargo; jettisoning part of the cargo or using a high-powered tugboat to refloat after the ship is grounded; and shifting and damaging cargo during an emergency maneuver to avoid a collision. The key is whether the actions are for the common safety and represent a reasonable sacrifice/expense.

Who has the right to declare general average?

The shipowner or its representative (the captain, the ship management company) typically declares general average based on their judgment of the circumstances. The cargo owner cannot declare general average.

Do I still need to pay even if my cargo is not damaged?

Yes. General average is based on shared risk and liability. If your cargo is on board the vessel, you are considered a stakeholder and may be held partially liable.

Does a standard marine insurance policy cover general average?

Yes, most comprehensive marine policies include general average contribution coverage. However, be sure to carefully review your policy details or consult your insurer to ensure adequate coverage.

What happens if I don't have marine insurance when general average is declared?

Without marine insurance, you will be responsible for your share of general average expenses. This can be a significant financial burden and may even impact your business operations.

How can I minimize the impact of general average?

While you can't completely eliminate the risk of general average, choosing a reputable shipping company and purchasing comprehensive marine insurance are key steps. Additionally, partnering with a third-party logistics service provider like Chinadivision can provide additional protection and professional services.

What happens if I don't pay my general average contribution?

The shipping company has an absolute lien to hold your cargo until satisfactory security or cash payment is received. You may be unable to take delivery of your cargo and face demurrage, cargo auctions, or even legal action.

Chinadivision: A Shield Against the Uncertainties of Ocean Freight

As a trusted third-party logistics service provider, Chinadivision offers end-to-end solutions that meet the needs of B2B businesses and e-commerce sellers. Our services encompass warehousing, inventory management, order fulfillment, and crucially, assistance with marine insurance and general average claims.

Why Chinadivision?

Expertise

Leveraging years of experience in the logistics industry, we have a deep understanding of maritime law and insurance regulations.

Comprehensive Coverage

We partner with leading insurance providers to offer competitive pricing and a wide range of coverage options.

Efficient Claims Processing

Our dedicated team ensures quick and easy processing of marine insurance claims, including those related to general average.

Global Network

Our global network of warehouses and distribution centers enables seamless cross-border transportation and delivery.

General average is a complex and critical aspect of maritime trade, and businesses must understand it to protect their interests. By purchasing comprehensive marine insurance and partnering with a reliable third-party fulfillment service provider like Chinadivision, you can navigate the uncertainties of international shipping with peace of mind.

By understanding its mechanisms, purchasing the right insurance, and leveraging Chinadivision's professional fulfillment services, you can mitigate risk while ensuring business continuity and customer satisfaction. Are you ready to secure your cargo and streamline your delivery process? Contact Chinadivision today to learn more about our services and how we can help your business thrive in the global marketplace.