General Average: What is it and how does it work?

During international ocean freight transportation, emergencies may arise that put the vessel, its crew, and the cargo at risk. In these situations, extraordinary measures, such as sacrificing containers, may be necessary to protect the safety of the vessel and the remaining cargo.

This is known as General Average, a concept that both importers and exporters should understand, as it can result in financial obligations even when their goods arrive at their destination in good condition.

What is general average?

General Average is a principle of maritime law under which certain extraordinary sacrifices or expenses incurred to preserve property involved in a common maritime adventure must be shared among the interests involved.

In simpler terms, General Average may be declared when extraordinary measures, such as intentionally throwing containers overboard, are taken to save a vessel and its cargo from a common danger. In this case, the costs associated with the losses are shared among the parties involved in the voyage, including owners whose cargo remains undamaged.

Under what circumstances can general average be declared?

Fire on board: When extraordinary measures are required to control a fire and protect the vessel and its cargo.
Grounding: When extraordinary services are needed to free a vessel from a dangerous situation.
Cargo sacrifice: When cargo is intentionally thrown overboard to protect the vessel and the remaining goods.
Extraordinary expenses at a port of refuge: When a vessel must divert to a port due to an emergency, resulting in expenses that qualify under the applicable rules.

Situations that do not constitute general average

Damage caused by improper packaging: When goods are damaged because they were not properly packed or protected for transportation.
Accidental loss of containers: When cargo falls overboard due to an accident, without a deliberate decision to sacrifice it to protect the vessel and the remaining goods.
Moisture damage: When goods deteriorate due to water leaks or condensation during transit.
Delivery delays: When a shipment arrives later than expected, resulting in commercial losses or delay-related costs.
Damage during loading or unloading: When goods are damaged due to improper handling during port operations.

How does general average work?

Declaration: The shipowner declares General Average following an incident believed to meet the applicable requirements.
Assessment: A specialized General Average adjuster examines the incident, the expenses incurred, and the sacrifices made.
Security: Cargo owners may be required to provide financial security, either through an insurance company or other accepted means, before their cargo can be released.
Cost allocation: The adjuster determines which expenses and sacrifices qualify and how contributions should be distributed among the interests involved, based on their respective contributory values.

This process may continue long after the goods have arrived at their destination.

How can you reduce the risks associated with general average?

A company cannot prevent every maritime incident, but it can prepare to minimize the financial and operational impact.

Before shipping, it is advisable to review the terms of transportation, obtain appropriate cargo insurance, and confirm that the policy covers General Average contributions.

It is also important to work with a freight forwarder who can facilitate logistics and documentation coordination in the event of an unexpected incident.

Protect your international trade operations

At Remar International, we have more than 25 years of experience in foreign trade. Through our freight forwarding services, we coordinate your international shipments and support you throughout every stage of your logistics operations.