What is General Average and Why Cargo Insurance is Important?
Despite humanity’s impressive feats of engineering and our deep understanding of the laws of physics and the natural world, Mother Nature remains an indomitable force. This is especially true out at sea, where nature reigns supreme and careful planning is required for safe passage.
However, even the most prepared and skillful captains equipped with the latest technology and the greatest vessels ever built still find themselves at the mercy of the tempestuous seas.
For shippers worldwide, this reality creates a lot of uncertainty regarding when their cargo will arrive, or if it will arrive at all. This reality also poses a big problem for vessel owners who are taking on the countless risks of the high seas on behalf of the cargo owners. In light of these facts, the maritime concept of General Average was created.
What is General Average?
Based on the notion of risk-sharing between the vessel owner and the cargo owners with goods on board the vessel, General Average is a maritime shipping law that proportionately distributes losses incurred from a voluntary sacrifice made to protect the common interests of all cargo on board.
General Average operates on the understanding that cargo owners and vessel owners are taking part in a joint venture. And any dangers that are faced out at sea are undertaken by the vessel on behalf of cargo owners.
Therefore, when a General Average is called, cargo owners must contribute to the losses incurred during the General Average event based on the pro rata value of each cargo owner’s goods on that vessel regardless of whether their goods were impacted. Basically, cargo owners must post a security to have their cargo released in the event of General Average being called.
General Averages are not called very often, but they do still occur to this day. In fact, a recent shipping event that you probably heard about in the news resulted in General Average being called by the vessel owner.
General Average Called for Ever Given in Suez Canal Incident
Recently making headlines across the world for its impact on global shipping lines, the Ever Given found itself run aground by bad weather in the heavily trafficked Suez Canal. The Ever Given was lodged there for nearly a week as crews worked around the clock to free it with more and more ships falling behind schedule as they waited for the canal to be reopened.
The vessel owner, Shoe Kisen, declared General Average for the Ever Given as the Egyptian government seizes the vessel and requests $900 million to compensate for the six-day blockage of the Suez Canal, as well as lost revenue from ships that ordinarily would have traveled through the canal during that time and damages to the crucial waterway.
Cargo owners with goods aboard the Ever Given may not be able to receive their goods for quite some time as the specifics of this situation continue to be sorted out. Other recent incidents such as the rolling of the ONE Apus in 2020 and the loss of 750 containers aboard the Maersk Essen during a storm in January of 2021 are prime candidate events for a General Average to be called though they have not resulted in such as yet.
The risks of ocean travel remain a constant source of concern for vessel and cargo owners alike. But cargo owners need not take on these risks unprotected.
Cargo Insurance Protects Your Business Interests
Ocean voyages pose constant dangers to vessels and the cargo aboard them. Luckily, cargo insurance can protect your financial interests in the event of unforeseen issues arising. Depending on the type of coverage you opt for, you will be protected against various perils your cargo and the ship may face at sea—including General Average calls.
Cargo insurance helps provide peace of mind while protecting your financial interests. It is likely that the cargo owners with goods aboard the Ever Given are looking over their policies now.
Do you know if your shipments are covered by insurance? Are your policies adequately protecting your investments? Don’t be left wishing you had the proper coverage after it’s too late. Contact one of ClearFreight’s team members today to learn how we can provide you with the optimal coverage for every shipment and help support your supply chain with our customized logistics solutions.