General Average’s old-fashioned surprises

IMAGINE that you sent a parcel by courier, and the delivery truck drove around the corner and crashed into something. You might be surprised to get an additional bill to cover part of the costs of recovering the damaged vehicle. In fact, “surprised” probably would not even be close to fully describing your reaction.

The same principle applies in the strange world of marine insurance, where the concept of “General Average” (GA) is in force. International freight transport insurer TT Club said in a recent statement: “GA is a globally applicable legal principle of maritime law by which extraordinary additional expenditure incurred during a voyage because of a defined incident can be recovered from all parties involved in the ‘maritime adventure’ on a pro-rata basis against the ‘arrived’ value of goods and other property aboard.”

TT noted that while the concept of GA is widely utilised and is as old as maritime transport itself, it is a commonly misunderstood process.

The insurer added: “Its application as a result of a maritime accident often takes shippers (beneficial cargo owners, or BCOs), and sometimes forwarders by surprise – especially those without adequate cargo insurance.”

Going back to the truck analogy, “surprise” is likely to be an understatement.

TT added that GA’s complexities – owing to the amount and variation in value of the cargo on board modern-day large container ships – can be baffling. “The additional financial burden and extended delays in cargo delivery are also frustrating.”

Mike Yarwood, the managing director of loss prevention at TT Club, said: “The concept of ‘maritime adventure’ sounds quaint. But it describes the total group of stakeholders involved in the voyage. GA is the system under which the shipowner can recover the extraordinary expenses that are necessarily incurred following some maritime incident, in protecting the cargo and/or preserving the ship. The costs are apportioned between the ship, its bunkers (sometimes owned by a charterer of the ship) and stores, and the cargo (including the containers) in proportion to their value.”

He added: “Experience shows that the system is an effective means of dealing with large and complex casualties. However, with container ships now capable of carrying in excess of 23,000 twenty-foot equivalent units, GA adjustment is likely to be an extremely complex calculation, and the administrative burden placed on the interested parties is significant.

“This situation gave TT and its partners ample motivation to focus on the issue in one of our StopLoss advisory publications, as there was obviously a need for a clear explanatory guideline.”

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TT’s latest publication, produced in collaboration with the International Federation of Freight Forwarders Associations (FIATA) and the Global Shippers Forum (GSF), was aimed at providing a “straightforward summary of the topic, along with essential good practice advice”.

The publication, aimed at an audience of freight forwarders, non-vessel-operating carriers and BCOs, explains in detail the circumstances in which GA can be declared, who declares it, as well as the process of declaration and the appointment of a GA adjuster.

It also outlines the role of the adjuster, including how bonds and guarantees are assessed and lodged, and how uninsured and less-than-container-load cargo is dealt with. A section of the StopLoss is on the actions required by each party and includes a useful checklist of preparations each can make in anticipation of a GA declaration affecting their cargoes.

“It is essential that all freight forwarders understand GA to efficiently manage matters and set realistic expectations for their clients and represent their interests effectively. Equally, BCOs need to understand their obligations, particularly where they have chosen not to purchase cargo insurance,” said Yarwood.

A concept dating as far back as 800 BC – according to Wikipedia – could well be overdue for a robust review.