February 19, 2020
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What is the law of "General Average" in shipping and why does it matter?

DGX the law of General Average

The law of “General Average" is a shipping term that matters when dealing with cargo insurance, bills of lading, and the legal issues of cargo.

  • The law of general average is a principle of maritime law whereby all stakeholders 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.
    ~Wikipedia
It’s the shipping principle of maritime law. General Average occurs when a voluntary sacrifice is made to safeguard the vessel, cargo or crew from a common peril, for example, a fire. If the sacrifice is at issue, all parties shipping on the vessel contribute to the loss based on their cargo’s value whether their shipment was damaged or not. Appointed adjusters will assess the value of each shipment on board and apply a formula that determines the financial contribution of each cargo owner.

If you’re a cargo owner with shipments onboard a declared “general average” vessel, the likelihood of having your cargo released timely is dependent on how soon you can post a security. The security must be in the form of a cash deposit, bank guarantee or bond. If the cargo owner has cargo insurance, the “average guarantee” is posted by the insurance company. Having cargo insurance is beneficial to cargo owners as it not only provides coverage for damaged goods but it facilitates the release of their cargo.

The General Average and Salvage Adjusters will appoint collecting agents to prepare and collect securities from each of the parties concerned in the cargo on board. Cargo will only be released upon receipt of the required security.

 The following forms will be required:
  • A copy of the cargo commercial invoice
  • An Average Bond form to be completed and signed by the owners of the cargo. 
  • An Average Guarantee form to be completed, signed or stamped by the insurance company (when insured). 
The Average Bond and the Average Guarantee form should be sent to the cargo insurer along with the bill of lading and commercial invoice for any insured shipment.

If you are the NVOCC or freight forwarder like DGX-Dependable Global Express, you should pass along any General Average paperwork to the cargo owners and advise them to contact their cargo insurers to arrange the guarantee. Unfortunately, for uninsured shipments, a cash deposit will be required in place of an insurers’ Average Guarantee. Adjusters will advise the amount of the cash deposit required.

Please contact your local DGX representative should you have any questions or need additional information. Our team will be glad to further explain the benefits or securing cargo insurance.

At DGX we offer a unique package of shipping services. If you need assistance, please reach out to your local office or call toll free 1-800-488-4888 and we can help you. We specialize in international ocean and air freight shipping.

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