General Average (also "Average") is the damage suffered by the sea-going vessel, fuel or cargo during the voyage. This can include property damage and other financial losses (consequential losses, costs). In this article, you will learn what defines General Average, what conditions must be met in order to establish General Average, what costs you may incur as a principal and how you can protect yourself against these expenses.
The General Average clause
The General Average clause (General Average, French: avarie grosse) includes all damage, including expenses, deliberately inflicted on the vessel, fuel or cargo (or all three) by order of the captain in order to save all three from common peril. The parties form a community of peril during the voyage. The damage and expenses caused by the general average shall be born jointly by the parties.
A party is a person who, at the time of the General Average, is the owner of the ship, the owner of the fuel or one who bears the risk that a cargo belonging to the cargo, or a cargo claim, will perish.
What is new in the definition is that the fuel is expressly placed on an equal footing with the ship and the cargo because the fuel is also an economic value related to the operation of the ship. The term "fuel" only covers fuel used for the operation of the ship. Fuel that is carried by the ship as cargo, on the other hand, falls under the term "cargo". This term also includes transport containers, e.g. containers.
Difference from Petty Average - a historical distinction
Up until the new Commercial Code came into force in 2013, German law made a distinction between major Average and minor Average (große havarie and Kleine hanvarie). Pursuant to § 621 II aF HGB, minor average was understood to mean all unusual costs that could arise during a voyage without there being a hazardous situation. Examples of this are pilotage, harbour dues, lighthouse dues, towage charges or costs for quarantine and de-icing. As in the case of Petty Average, there was also a special distribution arrangement for costs in the case of small average, which is, however, no longer customary. Petty Average is therefore merely a historical concept which no longer has any legal basis.
The essential conditions of General Average
A case of General Average is declared when the following conditions are met:
- The vessel, fuel and cargo are in common peril.
- The ship's management reasonably orders measures to be taken to save the ship, fuel and cargo from the common peril.
- Damage is deliberately caused to the ship and/or fuel and/or cargo. Damage means damage, loss and all costs incurred in rescuing from the common peril.
- Vessel, fuel and cargo must be saved in whole or in part.
According to § 706 HGB a.F., the following acts are performed in General Average, for example:
- Sea throwing (throwing the cargo overboard)
- Beaching of the ship
- Flooding of the holds in case of fire
- Salvaging of the ship
- Piracy in maritime shipping
Container Average in sea freight
Containers are predominantly used in freight transport across the world's oceans. They are ISO standardised and offer many advantages in terms of loading and unloading, transport, storage and discharge. However, containers are often damaged or lost in maritime freight accidents. The most common cause of loss is extreme weather conditions, which cause containers that are stacked high to fall overboard. The World Shipping Council reported an average of 1,320 containers lost overboard per year among some 5,500 cargo ships that sailed the world's oceans between 2008 and 2019. Last November, a particularly serious case of container loss occurred when 1,816 containers from the Japanese freighter One Apus plunged into the sea in 16-metre swells on the Pacific Ocean.
Measures to be taken after a General Average
As a matter of principle, the master must act in accordance with his best duty and common sense in the event of an Average. The logbook must be carefully kept of every case of General Average.
If all the conditions for General Average are fulfilled, the losses incurred must be determined and apportioned among the parties concerned in proportion to their salvaged values. This very complex task of determining the relevant values and their participation is usually carried out by experts (the so-called General Average adjuster or General Average commissioner). After being commissioned by the shipping company, charterer or transport insurer, the General Average adjuster draws up a loss distribution plan (the General Average) for the parties involved in the average. As a rule, all parties involved submit to the adjudication of the General Average adjuster. In Germany, the General Average procedure is assigned to the voluntary jurisdiction.
What costs are incurred by the principal in the case of General Average?
Since all costs of the cargo that was on board as well as the costs of refloating the ship are shared by all parties involved, the amount of costs in General Average may exceed the actual value of the goods. This also applies if the ship's own goods arrived at their destination undamaged. Total losses of 50 million euros to the billions are not uncommon in cases of serious Average.
In the case of General Average, a shipping company has the right to retain the (undamaged) goods until the owner has paid his share of the costs of General Average.
The final determination and settlement of the dues due may take years. For this reason, the consignee often obtains immediate surrender of the cargo against provision of security.
Here are some examples of damage:
- Stranding (e.g. ship running aground on a sandbank)
- Collision of a ship with reefs, rocks or icebergs
- Fire breaking out on board the ship
- Engine or rudder damage to the ship
- The ship becoming stranded due to low water, especially near the harbour, e.g. on the river Elbe
Transport insurance as a protection against potential costs in the event of a General Average
The risk of having to pay unexpectedly high costs due to General Average can be covered by special insurance policies.
Protect yourself and your cargo from the high costs of General Average with transport insurance. For non-binding information on transport insurance, please contact your Röhlig representative.
The RÖHLIG TRANSPORT INSURANCE SOLUTION offers you security at a competitive price, covers loss or damage, regardless of whether it is transported by road, rail, air or sea.
Find out more about the benefits of transport insurance now.
Examples of Shipwrecks
Disasters at sea, or in ports, as well as shipwrecks have been known since the beginning of seafaring.
Tanker accidents, where hundreds of thousands of tonnes of crude oil spill into the sea, are among the best known examples of accidents that can occur. For example, the AMOCO CADIZ sank off the coast of France in 1978, the oil tanker EXXON VALDEZ ran aground off Alaska in 1989 and spilled 40,000 tonnes of crude oil into Arctic waters, the ERIKA in the Bay of Biscay in 1999 and the PRESTIGE, which sank off the Spanish coast in 2002, all received notable media attention.
Shipwreck: Cruise ship Costa Concordia
The Italian cruise ship from the shipping company Costa Crociere collided with a rock in the Mediterranean Sea in January 2012. The ship leaked and was pushed by the wind towards the island of Giglio, unable to manoeuvre. There the luxury liner, which was already full of water, ran aground and tilted over time to 65 degrees list.
The accident claimed 32 lives. This shipwreck averted a major environmental disaster that would have been triggered by a spill of the 2,400 tonnes of heavy fuel and diesel oil. After the salvage work was completed in July 2017, the cost of the accident was estimated at 1.5 billion euros. The salvage of the ship was thus three times as expensive as the construction price of the cruise ship.
Shipwreck in the Suez Canal: Ever Given
The "EVER GIVEN" is one of the largest container ships in the world. On 23 March 2021, the ship ran aground in strong winds on an embankment of the Suez Canal. It tilted and blocked the passage of the Suez Canal for six days. On 1 April 2021, the shipowners declared the accident as General Average. The amount of damage is still being determined. The salvage and the delays caused have so far been estimated to have caused about one billion dollars in damage. More information on the impact of the blockade on shipping traffic in the Suez Canal can be found here.
Shipwreck: The container ship MV X-Press Pearl burns off the coast of Skri Lanka
On 20 May 2021, a fire broke out on the container ship "MV X-Press Pearl" off the coast of Sri Lanka. The cargo, consisting of microplastics and nitric acid, was on its way from India to Singapore when a chemical leaked from a container due to a storm, triggering a chemical reaction that eventually led to the fire. The 25-member crew of the Singapore-flagged freighter was able to abandon ship in time. Army helicopters dropped fire retardant chemicals on the ship to extinguish the fire. The cargo leaked into the sea, killing countless sea creatures. The surrounding beaches have been polluted with microplastics.