When Is General Average Declared in Maritime Shipping?

General Average is a legal rule where all stakeholders, shipowners and every cargo owner proportionally share the losses resulting from a voluntary sacrifice. The sacrifice is made to save the ship and its crew during an emergency. When a General Average is declared, it is not just an option to pay. It is a must, regardless of whether your cargo was affected or not.

General Average is one of the most important and fair principles in maritime law and must be obeyed by everyone involved. These costs can range from 100,000 to millions per company involved. Understanding when this is declared and having the appropriate protection are vital to your financial stability at sea.

Hence, this article will highlight the main reasons the General Average is declared and how it can affect companies involved.

What Are the Situations When General Average is Declared?

Jettisoning Cargo to Save Sinking Vessel

The most common reason General Average occurs is when a captain intentionally throws cargo overboard, known as jettisoning. Jettisoning becomes necessary to lighten the ship if it is in danger of sinking during a severe storm. By sacrificing some cargo containers, the Captain saves the ship, crew, and remaining cargo from a total loss.

Even if your company’s container stayed safely on the ship, you are legally required to help pay for the containers that were tossed into the sea. These costs depend on what the container contains and the replacement market value. Without protection, you would have to pay the high contribution out of your own pocket before goods are released.

Vessel Stranding or Grounding

If a ship runs into a sandbar or reef, the Captain may declare General Average. The General Average is to cover the extreme costs of refloating the vessel. These costs often include hiring specialised salvage towing, moving cargo to another ship, or intentionally damaging the ship’s engines to force it off the ground.

Refloating a massive container ship can cost 10s to 100s of millions. For example, the Ever Given cargo ship in 2021 became stuck in the Suez Canal and required a fleet of heavy-duty tugboats to free it. The refloating in this case cost around $20 million to $30 million in just salvage fees.

The outcome is a massive, unexpected bill for every logistics provider or importer involved in the voyage.

Fire and Explosions on a Vessel

Fire and explosions are one of the most critical emergencies at sea, leading to a General Average declaration. When a fire breaks out or an explosion occurs, the Captain must take immediate action to save the ship, the crew, and as much cargo as possible. The actions may involve removing a burning cargo container to prevent the fire from spreading or abandoning the ship till help arrives.

The high costs of the emergency response, specialist firefighting teams and vessel repairs are shared by all with cargo on board. The outcome is a complex legal process in which, even if your cargo was on the opposite side of the ship from the fire. You are financially responsible for a portion of the rescue costs.

Engine Failure

If a ship loses power due to engine or mechanical failure, it is at risk of crashing into other ships or nearby areas. In these situations, General average is declared to cover the costs of this emergency towing, port charges and repairs needed to make the ship seaworthy again.

For example, if a ship breaks down during a typhoon near Hong Kong and is at risk of smashing into rocks, the Captain will hire emergency towage to bring the ship to a ‘Port of Refuge‘.

Even if technically no cargo is damaged or sacrificed, the companies linked to the vessel must still share the costs of vessel repair and logistics. Depending on the damage and towing distance, this can also be a high cost for any cargo or logistics company.

Can Insurance Cover General Average Loss?

Insurance is essential for managing and reducing the financial impact of a General Average declaration. Policies like cargo insurance and freight forwarder liability insurance both include General average coverage. In fact, all three standard Institute Cargo Clauses (A, B, and C) fully cover General Average contributions.

Even before the payout, insurance provides a “General Average Guarantee.” This document is vital because shipowners often hold cargo hostage until their financial claims are secured. By providing this guarantee, the insurer ensures your goods are released immediately. Preventing costly supply chain delays and protecting your business from having to provide a massive cash deposit.

Having the right insurance is essential when shipping goods, as any incident could lead to significant General Average financial losses and disruption.

General Average FAQ

Who Decides To Declare General Average?

The Captain of the ship is the only person with the authority to declare General Average. They must decide that the sacrifice was intentional, reasonable, and made for the common safety of the ship and cargo.

 Can My Cargo Be Held If I Don’t Pay?

The shipowner can legally refuse to release your goods until you either pay a deposit or provide a valid insurance guarantee. This can lead to major supply chain delays.

Does Insurance Pay the General Average Deposit So My Cargo Can Be Released?

Yes. When General Average is declared, shipowners often require a deposit before releasing your goods. If you have the right cargo insurance, the insurer provides a General Average Guarantee instead of you paying cash.

This legal document serves as a financial promise to the shipowner. They allow your cargo to be released immediately and keep your business’s cash flow intact while the final costs are calculated.

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To Learn More about cargo and freight forwarder insurance and cover the costs of general average, contact Red Asia Insurance.