Upply — 2023-04-26
Maritime and Ports
Shippers can sometimes be called to the rescue financially by shipping companies in the event of incidents on a ship, in the name of the principle of general average. A greater risk today than in the past.
General average is an internationally recognised marine system, which allows certain losses and expenses to be shared between the shipping company and the owners of the cargo in the event of an incident during a voyage. One of the most prominent recent examples was that of Ever Given, after its grounding in the Suez Canal.
This long-standing principle in maritime law is based on the premise that the sea is by definition a hostile territory, where many unforeseen events can occur. It therefore creates solidarity linking the fate of the goods with that of the ship, the co-contractors tacitly agreeing to share a “maritime adventure”. In the event of an incident falling within the scope of general average, it shall be assumed that the goods contribute financially to the operations enabling the ship to be returned to the seaworthy state in which it was before the event that caused the damage.
If the outcome is fatal and results in the complete sinking of the ship and all of its cargo, we enter a case of total loss, which is almost easier to manage and does not fall directly into the field of general average. There may be more obscure cases, when one part of a ship which has broken in two sinks with its cargo (total loss) while the other part, which has been able to be brought to dock with its cargo, enters into the scope of general average. Fortunately, cases of this type are rare but of unimaginable legal complexity in their resolution...
One might think that thanks to technological advances, the risk is now lower. But in fact this is not the case. We even believe that the risks faced by shippers in the containerised shipping sector are currently higher than they were a few years ago, and that is why we wanted to carry out a review of this subject.
1/ Why are general average risks on the rise?
Several factors are now contributing to the increased risk:
For all these reasons, which are not exhaustive, transporting goods on a container ship is not a trivial affair, even taking into account the technological advances specific to the 21st century.
2/ A risk too often neglected
In the case of a declaration of general average, the financial consequences can be very significant. When purchasing a shipping service, shippers logically focus on freight rates and delivery times, which are the two main issues. And yet, failure to take into account the risk of general average can lead to a double penalty, namely a delay or even non-delivery of the goods, combined with expenses that can greatly exceed the value of the goods transported.
Too often, I see a lack of knowledge of shippers on this subject, based on the following arguments:
There is indeed a simple and inexpensive product to cover the risk, the transport insurance "Free of Particular Average (FPA)", a kind of equivalent to a "third party" motor insurance policy. This device covers the goods at least against the obligation to contribute financially.
3/ What to do in the event of general average?
In 2016, the Comité Maritime International published guidelines for commercial parties to help them master the basic principles of general average. These guidelines, updated in 2022 October, provide an excellent insight into the procedure.
"The assessment of allowable expenses is carried out by an independent professional called an average adjuster, who then divides the total general average amount in proportion to the value of all property that has been saved and reaches destination, in a final adjustment report," recalls the Comité Maritime International.
In all cases, due diligence should be exercised. I have never known of any cases in which the goods could have been exempted in one way or another from a general average procedure which, as an important reminder, is initiated by the shipping company concerned, unilaterally. It is not possible for the shipper to escape the procedure, even if they consider that the general average declaration is abusive on the part of the company, which may sometimes be the case.