Stop Loss 11 - General Average for Non-vessel Operators

General Average is the system whereby a shipowner can recover the extraordinary expenses that he necessarily incurred following some maritime accident, in protecting the cargo and/or preserving the ship. The costs are apportioned between the ship, its fuel and stores and the cargo (including containers) in proportion to their values.

General Average is almost as old as maritime transport itself and is well recognised in all major shipping and trading jurisdictions. Thankfully, however, modern standards and technology make it comparatively rare, so traders and forwarders are often unaware of the steps they have to take when confronted by a GA situation.

So how can you recognise a “GA” loss? GA losses arise whenever property involved in a voyage is voluntarily sacrificed or extraordinary expenditure is incurred to enable the vessel to rescue itself from a casualty and thereby complete the voyage. An example of a GA sacrifice would be jettisoning your clients’ cargo to help the vessel deal with a grounding and an example of GA expenditure would be employing salvage tugs when the vessel suffers an engine breakdown.

Salvage works on similar principles and frequently any award due to a tug owner for his tug’s assistance in saving a vessel will eventually form part of the GA expenditure. However, in many cases where salvage services are rendered the salvor will also demand separate salvage security. In this information sheet, “General Average” is used to cover both GA and Salvage.

If a GA situation arises, the shipowner will normally “declare GA” and appoint a firm of Average Adjusters to collect the GA contributions from all the parties liable to pay. The adjuster works out how much each party is liable to contribute by establishing the total value of the property rescued and the values of the sacrifices and expenditure. This process, inevitably, takes a long time (typically two years). Therefore, to ensure that payment will be received, the adjuster requires each party interested in the voyage to provide a GA Bond as security. A GA Bond is effectively a promise to pay whatever contribution is assessed, backed up by a GA Guarantee from a bank or insurance company. The adjuster uses the carrier’s records (usually the “ocean bills” or manifests) to identify from whom they should be demanding GA Bonds. Transport Operators issuing their own bills usually appear as the shipper on the carriers’ ocean bills/manifests and therefore the adjuster will send a letter to you demanding a bond in respect of the cargo. The letter will normally give brief details of the incident and will ask for a declaration of the value of “your” cargo and also request that you sign (and get countersigned) the GA Bond form. 

What to do

  • First of all – don’t panic! Although you appear on the line’s records as the shipper, you are not liable for the GA contributions in respect of the cargo: that is a matter for your clients, the cargo owners, and their insurers.
  • Do not sign the GA Bond or GA Guarantee forms
  • Let your clients know what has happened and send each of them a copy of the letters from the adjuster. Explain that they have a responsibility for the GA contributions. If they are selling on ex works, FOB or CAF terms, they should pass the letters onto their customers (the buyers/ consignees). Standard marine cargo policies cover the costs of GA contributions and the insurers will take over the detailed work of providing the guarantee and dealing with the adjuster. If the cargo is uninsured the evidence of the value and guarantee will need to be signed by an appropriate guarantor, such as a bank.
  •  Make clear that you will not be able to release the cargo until the guarantee has been returned and accepted. Your agent at destination may be able to assist in obtaining the declarations and guarantees.
  •  Ask for the signed guarantee to be returned to you. Check that you have received everything for all the cargo in the container and send the documents to the adjuster, who will then arrange
    for the cargo to be released at destination.
  •  If you find that one or more customers have not signed the guarantees (or are refusing to sign), please contact the Club. We can help get the containers released so that everybody can collect their cargo. Any guarantee provided by the Club in respect of cargo is given strictly on your undertaking not to release the appropriate consignment until an acceptable guarantee has been provided - ensure that your agent does not release any cargo for which signed guarantees from cargo interests have not been obtained.
  •  If there is any indication that cargo may have been damaged in the incident leading to GA and/ or salvage, contact the Club immediately. We can arrange for the cargo to be surveyed, possibly at the port of refuge or on arrival at destination.
  •  If you are using line’s equipment, you have no responsibility for GA contributions assessed on the value of the containers themselves. If you own or lease equipment that was on board you will have a liability for the contributions on their value. If you have equipment cover with the Club, please let us know so that we can provide the necessary guarantees for you.
  •  Occasionally, an adjuster will demand a GA Bond in respect of any freight that was payable at destination. If this happens you may be liable to sign the GA Bond yourself, but before doing so you should consult the Club.

Through Transport Mutual Insurance Association Limited and TT Club Mutual Insurance Limited, trading as the TT Club. TT Club Mutual Insurance Limited, registered in the UK (Company number: 02657093) is authorised by the Prudential Regulation Authority and regulated in the UK by the Financial Conduct Authority and Prudential Regulation Authority. In Hong Kong, TT Club Mutual Insurance Limited is authorised and regulated by the Hong Kong Insurance Authority, in Singapore by the Monetary Authority of Singapore and in Australia by the Australian Prudential Regulation Authority. In the United States, TT Club Mutual Insurance Limited is approved as a surplus lines insurer in all states and is accessible through properly licensed surplus lines brokers. The registered offices are: 90 Fenchurch Street, London, EC3M 4ST.

Through Transport Mutual Insurance Association Limited, registered in Bermuda (Company number: 1750) is authorised and regulated in Bermuda by the Bermuda Monetary Authority. 

The UK VAT Identification number for Through Transport Mutual Insurance Association Limited is: GB 564 5244 35 and for TT Club Mutual Insurance Limited is: GB 564 3375 30. The Italian VAT Identification number for TT Club Mutual Ltd is: 03627210101.

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