General average (General Average)

General average (General Average)

General average is a fundamental principle of maritime law according to which, when a voluntary sacrifice is made or an extraordinary expense incurred to preserve the ship and its cargo from a common peril, the losses are distributed proportionally between all interested parties (shipowner, owners of the goods, charterers).

Example situations

Throwing goods overboard to lighten a ship in danger (damage-Loss), emergency towing costs, harbor costs of refuge, damage caused by water used to extinguish a fire on board.

York and Antwerp rules

General average is governed by the York and Antwerp Rules (latest version 2016), incorporated by reference in almost all maritime bills of lading.

Contribution

Each owner of goods must contribute to the general average in proportion to the value of his saved goods. This contribution can represent a significant percentage of the value of the goods.

Guarantee required

In the event of a declaration of general average, the shipping company requires a guarantee (cash deposit or letter of guarantee from the insurer) from each recipient before releasing the goods. Without shipping insurance, the importer must provide a cash deposit — potentially considerable.

Importance of insurance

General average is one of the essential reasons why all goods transported by sea should be insured, even when Incoterm does not require it.