Policy & Compliance
The risk of GA losses should not be overlooked, however infrequently they occur. It is prudent to ensure that appropriate cargo insurance is in place as the costs following a GA incident can be signi fi cant Steps towards a General Average understanding
W hile most directly involved in the freight supply chain will have an awareness of the principles of General Average, they might struggle to explain them to customers. General Average (GA) is a global legal principle of maritime law dating back many hundreds of years. Under it, all interested parties to a ‘maritime adventure’ proportionally share any losses or expenses resulting from a voluntary and intentional act on the part of the ship or cargo in order to save the remainder in an emergency. The concept of ‘maritime adventure’ sounds quaint but describes the total group of stakeholders involved in the voyage. Typically GA losses are relatively infrequent, but have in recent years resulted in greater impact to bene fi cial cargo owners (BCO) and freight forwarders, in part because containerships have continued to increase in size. Hundreds of years ago, a cargoship might have had 20 interested parties on board; today, in the age of ultra-large container vessels, there could easily be tens of thousands of interested parties aboard a single ship. This makes administering GA claims both time consuming and complex – it is not uncommon for adjusters to take many years to settle all the claims. GA is the system whereby a party to the ‘adventure’ (most often the shipowner) can recover the extraordinary expenses/sacri fi ces that are necessarily incurred in protecting the cargo and/or preserving the ship following a maritime incident, such as happened when the Ever Given grounded in the Suez Canal during 2021. The parties who would typically contribute in a GA loss would be: the shipowner, the bene fi cial owner of the cargo on board, the owners of any bunkers and stores aboard the
ship and fi nally the owners of the containers and carrying equipment on board, all in proportion to their value. Recognising that GA losses are having a greater impact (due to increased containership capacity), coupled with a lack of understanding of the processes involved, TT Club has published a guidance document entitled Demystifying General Average . The guidance aims to outline the process in a logical chronological order. It provides a transparent review of the concept of GA, what it is, the purpose it serves, which parties are impacted and how. Because GA losses are infrequent, a freight forwarder or BCO might never have to deal with one of these cases. The process is complex and, where cargo insurance is not in place, can be expensive for the BCO. If the concept and processes are not well understood, it could come as quite a surprise when a request for security is made. The concept of security for the loss In practice, the fi rst that the BCO, freight forwarder or NVOCC might learn of a GA event is often the request for security from the General Average adjuster. The request for payment or a guarantee may cause confusion. In order to ensure that payment will be received, the adjuster requires each party interested in the voyage to provide a GA bond as security. Since this is done at the outset, before the full value of the loss is known, the adjuster will necessarily estimate the size of the loss and level of the guarantee required. A GA bond is a promise to pay whatever contribution will later be assessed by the adjuster, backed
General Average was declared when the Ever Given grounded in the Suez Canal during 2021
up by a GA guarantee from a bank or insurance company. Alongside this, the GA adjuster will request landed values of carrying equipment and bills of lading and commercial invoices detailing CIF values for cargo in order to work out the contributions for all interested parties. Ordinarily, where BCO interests are concerned, the GA adjuster will identify the interested parties through a review of the bills of lading issued by the carriers. The global supply chain, however, is complex and it is not uncommon for an initial request to be made to a freight forwarder or NVOCC in error. To simplify matters, the BIFA Member can arrange via insurers an extension to its Freight Forwarder Liability Policy to cover such a situation. The following is a good example of the wording of such a policy: “Insurers shall at the request of the Insured sign and issue General Average Guarantees or Salvage Bonds for all groupage cargo shipped by the Insured and the Insured shall, as soon as possible thereafter, use its best endeavours to secure Guarantees or Bonds from each individual customer or their respective insurers. Should the Insured or Insurers fail to obtain such Guarantees or Bonds or the payment of any subsequent Contributions or Adjustments
“ GA is the system whereby a party to the ‘adventure’ (most often the shipowner) can recover the extraordinary expenses/ sacrifices that are necessarily incurred in protecting the cargo and/or preserving the ship following a maritime incident
20 | November 2025
www.bifa.org
Made with FlippingBook Annual report maker