Difference Between General Average and Salvage Charges
Interlink編集部Difference Between General Average and Salvage Charges
The difference between general average and salvage charges is a practical distinction made to separate a general average contribution arising from a maritime casualty from remuneration payable to salvage contractors for salvage services.
Both can occur in connection with maritime accidents such as grounding, fire, collision, machinery failure, or entry into a port of refuge. However, the payees, parties requiring security, required documents, communication routes, deadlines, and the way insurers become involved are different.
In actual logistics practice, the most important point is that submitting a General Average Guarantee alone does not necessarily resolve security requirements related to salvage charges. Even if general average and salvage charges arise from the same incident, they may be handled as separate claims, require different security, and proceed through different procedures.
Scope Covered in This Article
| Topics Covered | Main Content | Key Points to Confirm in Practice |
|---|---|---|
| Fundamental differences between general average and salvage charges | Nature of the system, payees, and underlying concepts | It is important not to confuse general average contributions with salvage remuneration. |
| Differences in security documents | General Average Guarantee, General Average Bond, deposits, Salvage Security, and salvage guarantee letters | Documents must be managed separately because submission destinations and purposes differ. |
| Impact on cargo release | Cargo release holds caused by failure to provide security for either general average or salvage charges | Providing security for only one side may not satisfy all cargo release conditions. |
| Relation with marine cargo insurance | General average contributions, salvage charges, guarantees, security provision, and notice to insurers | Even if insured, early notification to the insurer and submission of relevant documents are necessary. |
| Freight forwarder and NVOCC checks | Incident information, general average declaration, salvage security, submission destinations, deadlines, and additional costs | Confirm general average and salvage charges as separate processes. |
| Common issues | Cases where cargo is held due to lack of Salvage Security despite submission of a General Average Guarantee | Avoid the misconception that submitting a General Average Guarantee solves everything. |
Fundamental Differences Between General Average and Salvage Charges
General average is a system where reasonable sacrifices and expenses incurred to avert a common peril affecting the vessel, cargo, and freight are shared proportionally by the parties whose interests were saved.
In contrast, salvage charges are remuneration paid to salvage operators for saving vessels or cargo. Salvage operators may perform services such as towing, refloating, firefighting, marine rescue, guiding a vessel to a port of refuge, and pollution prevention measures.
| Item | General Average | Salvage Charges | Practical Notes |
|---|---|---|---|
| Nature | A system to share reasonable losses and expenses among interested parties to avoid a common peril. | Remuneration paid to the salvage operator for their services. | Although they may arise from the same maritime casualty, their natures differ. |
| Main parties | Shipowners and general average adjusters. | Salvage operators, salvage companies, and representatives of salvage operators. | It is important to confirm who requires the security. |
| Underlying concept | The parties whose vessel, cargo, or freight interests are saved share costs equitably. | Compensation for saving valuable property through salvage operations. | Distinguish between a general average contribution and salvage remuneration. |
| Main security documents | General Average Guarantee, General Average Bond, Cargo Value Declaration, and General Average Deposit. | Salvage Security, salvage guarantee letters, bank guarantees, and similar security. | Document names may appear similar, but their purposes and submission destinations differ. |
| Submission destination | Shipowner or general average adjuster. | Salvage operator or their representative. | Misdirected submission may delay cargo release. |
| Timing of notification | Usually provided after a general average declaration, often by the shipowner or adjuster. | Salvage security demands may arrive after salvage work and sometimes before a general average declaration. | Do not wait only for a general average declaration; check salvage-side communications as well. |
| Urgency of response | Necessary documents and guarantee or deposit must be arranged before cargo release. | Salvage operators may require security submission within short deadlines. | Deadlines may differ, so manage the two separately. |
| Calculation and settlement | The general average adjuster calculates the contributions. | Salvage remuneration is determined by contract, negotiation, or arbitration. | Settlement processes are independent. |
| Settlement period | May take several years. | May proceed separately due to contract or arbitration timing. | Procedures may continue after cargo release. |
| Relation to marine cargo insurance | Related to handling of general average contributions and guarantees. | Related to salvage charges and Salvage Security. | Prompt incident reporting to insurers and submission of necessary documents are critical. |
What is General Average?
General average is a system where all parties involved share reasonably incurred sacrifices or expenses made to avoid a common peril to the vessel, cargo, and freight.
Examples include costs to refloat a grounded vessel, emergency repairs at a port of refuge, cargo jettison, and cargo damage caused by firefighting efforts.
The general average adjustment is usually conducted by a general average adjuster. The York-Antwerp Rules may be used as the standard in B/L clauses or insurance contracts.
What are Salvage Charges?
Salvage charges refer to remuneration paid to a salvage operator for rescuing a vessel or cargo in a maritime accident.
The salvage operator may perform tasks such as towing the vessel, freeing it from grounding, firefighting, maritime rescue, guiding it to a safe port, and taking measures to prevent environmental pollution. When the vessel or cargo is saved through such salvage operations, the cost burden may apply not only to the shipowner but also to the cargo side.
In salvage contracts, a standard form called Lloyd's Open Form is sometimes used. When the salvage remuneration is to be determined later through negotiation or arbitration, even if the final amount is not decided at the end of the salvage operations, the salvage operator may request security.
What is Salvage Security?
Salvage Security is collateral demanded by the salvage operator from the shipowner, cargo owner, insurer, or other relevant parties to secure payment of salvage remuneration.
While a General Average Guarantee is a document for the shipping company or the general average adjuster, Salvage Security is collateral directed to the salvage operator. Therefore, even if a General Average Guarantee is submitted, there may still be an obligation to submit Salvage Security.
Both a General Average Guarantee and Salvage Security may be required in a maritime accident. Confusing this point can lead to situations where cargo is not released even after a General Average Guarantee has been provided.
General Average and Salvage Charges Proceed via Separate Channels
General average and salvage charges may arise from the same maritime accident, but they often have different points of notification and separate handling routes.
| Process | General Average Side | Salvage Charges Side | Points to Confirm |
|---|---|---|---|
| Accident occurrence | Vessel, cargo, and freight are exposed to a common peril. | Salvage operator conducts salvage operations. | Confirm accident details, vessel name, voyage number, and B/L number. |
| Initial contact | The shipping company provides accident information and the possibility of a general average declaration. | The salvage operator or their agent may issue a request for security. | Separate and verify the source of notification and submission destination. |
| Formal procedures | General average declaration, appointment of a general average adjuster, and submission of required documents proceed. | Submission of Salvage Security, salvage guarantee letters, bank guarantees, or similar security may be requested. | Manage deadlines for general average and salvage charges separately. |
| Submission destination | Shipping company or general average adjuster. | Salvage operator or salvage operator’s representative. | Even when dealing with the same insurer, submission points may differ. |
| Impact on cargo release | Release may be withheld if a General Average Guarantee or deposit is not submitted. | Release may be withheld if Salvage Security is not submitted. | Even if one side is completed, release conditions may not be fully satisfied. |
| Final settlement | The general average adjuster calculates contribution amounts. | Salvage remuneration is determined by the salvage contract, negotiation, or arbitration. | Keep records until settlement is complete. |
Differences in Security Documents
The security documents required differ between general average and salvage charges. Even if document names appear similar, their purposes and submission destinations differ, so they must be checked individually.
| Document / Collateral | Applicable To | Submission Destination | Purpose | When Required |
|---|---|---|---|---|
| General Average Guarantee | General Average | Shipping company or general average adjuster | The insurer guarantees payment of general average contributions. | Required if cargo insurance is in place. |
| General Average Bond | General Average | Shipping company or general average adjuster | The shipper or cargo owner undertakes to pay properly adjusted general average contributions. | Requested after a general average declaration and before cargo release. |
| General Average Deposit | General Average | Shipping company or general average adjuster | Provided as collateral for general average contributions when insurance is not in place or a guarantee cannot be obtained. | Occurs when cargo insurance is absent or a guarantee cannot be obtained. |
| Salvage Security | Salvage Charges | Salvage operator or their representative | Secures payment of salvage remuneration. | Requested when salvage operations are conducted. |
| Salvage Guarantee Letter | Salvage Charges | Salvage operator or their representative | An insurer or another party guarantees payment of salvage charges. | Requested when salvage-related security is required. |
| Bank Guarantee | Mainly salvage charges or collateral when insurance is absent | Salvage operator, adjuster, or related parties | Provided as collateral in place of a cash deposit. | May be required if an insurance guarantee is not available. |
Practical Workflow Until Cargo Release
When a maritime accident occurs, freight forwarders and NVOCCs need to verify general average and salvage charges separately.
- Receive notification of the maritime accident from the shipping company or overseas agent.
- Confirm vessel name, voyage number, B/L number, container number, and cargo details.
- Report the accident promptly to the shipper.
- Confirm the shipper's cargo insurance status.
- Contact the insurer or insurance agent at an early stage.
- Check whether a general average declaration has been issued.
- Confirm whether any documents from the general average adjuster have been received.
- Confirm whether Salvage Security requests have been made by the salvors or their agents.
- Verify whether a General Average Guarantee and salvage guarantee are each required.
- Organize submission destinations, deadlines, and required documents separately for general average and salvage charges.
- Submit the necessary documents and confirm whether cargo release is permitted.
- Check for possible storage charges, Demurrage, Detention, and delivery delays.
Relation between the SCOPIC Clause and the P&I Club
In salvage contracts, the SCOPIC clause is sometimes involved in addition to Lloyd's Open Form. The SCOPIC clause can raise practical issues regarding environmental pollution prevention and special compensation, where the shipowner’s P&I club may be involved.
When the SCOPIC clause becomes an issue, it is necessary to clarify the relationships among the cargo insurer, shipowner’s insurers, the P&I club, salvors, shipping company, and the general average adjuster.
However, in the practical work of shippers and freight forwarders, rather than delving into detailed SCOPIC calculations, it is more important to understand that separate security demands related to salvage charges may arrive, distinct from a General Average Guarantee.
Relation with Marine Cargo Insurance
If the cargo is insured under marine cargo insurance, the insurer may issue a General Average Guarantee or arrange security related to salvage charges. In cases where general average contributions or salvage charges are covered by insurance, the insurer may handle the settled amounts later.
On the other hand, if the cargo is uninsured, the shipper may have to arrange General Average Deposits, Salvage Security, bank guarantees, and negotiations with salvors by themselves.
For this reason, freight forwarders and NVOCCs need to confirm the shipper’s insurance status immediately upon receiving notification of a maritime accident and encourage early contact with the insurer or insurance agent.
Common Trouble Patterns
| Trouble | Cause | Practical Response |
|---|---|---|
| Cargo is not released despite submitting a General Average Guarantee | Salvage Security may still be outstanding. | Confirm security requirements separately for general average and salvage charges. |
| Late notice of security requests from salvors | Possibly only checking notices from the general average adjuster. | Confirm all communications from the shipping company, overseas agents, salvors, and their agents. |
| Shipper mistakenly assumes no action is necessary because insurance is in place | Delay in accident notification and document submission to the insurer. | Explain that even with insurance, accident notification, document submission, and guarantee arrangements are required. |
| Unable to arrange deposits or guarantees for uninsured cargo | Shipper did not anticipate the burden of general average or salvage charges. | Record the cargo insurance status at quoting or booking. |
| Demurrage or Detention charges occur | Delay in security submission or cargo release. | Promptly confirm cargo release conditions, storage location, free time, and additional charges incurred. |
| Documents are submitted to the wrong party | Submission destinations for general average and salvage charges are confused. | Confirm whether submission is for the general average adjuster or salvors before submitting. |
Common Misunderstandings
| Misunderstanding | Correct Understanding | Practical Caution |
|---|---|---|
| General average and salvage charges are the same thing. | They can arise from the same maritime accident but have different procedures, claimants, and security submission destinations. | Manage general average and salvage charges separately. |
| Submitting a General Average Guarantee solves the salvage charges issue. | General Average Guarantees and Salvage Security are separate. Both may be required. | Check whether separate salvage security demands have been issued. |
| Only the shipowner bears salvage charges. | If cargo benefits from salvage, the cargo side may also bear some costs. | Confirm early with the cargo insurer or insurance agent. |
| Shippers and freight forwarders have nothing to do because insurance handles everything. | Notification to insurers, submission of required documents, confirmation of cargo value, and deadline management remain necessary. | Shippers and freight forwarders should manage submissions as well. |
| It is sufficient to respond after a general average declaration is issued. | Salvage Security demands may arrive before a general average declaration. | Confirm salvage security requirements at the time of the accident. |
| If cargo is intact, salvage charges are irrelevant. | If the cargo was subject to salvage operations, security or charges may be required from the cargo side. | Check not only cargo damage but also whether the cargo was included in the salvage operations. |
Key Points for Freight Forwarders and NVOCCs to Confirm
| Check Item | Details to Confirm | Party to Confirm With |
|---|---|---|
| Accident information | Confirm vessel name, voyage number, B/L number, container number, accident date, and accident details. | Shipping company, overseas agent, NVOCC |
| General average declaration | Check whether a general average declaration has been issued, identify the general average adjuster, required documents, and submission deadlines. | Shipping company, general average adjuster |
| Salvage Security | Confirm whether there is a request for Salvage Security or a salvage guarantee letter. | Salvage contractor, contractor’s agent, shipping company |
| Submission destination | Check whether the submission destinations differ between the general average side and salvage side. | Adjuster, contractor’s agent, insurer |
| Cargo insurance | Confirm whether the shipper has marine cargo insurance and obtain contact information for the insurer or insurance agent. | Shipper, insurance agent, insurer |
| Required documents | Confirm Invoice, Packing List, insurance policy, B/L, Cargo Value Declaration, and related documents. | Shipper, insurer, adjuster |
| Cargo release | Confirm whether cargo release is allowed after provision of guarantees, and check if there are any other unresolved conditions. | Shipping company, CFS, customs broker, adjuster |
| Additional charges | Confirm the occurrence of storage charges, Demurrage, Detention, redelivery fees, or delivery delays. | Shipping company, CFS, delivery company, shipper |
| Explanation to shipper | Explain that general average and salvage charges are separate procedures, and addressing only one side may be insufficient. | Shipper, importer, sales representative |
Documents to Check in Actual Logistics Practice
- General Average Declaration Letter
- Guidance Documents from General Average Adjuster
- Salvage Security Request from Salvage Contractor or Agent
- Information Regarding Salvage Contract
- B/L and Reverse Side Clauses
- Invoice
- Packing List
- Insurance Policy or Insurance Coverage Certificate
- General Average Guarantee
- General Average Bond
- Cargo Value Declaration
- Salvage Guarantee Letter
- Information Regarding Deposit or Bank Guarantee
- Information on Cargo Release Approval or Denial
- Status of Storage Charges, Demurrage, and Detention
Case Example: Cargo Held Despite Submission of a General Average Guarantee
Suppose a container ship runs aground and a salvage contractor performs refloating operations and towing. Subsequently, the shipping company issues a general average declaration, and the general average adjuster requests submission of the General Average Bond, Cargo Value Declaration, and General Average Guarantee.
The shipper had marine cargo insurance, so the insurer obtained and submitted the General Average Guarantee. However, separately, the salvage contractor requested submission of Salvage Security, which was overlooked and not completed.
In this case, even if the general average documents were submitted, if the salvage-side security is not addressed, cargo release could be delayed. Freight forwarders and NVOCCs need to treat general average and salvage charges separately and manage submission destinations, deadlines, and required documents individually.
Important Points
General average and salvage charges are often confused because they arise from the same marine casualty, but in practice they must be handled as separate procedures.
In particular, requests for Salvage Security may arrive through channels different from general average declarations or adjusters. Focusing only on general average procedures may result in delays in submitting salvage security, affecting cargo release.
Moreover, even if marine cargo insurance is in place, delays in notifying the insurer can postpone issuance of guarantee letters or arrangement of security. Upon receiving accident information, it is important to promptly notify the insurer or insurance agent regardless of whether a general average declaration has been issued.
Summary
General average is a system to share sacrifice losses and expenses incurred to avoid common peril among all parties whose interests are saved. In contrast, salvage charges are remuneration for the salvage contractor’s efforts in saving the vessel or cargo.
The General Average Guarantee is directed to the shipping company or general average adjuster, while Salvage Security is directed to the salvage contractor. Their recipients, purposes, and submission requirements differ, and even for the same accident, separate responses may be required.
Freight forwarders, NVOCCs, and shippers should keep general average and salvage charges organized separately, work with insurers, and promptly confirm necessary security documents, submission destinations, and deadlines. In particular, the misconception that submitting the General Average Guarantee solves everything should be avoided, as it is a common cause of cargo release delays.
