There have been calls for a better solution than general average to allocate the cost of cargo sacrifice, but technology can do a lot to improve the process
by Amy O'Neill, Managing Director - Marine Adjusting, Richards Hogg Lindley Liverpool, for Insurance Day, first published on 9 August 2021: Viewpoint: GA is as relevant as ever to cargo claims management
General average remains the primary means of recovering expenditures made and sacrifices incurred at a time of peril for the common safety of ship and cargo. In modern times, the property saved can have an increasingly significant value and the general average expenditure can be vast.
It is therefore often the case that the shipowners declare general average and use the established framework to recover any losses incurred by the parties to the adventure.
Under the principle, losses and expenditure incurred at a time when ship and cargo are in peril are shared on an equitable basis between the owners of any property saved by the actions of the ship’s master.
As average adjusters, our role is to provide impartial expert advice on the specifics of any potential general average situation, options available to owners and practical assistance on the management of the incident from a general average perspective. Should general average be declared, the adjusters may be required to collect the necessary security from all property interests who benefited from the actions.
Once the claims documents and information have been collated from all the interested parties, a general average adjustment will be produced detailing the general average allowances. The property owners will then contribute towards the general average on the basis of their respective arrived values at destination.
Peril at sea
General average is a long-standing principle, in existence since the ancient Greeks. It was predicated on the fact that, once a ship embarked on a voyage, its master would be responsible for the whole operation. Of course, in 800 BC there was no sophisticated communications technology.
However, even today, it remains the role of the master of the vessel to take the necessary steps to preserve from peril the property involved in the common maritime adventure.
The key benefit of general average remains the knowledge that, once the danger has passed, there is a recognised framework for dealing with these losses and expenses and that those recoverable as general average will be contributed to by all the parties who benefitted. Any of those involved can claim general average expenditure and losses – the most common being cargo damage as a result of general average sacrifice (for example, water damage caused when extinguishing a fire), which can be a significant amount.
Today, largely because of the increasing size of the vessels carrying large amounts of containerised goods around the world, casualty situations are often complex, involving large-scale salvage operations. Port of refuge options can be limited for such large vessels, as are options for cargo discharge and storage.
There are also often wider considerations for liabilities, as well as environmental concerns.
As a result, many parties are often involved, all with their own particular interests and concerns. It is increasingly important to achieve clear communication and co-operation between all parties working to resolve the casualty in the most effective manner, and the adjuster often acts as an intermediary between these parties, together with solicitors and other experts.
The principle of general average is simple, but its implementation can be more complex, particularly if a large multi-bill of lading security collection is required.
A large containership casualty may have several thousand containers onboard, many of which might be groupage (less than container load) containing cargo owned by many separate parties, all of which have to provide individual security. Uninsured cargo varies depending on the particular trade of the vessel and, in the absence of a guarantee provided by insurers, these cargo interests will be required to pay a cash deposit to cover their eventual general average contribution so their cargo can be released when the ship reaches its destination.
The amount of work that goes into the security collection process can be considerable, depending on the number of cargo interests involved and the timeframe for any security collection to be completed. So, as average adjusters, we always look for ways to streamline any collection where possible.
The principle works very well but, given the ever-increasing scale of the operations when a containership is involved, it has in the past been asked whether there could be a better solution than general average.
General average absorption clauses in the vessel’s hull policy – under which the limit is set at such a level that it adequately covers at least the majority of the expenditure incurred – go some way to avoiding full general average security collections. Alternatively, commercial agreements can be made between parties to avoid the need for full security collections. However, to date, no suitable alternative solution to general average per se has been identified, so in cases where there are significant general average sacrifices of property or where the general average expenditures are simply too much for one party to bear wholly themselves, general average offers a reliable solution for everyone involved.
Technology in modern times has a lot to offer the process. We have made considerable efforts to streamline the collection process and use technology to facilitate the collection of general average security. Online portals make our systems more accessible and user-friendly, as well as ensuring the resources are available to complete the tasks efficiently and in a timely manner – given that cargo cannot be released at its destination until the security is processed, this is often crucial.
Fortunately, general average cases on a major scale are not common and transport by sea remains a largely safe means of transporting goods without serious accidents or emergencies. With ever-increasing vessel sizes, up to 24,000 teu and more, in the event of a serious casualty onboard a container ship that involves extensive salvage efforts, cargo damage and significant expenditure for the common benefit, general average remains the most effective way of dealing with losses and expenses in an equitable way.