What is General Average ?

The fire on the Maersk Honam earlier this month which sadly cost the life of four of the crew on route from Singapore to Suez has again drawn attention to what happens when a ship owner declares ‘General Average’.

Many companies transporting goods by sea to and from China, India, the USA and all other parts of the world for that matter often do not appreciate that should a ship be in danger that will cause a ship owner or cargo owner loss, these losses with be averaged out across all the cargo owners using the ship.

The concept of General Average has evolved over time from averaging out the losses of cargo thrown overboard to lighten the load of a ship in peril, through to modern times where much more liberal interpretation as dictated by case law.

Examples of this are:

Fires in the engine room – Hanjin Osaka

Costs of re-floating a ship run aground due to crew error – MSC Sabrina

Fire caused by the loading of dangerous goods – Hyundai Fortune & possibly Maersk Honam

 

With the costs of a ship and cargo on it often running to hundreds of millions of dollars General Average claims can be substantial and often tens of thousands of dollars per container. It invariably comes as a shock to companies which choose not to insure their goods in transit (in effect self-insuring) when lawyers representing the ship owner declaring General Average make contact and demand a bank backed bond for what seem like a huge amount arbitrarily decided upon.

All reputable UK issued insurance policies cover the claim handling and issuing of a ‘General Average Bond’, which is one of the reasons we recommend all shipments sent by sea are covered by a quality marine insurance policy.

K&L Freight Ltd