[Video] What is General Average?
In an educational video, Trade Risk Guaranty explains the maritime law of General Average and how it can be declared on a shipment.
The law of General Average (GA) is a legal principle of maritime law that has existed as a part of international trade since ancient times. In fact, the earliest documented laws mentioning what would become known as General Average date back to the Digest of Justinian, Book XIV (14), in 530 ACE. GA can have a drastic effect on importers and the types of the situations makes it hard to predict if/when one will arise.
Who is Responsible in a General Average Event?
According to the law of General Average, all parties in a sea venture proportionally share any losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole in an emergency. The purpose of this law is to ensure that a party who has suffered some extraordinary expenditure or loss in order to save property belonging to others has the right of compensation for its loss from all parties that benefitted from that voyage. Since there is no effective way to determine beforehand which pieces of cargo will be jettisoned or sacrificed if trouble on the high seas occurs, and there is no way to guess when and/or where that trouble might arise, the risk is spread among all the owners of the cargo and the owner of the vessel.
The official law of General Average states:
“There is a General Average Act WHEN and ONLY WHEN. any EXTRAORDINARY SACRIFICE or EXPENDITURE is INTENTIONALLY and REASONABLY made or incurred for THE COMMON SAFETY or the purpose of PRESERVING FROM PERIL the property involved in a COMMON MARITIME ADVENTURE”
When is General Average Declared?
A situation that can only be declared General Average if the voyage was ‘Preserved from Peril’. If the entire voyage is lost, for example, if the ship sinks this would not be a GA event since the voyage was not preserved from peril. It is up to the captain of the ship to make the official declaration.
Some examples of situations that can result in the declaration of GA are:
- A Fire Onboard the Ship
- Mechanical Engine Failure
- The Ship Running Aground
- A Case of Piracy or Ransom of the Ship
- Getting Caught in a Storm that Forces the Ship to Find an Unplanned Safe Harbor
All of these events would require the ship’s crew and outside parties to take action to save the ship, its crew, or its cargo in order to complete the scheduled voyage.
As you can see all of these example situations are unpredictable and can happen to any crew despite their level of experience on the sea. If you are shipping goods via an ocean vessel, you are a party on in that sea venture and are, therefore, at risk of a General Average claim. Once a ship captain declares GA, all parties become part of the claim process.
Learn the Basics of General Average
Watch the following video to learn what General Average is and what types of situations can result in the declaration of General Average.
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