General Average is declared when a sacrifice is taken to save a vessel from total loss (e.g. when the captain makes a decision to lose some containers in order to save the vessel).
It is based on the idea that the sacrifice made for the common good should be shared proportionately among all parties involved, including shipowners, cargo owners, and insurers.
In the case of general average cargo owners share the financial burden of the loss even if their goods were not damaged and without cargo insurance they may be liable for a substantial out-of-pocket cash amount.
Notable Incidents
Maersk Honam Fire
In March 2018, the vessel caught fire while sailing in the Arabian Sea carrying nearly 8,000 containers.The General Average declared for cargo owners with cargo aboard the Maersk Honam was 54% - meaning for every $100,000 of cargo on board, cargo owners would have to pay $54,000 to have their goods released.
Ever Given (Suez Canal)
In March 2021, the large container vessel ran aground while transiting the Suez Canal. The Ever Given was stuck in the canal for six days, and the effort to get it moving again resulted in Egyptian authorities seeking compensation of close to $2 billion.Whilst General Average is still being finalised, cargo owners are expecting to face charges upwards of 20% of the cargo value they had aboard the vessel.
MS Dali (Baltimore Bridge)
In March 2024, the 9,000 TEU capacity vessel struck the Baltimore Bridge, which subsequently collapsed on top of the bow of the vessel. Whilst the salvage operation is expected to last months, General Average was declared mid April meaning cargo owners face large costs to recover their cargo on board.
Example of General Average Claim adjustment for a piracy event
This example is sourced from Allianz Global
Statistics show that importers will be involved in a General Average claim once every 8 years. History has repeatedly shown the most powerful oceangoing vessels piloted by expert captains can run into unforeseen trouble on a voyage.
So the best way to protect your investment in your imported goods is to be prepared for the unpredictable with cargo insurance. Follow this link to learn more or contact us for more information!