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What is General Average?
What is General Average?
General average is a maritime law principle that requires all parties involved in a cargo voyage to share in cargo losses due to a voluntary sacrifice made to save the ship and additional cargo from a common peril.
This principle is based on the idea that since all parties benefit from the successful completion of the voyage, they should all assume some of the risks. All parties bear a proportional share of the costs of preserving the ship and cargo in an emergency event or other extraordinary situation.
General average is invoked when there is a potential for catastrophe. Some circumstances in which a general average situation could arise include:
- When cargo is jettisoned overboard to lighten the ship in a storm
- When the ship is damaged, in order to save the cargo
- When the ship is intentionally grounded to prevent it from sinking
- When salvage costs are incurred to save the ship and cargo from peril
General average can be a complex and expensive process. It requires obtaining the value of the ship, the value of the cargo, and any other interests involved with a specific voyage. However, since it’s in the best interests of all parties involved, it’s an essential step to mitigate potential financial burdens.
Cargo owners are responsible for a portion of the total cost of the general average in proportion to the percentage of the total value of the voyage that their owned cargo represents. In addition, to have surviving cargo released, cargo owners must provide a financial guarantee, such as a surety bond. Marine cargo insurance typically covers both the cargo owner’s proportional cost in the general average and provides for the required financial guarantee to release their goods. It is highly recommended that cargo owners secure cargo insurance and that logistics service providers offer to place cargo insurance on each and every shipment.
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