Ever Given owner announces General Average
Ships have resumed traveling through the Suez Canal since an extra large container ship ran aground, blocking the canal for nearly a week. However, drama surrounding the Ever Given is not over yet.
According to the Loadstar, the vessel’s Japanese owners, Shoe Kisen, declared General Average Thursday, April 1. The ship is currently at anchor in Bitter Lakes undergoing technical inspections. There is, as of yet, no date set for the ship to move to ports for the cargo to be discharged.
What is General Average?
A principle of maritime law, General Average proportionately distributes any losses resulting from a necessary voluntary sacrifice of cargo or part of a ship to save the whole in the event of an emergency.
This practice was introduced to eliminate time that the crew would need to spend on determining the least valuable cargo, in the event that weight would be eliminated from a ship. General Average enables crew members to not have to be selective because all parties involved in the ocean voyage are responsible to share the losses.
General Average comes out of a common practice in maritime law, originating as far back as Roman law in the 3rd century. Modern General Average rules are based on the York Antwerp Rules of 1890 that were adopted by American companies in 1949.
Today, General Average is a rare occurrence, however it is still used in emergency situations, especially in the instances of fire or explosion.
When General Average is declared, the vessel owner appoints a neutral third party, known as a General Average adjuster, to determine the total owed to and from each party. As a general rule, each party who suffered a loss is credited for the value of that loss, however, all parties are charged a percentage of the value they had on board (or in the ship if it is the vessel owner) to cover the costs of damages.
If an incident occurs and a vessel owner declares General Average, all parties involved need to produce a General Average guarantee, either through their cargo insurance, or for the uninsured a cash deposit or surety bond. Only when this guarantee has been provided can cargo owners claim any salvageable cargo.
Unfortunately, General Average computations can be extremely complicated and it can be months or even years before all claims are settled.
Why General Average for the Ever Given?
So far the investigation into the Ever Given incident has revealed no damage to cargo and minimal damage to the ship, however the salvage operation, as well as a variety of compensation claims could work out to a large sum.
Despite the fact that most of the cargo on board the Ever Given remains intact, shippers may be in for a long wait to receive their goods. With so many different parties involved in making claims as well as uncertainty over what will all fall under General Average, it will be some time before the adjustor, Richard Hogg Lindley, can fix the level.
How can shippers protect themselves against General Average?
When General Average is declared, there is next to nothing a shipper can do to avoid it. The best way to avoid it is to ensure that you have proper cargo insurance, a service that you can get through your freight forwarder. Ask us about cargo insurance through Freight Right.
Even though ocean freight is booming currently, experts worry COVID-lockdowns could result in another sharp fall in demand.
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