General Average: The Hidden Risk in Global Shipping

In the complex world of maritime shipping, various risks can impact cargo during transit. One lesser-known but significant risk is the principle of General Average. Rooted in ancient maritime law, General Average can have substantial financial implications for cargo owners, even if their goods arrive undamaged. Understanding this principle is crucial for anyone involved in international shipping.

What is General Average?

General Average is a legal principle in maritime law where all stakeholders in a sea voyage proportionally share any losses resulting from voluntary sacrifices made to save the voyage. For example, if a ship’s crew jettisons cargo to prevent sinking, all cargo owners may be required to contribute to the loss, regardless of whether their goods were sacrificed.

Historical Background

The concept of General Average dates back to ancient times, with its earliest known reference in the Lex Rhodia, a maritime code from the island of Rhodes. The principle has been incorporated into various legal systems over the centuries and remains a fundamental aspect of maritime law today.

Modern Implications

In contemporary shipping, General Average is typically declared in situations such as:

• Fires on board: Efforts to extinguish fires may damage cargo, leading to shared costs.
• Groundings: If a ship runs aground and cargo is jettisoned to refloat it, all cargo owners share the loss.
• Collisions: Damage control measures may involve sacrificing some cargo to save the vessel.

When General Average is declared, cargo owners are often required to provide a General Average guarantee or bond before their goods are released. This process can lead to delays and unexpected expenses.

Financial Impact

The financial burden of General Average can be significant. Cargo owners may be liable for substantial contributions, even if their goods were not directly affected. For instance, in the case of the Maersk Honam fire in 2018, General Average was declared, and cargo owners faced considerable costs to retrieve their shipments.

Mitigating the Risk

To protect against the financial impact of General Average, cargo owners should consider:

• Purchasing comprehensive cargo insurance: Ensure that the policy covers General Average contributions.
• Understanding the terms of carriage: Review contracts and bills of lading to comprehend liability and responsibilities.
• Working with experienced freight forwarders: Professionals can provide guidance and support in navigating General Average situations.

Why General Average Still Exists and Why It’s Not Going Anywhere

General Average might sound outdated (it originates from Lex Rhodia, over 2,000 years ago) but it remains in force for a reason: shipping is inherently risky, and when sacrifices must be made to save a vessel, those costs need to be distributed fairly. In an era of container mega-ships and global supply chains, the scale of incidents (and therefore contributions) has grown significantly. Events that once caused a few thousand dollars in damage can now cause tens of millions.

Case law and the York-Antwerp Rules - a globally adopted framework - govern how General Average is declared and apportioned. It’s legally binding, internationally recognised, and reinforced by most contracts of carriage, especially under Bills of Lading.

What Happens When General Average Is Declared?

When General Average is declared, cargo owners are notified by the shipowner or their appointed Average Adjuster. They must provide:

• A General Average Guarantee from their insurer (or cash deposit if uninsured)
• A Valuation Form detailing their cargo’s declared value

Until these documents are provided, cargo is not released. This can stall delivery and tie up working capital for weeks.

Real-World Events in the Last Decade

• Maersk Honam (2018): A fire in the Arabian Sea led to extensive damage and a General Average declaration. Cargo owners faced massive costs.
• Ever Given (2021): When the ship grounded in the Suez Canal, significant losses triggered General Average claims - many of which are still being processed.
• MSC DANIT (2021): An anchoring-related incident off the coast of LA prompted claims under General Average due to environmental damage and salvage efforts.

The pattern? These events are unpredictable but not rare. And when they happen, they’re financially devastating if you’re unprepared.

Why Cargo Owners Are Often Left Exposed

According to industry estimates, up to 70% of global cargo is underinsured or uninsured. This happens because:

• Shippers assume the forwarder has arranged cover
• Forwarders assume the shipper will ask if they want it
• Nobody wants to slow down the booking process with insurance admin

This disconnect is where the risk lies. And General Average is exactly the kind of risk that bites unexpectedly, often years into a business relationship, when a long-standing customer faces their first serious marine incident.

General Average might be old, but its impact is very real. In modern logistics, where speed and scale define competitiveness, an unexpected cost is a reputational and financial nightmare. Ensuring your customers are covered isn’t just best practice. It’s a safeguard against ancient rules that still very much apply.