General Average: Understanding the Hidden Costs and Delays in Cargo Shipping

Introduction: The Ever Given Incident and Its Ripple Effects

In March 2021, the maritime industry faced an unprecedented challenge when the MV Ever Given, a massive container ship operated by Evergreen, became lodged in the Suez Canal. This incident not only caused a temporary closure of one of the world's busiest shipping routes but also triggered a domino effect of delays and financial complications for cargo owners worldwide.

The Ever Given incident brought to light a centuries-old maritime law principle known as "general average," which many shippers may not have been familiar with. This blog post will delve into the intricacies of general average, its implications for cargo owners, and how digital logistics solutions can help mitigate these risks.

Key facts from the Ever Given incident:

• The ship was stuck in the Suez Canal for six days
• It caused a backlog of over 400 ships waiting to transit
• The incident resulted in billions of dollars in losses for global trade
• The ship's owners declared general average, affecting all cargo owners on board

Understanding General Average: A Maritime Law Principle

General average is a principle of maritime law that allows a vessel owner to distribute the financial burden of a maritime casualty among all parties with a financial interest in the voyage. This includes the ship owner, cargo owners, and other stakeholders.

The principle operates on the following basis:

• When a ship faces extraordinary danger or incurs extraordinary expenses to preserve the safety of the vessel and its cargo, the ship owner can declare general average.
• All parties with an interest in the voyage must contribute to the losses in proportion to the value of their property that was saved.
• The contribution is calculated based on each party's "interest" in the voyage, typically defined as the cargo's commercial invoice value relative to the total value of the ship and all other cargo on board.

While general average has been a part of maritime law for centuries, many shippers and cargo owners may be unaware of its implications until they find themselves caught in such a situation.

The Complex Process of General Average

When general average is declared, it sets in motion a complex and often lengthy process that can significantly impact cargo owners. Here's a breakdown of what typically happens:

1. Assessment of Damages and Losses

All parties involved – including cargo owners, the ship owner, other injured parties, and their respective insurance companies – must assess the value of the cargo, the ship, and the extent of damages or losses incurred. This process can be intricate and time-consuming, often taking months or even years to complete.

2. Cargo Held as Security

During the assessment period, all cargo from the ship may be held as 'security' to ensure that each cargo owner pays their portion of the general average fund. This can lead to significant delays in receiving goods, even if they were not directly damaged in the incident.

3. Posting Security to Release Cargo

To retrieve their cargo, owners typically need to post cash or a bond to secure their portion of the general average fund. This requirement can pose a substantial financial burden, potentially amounting to tens of thousands of dollars for cargo that has already been paid for.

4. Calculation and Distribution of Costs

Once all assessments are complete, the total costs are calculated and distributed among all parties based on their proportional interest in the voyage. This final settlement can take years to resolve, leaving cargo owners in a state of financial uncertainty.

The Financial Impact on Cargo Owners

The declaration of general average can have severe financial implications for cargo owners, including:

• Immediate cash flow issues due to the need to post security
• Potential loss of business due to delayed receipt of goods
• Additional storage and handling costs for held cargo
• Legal and administrative expenses related to the general average process
• Potential loss of market value for time-sensitive goods

These financial burdens can be particularly challenging for small and medium-sized businesses that may not have the resources to absorb such unexpected costs.

Mitigating Risks: The Importance of Cargo Insurance

Given the potential financial impact of general average, it's crucial for cargo owners to protect themselves through appropriate insurance coverage. Here are some key points to consider:

1. General Average Coverage

Some cargo insurance policies include coverage for general average. This type of coverage obligates the insurer to post a bond to secure the release of cargo, allowing the insured to avoid a potentially crippling blow to their cash flow.

2. Limitations of Carrier Liability

It's important to note that carriers often limit their liability for cargo loss. This means that relying solely on the carrier's coverage may leave cargo owners exposed to significant financial risk in the event of a general average declaration.

3. Comprehensive Cargo Insurance

To fully protect against the risks associated with general average and other maritime perils, cargo owners should consider comprehensive cargo insurance that specifically includes coverage for general average situations.

How FreightAmigo's Digital Logistics Platform Can Help

At FreightAmigo, we understand the complexities and risks associated with international shipping, including the potential impact of general average declarations. Our Digital Logistics Platform offers several features to help cargo owners navigate these challenges:

1. Comprehensive Freight Quote Comparison

Our platform allows users to compare door-to-door freight quotes for various shipping methods, including international courier, airfreight, sea freight, rail freight, and trucking solutions. This comprehensive view helps shippers make informed decisions about their shipping options, potentially reducing exposure to general average situations.

2. Real-Time Shipment Tracking

With connections to more than 1000 reputable airlines and shipping lines, our platform provides real-time tracking of shipment status. This visibility can be crucial in quickly identifying and responding to potential issues that could lead to general average declarations.

3. Integrated Cargo Insurance Options

Through our platform, users can easily arrange cargo insurance that includes coverage for general average. This integrated approach simplifies the process of obtaining comprehensive protection for shipments.

4. Customs Clearance and Trade Finance

Our one-stop solution includes services for customs clearance and trade finance. These features can help expedite the release of cargo in general average situations and provide financial flexibility to manage unexpected costs.

5. Automated Documentation

Our platform automates shipment documents, reducing the risk of errors or omissions that could complicate matters in the event of a general average declaration.

6. 24/7 Expert Support

Our round-the-clock logistics expert support ensures that shippers have access to guidance and assistance at all times, including during complex situations like general average declarations.

Best Practices for Cargo Owners

To minimize the risks associated with general average and cargo shipping delays, we recommend the following best practices:

1. Understand Your Insurance Coverage

Review your current cargo insurance policies to ensure they include adequate coverage for general average situations. If not, consider upgrading your coverage.

2. Stay Informed About Shipping Routes

Keep abreast of news and developments along major shipping routes. Being aware of potential risks can help in making informed decisions about shipping methods and routes.

3. Diversify Shipping Methods

Consider using a mix of shipping methods to spread risk. This could include a combination of sea, air, and land transport depending on the nature of your cargo and urgency of delivery.

4. Plan for Contingencies

Develop contingency plans for potential shipping delays or cargo holds. This might include maintaining higher inventory levels or having alternative suppliers in place.

5. Leverage Digital Logistics Platforms

Utilize comprehensive Digital Logistics Platforms like FreightAmigo to streamline your shipping processes, gain better visibility, and access integrated insurance and support services.

Conclusion: Navigating the Complexities of Modern Shipping

The Ever Given incident and the subsequent general average declaration served as a wake-up call for many in the shipping industry. It highlighted the intricate and often overlooked aspects of maritime law that can have significant financial implications for cargo owners.

As the global supply chain continues to face challenges and uncertainties, it's more important than ever for shippers to be well-informed and well-prepared. Understanding the risks associated with general average, securing appropriate insurance coverage, and leveraging advanced Digital Logistics Solutions are crucial steps in mitigating these risks.

At FreightAmigo, we are committed to providing a comprehensive Digital Logistics Platform that not only simplifies the shipping process but also helps our clients navigate complex situations like general average declarations. By combining cutting-edge technology with expert support and integrated services, we aim to empower businesses of all sizes to ship with confidence in an ever-changing global landscape.

As we move forward, the lessons learned from incidents like the Ever Given will undoubtedly shape the future of maritime shipping and logistics. By staying informed, prepared, and partnered with the right Digital Logistics Solution provider, cargo owners can better position themselves to weather the storms of international shipping and emerge stronger on the other side.