General Average in Maritime Law
Interlink編集部What is General Average?
General Average is a system in maritime transport whereby, when the ship, cargo, freight, etc., are exposed to a common danger during sea carriage, the sacrifices or expenditures intentionally and reasonably made to avoid that danger are shared jointly by the parties involved whose ship, cargo, freight, etc., have been saved.
In English, it is called General Average, and in practice, it is often abbreviated as GA or G/A.
Typical examples include cases such as jettisoning part of the cargo to save a stranded vessel, damaging cargo by water spray to extinguish a shipboard fire, or incurring expenses for entry into a port of refuge for rescue, emergency repair, or re-departure.
A key characteristic of General Average is that even if your own cargo has not suffered damage, you may still be required to contribute to the General Average because the ship or other cargo have been saved. While ordinary cargo incidents focus on whether one's cargo has been damaged, General Average deals with how the cost of sacrifices and expenditures made to avoid a common danger should be shared among those benefited.
Scope Covered in This Article
| Topic | Main Content | Key Practical Checks |
|---|---|---|
| Basic Concept of General Average | Common danger, intentional sacrifice, shared benefit, concept of apportionment | Confirm that it can be distinguished from normal cargo incidents or mere delays. |
| Conditions for Establishment | Common danger, reasonable sacrifice/expenses, acts for shared benefit | Check that an incident does not automatically trigger General Average. |
| Types of Sacrifice and Expenses Subject to Coverage | Cargo jettison, firefighting activities, port of refuge expenses, emergency repairs, rescue-related costs | Confirm separation from ordinary damages, owner’s sole expenses, and salvage fees. |
| Cargo Delivery Procedures | General Average bond, cargo value declaration, guarantees, deposit, settlement procedures | Confirm that cargo release can be delayed if required documents or security are not completed. |
| Relation to Cargo Insurance | Handling guarantees when insured, deposit handling if uninsured | The shipper’s financial and procedural burden varies depending on insurance status. |
| Relation to NVOCC & Freight Forwarders | Explaining to shippers, document guidance, shipping line coordination, advance payment risk, points of attention for LCL/FCL | Detailed initial response is covered in articles specialized for forwarder practice. |
Purpose of General Average
The purpose of General Average is to fairly share among all parties who benefit the sacrifices and expenses reasonably incurred to avoid a common peril during maritime transport, without placing the entire burden on specific parties only.
For example, if the vessel is in danger and some cargo is sacrificed to save the ship and other cargo, it is not fair for only the owners of the sacrificed cargo to bear the loss. Therefore, the owners of the saved cargo will also contribute proportionally based on factors such as the cargo value.
This system is based on the joint adventurous nature of maritime transport. The ship, cargo, and freight are exposed to the same perils on the voyage, and when reasonable measures are taken to avoid those perils, the resulting saved benefits are also shared in cost by those who benefit.
Scenarios Where General Average Issues Commonly Arise
| Scenario | Common Measures Taken | Impact on Cargo Side | Practical Points to Note |
|---|---|---|---|
| Stranding of the Vessel | Rescue operations, towing, partial cargo disposal, entry into port of refuge | Even without cargo damage, the requirement for contribution or guarantee may arise. | Check if salvage fees and General Average guarantees are requested separately. |
| Shipboard Fire | Firefighting water spraying, isolation, entry into port of refuge, cargo disposal | Fire damage and water damage from firefighting activities tend to be mixed. | Differentiate the damage from the fire itself and the sacrifices relating to General Average. |
| Machinery Failure | Towing, port of refuge repairs, preparations for re-departure | Cargo arrival delays, storage fees, and additional costs may occur. | Confirm that not all repairs automatically qualify as General Average. |
| Severe Weather / Danger Avoidance | Cargo jettison, entry into port of refuge, cargo handling and restowage | Damage to some cargo exists alongside claims to saved cargo for contribution. | Whether measures are intentional and reasonable is critical. |
| Dangerous Goods Incident | Isolation, firefighting, disposal, port of refuge entry | Delays in cargo release and additional inspections may affect other cargo. | Separate liability issues arise if dangerous goods declarations are incomplete. |
| Cargo Handling at Port of Refuge | Unloading, storage, reloading, inspection, emergency repairs | Document, guarantee, and cost confirmation is required before cargo release. | Confirm distinction between port of refuge costs and normal transport charges. |
Basic Conditions for General Average to be Established
General Average is not automatically established simply because a maritime casualty occurs. Generally, the following conditions are important.
| Requirement | Details | Practical Significance |
|---|---|---|
| Existence of a Common Peril | Ships, cargo, freight, etc. are exposed to an actual danger | Simple delay or ordinary navigational inconvenience is not sufficient. |
| Intentional and Reasonable Sacrifice or Expenditure | Deliberately sacrificing cargo or incurring salvage and port diversion costs to avoid danger | It is important that this is a decision made to avoid danger, not damages occurring by accident. |
| For the Common Interest | Measures taken to protect the common interest of the ship, cargo, freight, etc. | Distinguished from expenditures made solely to protect specific cargo. |
| Relationship Between Sacrifice/Expenditure and Danger Avoidance | Expenses or damages are connected to measures taken to avoid the common peril | Distinguished from usual operating costs or costs borne solely by the vessel. |
Main Sacrifices and Expenditures That May Qualify as General Average
When thinking of general average, a typical example is cargo jettisoned into the sea, but in actual logistics practice, it is not limited to that. The following costs and damages may sometimes be involved.
| Type | Example | Notes |
|---|---|---|
| Cargo Jettison | Part of cargo is thrown overboard to lighten the ship | This is a classic example of general average. |
| Damage from Firefighting Activities | Cargo becomes damaged or wet due to firefighting water spray inside the ship | Distinguishes damage caused by the fire itself from damage caused by firefighting efforts. |
| Port Diversion Costs | Ship enters an unplanned port for safety reasons | Port entry fees, cargo handling, and storage fees may become an issue. |
| Emergency Repair Costs | Emergency repairs performed at the diversion port to continue the voyage | Not all repair costs qualify as general average; content needs to be checked. |
| Costs Related to Salvage Operations | Salvage company performs rescue operations | Salvage fees are closely linked to general average but may require separate guarantees. |
| Cargo Handling Costs at Diversion Port | Unloading, storage, reloading, inspection of cargo | Whether necessary for continuing the voyage or avoiding danger should be confirmed. |
Process from General Average Declaration to Cargo Delivery
Once general average is declared, special procedures separate from normal import formalities are required for cargo delivery. The typical process is as follows:
- Maritime accident, grounding, fire, engine failure, or entry into a diversion port occurs.
- The captain or shipping company takes measures to avoid the common peril.
- The shipping company declares general average.
- The general average declaration notice is sent to the shipper, NVOCC, freight forwarder, etc.
- A general average adjuster is appointed.
- The cargo owner prepares documents such as the general average bond, cargo value declaration, invoice, and insurance policy.
- If marine cargo insurance is in place, the insurer issues a general average guarantee.
- If uninsured, the cargo owner provides a deposit.
- Once the required guarantee or deposit is confirmed, cargo delivery can proceed.
- The general average adjuster calculates each party's contribution.
- The final general average contribution amounts are determined.
In practice, cargo cannot necessarily be received immediately once general average is declared. If necessary documents, guarantees, or deposits are delayed, cargo delivery may be postponed.
Differences Between Having Marine Cargo Insurance and Not Having It
| Item | When Covered by Marine Cargo Insurance | When Not Covered by Marine Cargo Insurance |
|---|---|---|
| Requirements for Cargo Delivery | Obtain and submit a general average guarantee issued by the insurer. | The cargo owner deposits a security bond themselves. |
| Financial Burden | Because the insurer provides the guarantee, the cargo owner’s temporary cash burden tends to be lighter. | A lump sum deposit may be required. |
| Procedures | The insurer, insurance agent, and freight forwarder typically coordinate to streamline procedures. | The cargo owner has increased direct interactions with the adjuster and other parties. |
| Period Until Cargo Delivery | Once necessary documents are ready, the process tends to proceed relatively smoothly. | It may take time to calculate, remit, and confirm the deposit. |
| Final Settlement | The insurer usually handles claims under the insurance policy terms. | The cargo owner ultimately bears the final contribution costs. |
Documents Often Required for General Average
| Document Name | Role |
|---|---|
| General Average Agreement | A document in which the shipper agrees to contribute to the general average adjustment. |
| Cargo Value Declaration | A document declaring the cargo value used as the basis for the contribution calculation. |
| Commercial Invoice | A key reference document to verify the cargo value. |
| Insurance Policy / Certificate | Used to verify whether marine cargo insurance has been taken out and which insurer is involved. |
| General Average Guarantee | A document issued by the insurance company guaranteeing payment of the general average contribution. |
| Cash Deposit | A financial security provided by the shipper, often required if marine cargo insurance is not in place. |
| Salvage Charge Guarantee | May be requested separately from the general average guarantee in cases involving salvage contracts or salvage fees. |
Comparison of General Average with Related Systems and Practices
| Item | General Average | Salvage Charge | Normal Cargo Damage | Relation to Marine Cargo Insurance / NVOCC Practice |
|---|---|---|---|---|
| Basic Nature | A system where sacrifices and expenses to avoid common peril are shared among interested parties. | Fees and costs for salvors who perform rescue of ships and cargo. | Damage to own cargo such as breakage, wetting, loss, or quantity shortages. | The response—guarantee or cash deposit—depends on whether marine cargo insurance has been taken out. |
| Cause of Occurrence | Caused by grounding, fire, port refuge, cargo jettison, emergency repairs, etc. | Activities related to ship and cargo rescue operations. | Incidents during cargo handling, transport damage, wetting, theft, or quantity shortages. | NVOCC must coordinate documentation, costs, and delivery terms between shipping lines and actual cargo owners. |
| If No Damage to Own Cargo | A contribution may still be demanded. | If included in the salvage operation, guarantees or contributions may be required. | Usually not subject to cargo damage claims. | Guarantees or cash deposits may be requested before delivery even for undamaged cargo. |
| Required Documents | General Average Agreement, value declaration, guarantee, adjustment statement, etc. | Salvage charge guarantee, salvage contract-related documents, etc. | Accident notifications, photographs, Survey Report, B/L, proof of delivery, etc. | Insurance policy, invoice, B/L, shipper contact records are important. |
| Practical Focus | Guarantee or cash deposit for cargo delivery and final settlement. | Guarantee, amount, and scope of salvage charge burden. | Cause of damage, responsible party, insurance recovery, claim deadlines. | Managing uninsured cargo, LCL consolidation, and advance payment risk are issues. |
General Average Risk for NVOCCs
NVOCCs often take the shipper’s stance vis-à-vis the carrier, while in relation to the actual cargo owner, they may be treated as carriers or contracting parties. Therefore, when general average occurs, they need to consider not just information transmission, but also guarantees, cash deposits, cargo delivery, billing to the actual cargo owner, and the risk of advancing payment.
| Cargo Type | Main Risks | Practical Issues | Approach to Response |
|---|---|---|---|
| LCL Consolidated Cargo | Delays in cargo delivery at the CFS level may occur due to some shippers lacking insurance or failing to submit documents. | Non-compliance by some shippers can affect delivery for those who have complied. | Early confirmation of each shipper’s insurance status and document submission is essential. |
| FCL Cargo | Uninsured cargo may result in large cash deposits or contribution amounts. | The shipper may not be able to arrange cash deposits immediately, delaying cargo delivery. | Verify marine cargo insurance coverage in advance for high-value cargo. |
| Large Mixed Shipments from Multiple Shippers | NVOCC may be pressured by the shipping line to handle a lump sum response. | Risk of advancing payment before collection from actual cargo owners. | Implement standard trading terms, B/L clauses, quotation conditions, and insurance verification procedures. |
| Cargo of Uninsured Shippers | Delays in arranging cash deposits may cause cargo delivery delays and additional costs. | Shippers may lack understanding of the general average system, causing refusals to pay or explanation burdens. | Provide early explanation of the risk associated with cash deposits when insurance is not in place. |
| High-Value Cargo | Contributions or cash deposits based on high declared value tend to be substantial. | Discrepancies among invoice value, insured value, and declared value cause problems. | Perform early cross-checking of cargo value documents and insurance policies. |
| Time-Sensitive Cargo | Delays in guarantee or cash deposit can significantly expand delivery delays. | Secondary damages are an issue for exhibition cargo, manufacturing line parts, or goods with specified sales start dates. | Explain delivery terms and the possibility of delay promptly. |
Cases Commonly Problematic in Practice
| Case | Common Issues | Impact | Approach to Response |
|---|---|---|---|
| The shipper has not purchased cargo insurance | Unable to obtain a general average guarantee, requiring a deposit to be posted. | Delay in cargo delivery, financial burden, and potential customer complaints. | Explain the deposit burden early if insurance is lacking, and confirm willingness to pay and payment schedule. |
| Only some shippers remain unresponsive in LCL consolidation | Documents or guarantees missing from certain shippers may affect delivery at the CFS level. | Complaints may arise from shippers who have already completed their procedures. | Create a list of each shipper’s response status and prioritize confirming with unresponsive parties. |
| A separate salvage guarantee is also required | A general average guarantee alone may not fulfill the delivery requirements. | Even with apparently complete documents, cargo release may be halted. | Confirm whether both general average and salvage guarantees are necessary. |
| Invoice value and insured amount do not match | It takes time to reconcile declared value, guarantee, and insurance coverage. | Issuance of guarantee and settlement processing may be delayed. | Early cross-checking of invoice, insurance policy, B/L, and declared value is necessary. |
| Large deposit amount for high-value FCL cargo | The shipper may not be able to arrange funds immediately. | Delays in cargo release, storage fees, and loss of sales opportunities. | Do not hastily judge if advances are possible; confirm the payment basis and collection conditions. |
| The shipper misunderstands general average as ordinary damage compensation | Reactions like "Why should I pay if my cargo was not damaged?" may occur. | Explanatory burden, payment refusal, and disputes with trading partners. | Explain that general average is not damage compensation but a shared contribution to the saved benefit. |
Decision Checklist
| Confirmation Stage | Parties to Confirm With | Items to Confirm | Response if Issues Found |
|---|---|---|---|
| Upon receiving a general average declaration | Shipping line, NVOCC, adjuster | Confirm the relevant vessel, voyage number, B/L number, container number, and affected cargo. | If identification of the affected cargo is ambiguous, cross-check before notifying the shipper. |
| Initial contact with the shipper | Shipper, importer, insurance representative | Confirm whether cargo insurance is in place, insurance company, and policy number. | If uninsured, explain early that a deposit may be required. |
| When collecting documents | Shipper, insurance company, insurance agent | Confirm general average agreement, declared value statement, invoice, and insurance policy. | If any documents are missing, clearly state the submission deadlines and consequences of non-submission. |
| When arranging guarantees | Insurance company, insurance agent, adjuster | Confirm whether general average and salvage guarantees are required. | If a separate salvage guarantee is needed, confirm additional documents and submission destination. |
| When a deposit is required | Shipper, adjuster, bank, internal accounting | Confirm amount, currency, remittance deadline, refund and settlement methods. | If requested to make an advance payment, confirm collection basis and approval procedures. |
| Before cargo release | Shipping line, CFS, customs broker, delivery company | Confirm release conditions, storage charges, customs clearance status, and domestic delivery plans. | Separate and organize other causes of delay aside from general average procedures. |
Common Misunderstandings
| Misunderstanding | Correct Understanding in Actual Logistics Practice | Items to Confirm |
|---|---|---|
| No general average contribution if own cargo is undamaged | Even if own cargo is safe, a contribution may be required if a shared sacrifice led to a saved benefit. | Confirm the affected cargo, value, and details of the general average declaration. |
| General average is only a shipping line issue | Cargo owners, NVOCCs, freight forwarders, and insurers also need to handle practical procedures. | Confirm what documents and guarantees are required from the shipper side. |
| If cargo insurance exists, no further action is needed | Contacting the insurer, submitting necessary documents, and obtaining guarantees are all required procedures. | Confirm the contact details of the insurance company/agent and policy number. |
| Paying the deposit settles everything | The deposit is collateral for cargo release; final settlement is done by the general average adjuster. | Confirm the relationship between the deposit and the final contribution amount. |
| General average guarantee and salvage guarantee are the same | General average and salvage are related but may require separate guarantees. | Confirm which guarantees are required with the shipping line and adjuster. |
| General average declarations are rare and not a practical concern | Though not frequent, once it happens it significantly affects cargo release, finances, and customer relations. | Pre-check insurance coverage for high-value cargo, FCL shipments, and LCL consolidations. |
Example 1: General Average Due to Grounding
Imagine a container ship grounding during voyage, putting the vessel and its entire cargo at risk. The captain sacrifices part of the cargo to refloat the ship and arranges salvage services to move the vessel to a safe location.
In such cases, the damage to the sacrificed cargo, costs related to salvage, and expenses at the port of refuge may be treated as general average. Owners of the saved cargo may be required to contribute to the general average proportionate to the value of their cargo, even if their cargo suffered no damage.
Example 2: Onboard Fire and Firefighting Activities
If a fire breaks out onboard the vessel and a large amount of water is used to extinguish it, damage may occur not only to the cargo near the fire source but also to cargo damaged by the firefighting efforts.
If the firefighting activities were reasonably conducted to avoid a common peril, certain damages and expenses resulting from those activities may be subject to general average. Even cargo owners whose goods were not directly damaged may be asked to contribute to the general average charges.
Example 3: Some Shippers Without Insurance in LCL Consolidated Cargo
In LCL consolidated cargo, cargo from multiple shippers is loaded in the same container. When general average is declared, each shipper is required to submit a general average bond, a value declaration form, and an insurance policy, among other documents.
If some shippers have not taken out cargo insurance, they may be unable to obtain a general average bond and will need to arrange a cash deposit. Delays in this process can affect not only the cargo of the non-compliant shippers but also the release of other cargoes processed at the same CFS.
Practical Notes
In general average cases, many confirmations take place separately from regular import procedures among the general average adjuster, shipping company, insurer, freight forwarder, NVOCC, and cargo owners. Delays in submitting required documents or arranging bonds or cash deposits can postpone cargo delivery and lead to secondary issues such as storage fees and schedule delays.
Additionally, in cases where salvage fees become a separate issue, a salvage bond may be required separately from the general average bond. Although general average and salvage fees are related, they do not always conclude through the same procedure.
If a freight forwarder or NVOCC receives a general average declaration, detailed initial responses, explanations to shippers, insurer contacts, document collection, and cargo release coordination should be reviewed in dedicated articles focusing on freight forwarder operational practices.
Summary
General average is a system in which sacrifices and costs incurred to avoid a common peril during marine transportation are fairly shared among the parties involved, including the saved vessel, cargo, and freight.
The most important practical point is that cargo owners may be required to pay general average contributions even if their own cargo was not damaged. Furthermore, whether or not cargo insurance is held greatly affects whether the issue can be resolved with a bond or if a cash deposit must be posted.
It is crucial to correctly understand the requirements for general average to arise, covered expenses, bonds, cash deposits, its relationship with salvage fees, and how it differs from ordinary cargo damage. Although general average does not occur frequently, its impact can be significant, directly affecting cargo delivery, financial burden, insurance handling, and the NVOCC’s advance payment risk.
