General average: what it means for shippers and cargo owners

General average is a rule of maritime law under which the ship, the cargo and the freight all share, in proportion to value, the cost of an intentional sacrifice or extraordinary expense made to save the whole voyage. If your container is on a vessel that declares it, you owe a share even though your goods arrived undamaged, and the carrier can hold your cargo until you post security. A marine cargo policy that covers general average pays the contribution, which is why shippers who move goods by sea should check that their policy and their insured values match the way contributions are calculated.

What general average is

The principle is old, and the modern statement of it is Rule A of the York-Antwerp Rules: there is a general average act when, and only when, an extraordinary sacrifice or expenditure is intentionally and reasonably made or incurred for the common safety, for the purpose of preserving from peril the property involved in a common maritime adventure. Two kinds of loss qualify.

• Sacrifices. Cargo thrown overboard to lighten a grounded ship, a hold flooded to put out a fire, a vessel deliberately run aground to avoid sinking.
• Expenditures. Tug and salvage costs to refloat the ship, port-of-refuge charges, the cost of discharging and reloading cargo to make repairs, and similar outlays.

The test is whether the act was deliberate and aimed at saving the venture. Ordinary damage that happens by accident (cargo soaked by a leak, containers lost overboard in a storm) is a particular loss, not general average, and falls to the owner of that property or its insurer.

General average belongs to the sea. It applies to ocean voyages (and some inland waterway movements), not to truck, rail or air shipments, which have their own liability and cargo rules. See ocean marine and cargo insurance: how shipment and vessel coverage works for the wider picture of marine cargo cover.

Why undamaged cargo pays

The shared-loss idea is that everyone whose property was saved benefits from the sacrifice, so everyone pays. Contributions are made in proportion to the values of the interested parties: the shipowner, the cargo owners, the owners of bunkers and stores, and the owners of containers and equipment. As TT Club explained in a November 2022 article written with FIATA and the Global Shippers Forum, the adjuster collects landed values of the carrying equipment and the bills of lading and commercial invoices that show the CIF values of the cargo, then applies one percentage to every interest.

Fault does not change that at the adjustment stage. Under Rule D of the York-Antwerp Rules, a general average act can be adjusted even when the casualty was caused by fault on the part of one of the parties, though the other parties keep any legal remedies they have against the party at fault. In U.S. practice, bills of lading carry the "New Jason Clause." Skuld, a P&I club, explains that the clause makes cargo share general average even when the carrier's negligence caused the incident, and requires cargo to pay salvage and special charges; it was written to restore owners' right to recover in general average after a U.S. Supreme Court decision of 1897 had denied it where their own negligence was the cause.

What happens after a declaration

The sequence is much the same on every sizable casualty. Gard, another P&I club, describes the steps.

1. The shipowner declares general average. It should do so before the cargo is released, because delivery ends the carrier's lien, and the lien is its leverage for collecting security.
2. An average adjuster is appointed. The adjuster collects security and, eventually, issues the general average adjustment that sets out who owes what. A surveyor assesses the sacrifices and costs.
3. Cargo interests post security. A general average bond is a promise to pay whatever contribution the adjuster later assesses. For insured cargo, the bond is backed by a guarantee from the cargo insurer. Without cargo insurance, the carrier collects a cash deposit.
4. Cargo is released once security is in place.
5. The adjustment is issued, often years later, and balances are settled. Gard notes that preparing an adjustment and any later litigation can take a number of years.

The security is requested before the loss is known, so the adjuster has to estimate it. TT Club reported a recent case in which the final general average demand exceeded 60% of contributory values, a reminder that the percentage can be large.

A recent example

After the container ship Dali hit the Francis Scott Key Bridge in Baltimore in March 2024, the owner declared general average. Insurance Journal reported on April 15, 2024 that, according to MSC's customer advisory, the owner, Grace Ocean, intended to keep containers under its control until security was arranged with the average adjusters, and that Richards Hogg Lindley had been appointed the adjuster. Cargo owners with insurance were asked to route an insurer-signed average guarantee through the adjuster, and uninsured cargo owners to sign an average bond. That is the usual machinery, applied to one vessel.

How cargo insurance responds

Standard marine cargo wording follows the Institute Cargo Clauses, which many U.S. policies use or adapt. Clause 2 of the Institute Cargo Clauses (A) covers general average and salvage charges, adjusted or determined according to the contract of carriage and the governing law and practice, incurred to avoid a loss from a risk the policy covers. The practical points:

• The insurer usually runs the process. The cargo underwriter issues the guarantee and deals with the adjuster. Some policy wordings ask you to consult the insurer before signing any general average bond, so do not sign the carrier's paperwork until you have spoken to your broker.
• Contribution is based on value, so underinsurance bites. The share is figured on the property's value at the end of the voyage, generally landed value. If you insured at invoice value and the contribution is calculated on a higher landed value, many policies pay only in proportion, and you carry the difference. Some wordings say they pay in full whatever the insured amount, which is a point worth confirming before a shipment.
• Salvage is a separate claim. A salvor has its own lien and demands its own security. The adjuster sorts out what is allowed in the general average and what is claimed directly.
• The cargo's own damage is a different loss. If your goods were damaged by fire or seawater, that is a particular loss under the policy's all-risks grant, with its own deductible and conditions.
• Delay is not the issue it seems. Port-of-refuge costs can look like delay expenses, which cargo policies exclude, but the Institute wording was drafted so the delay exclusion does not remove a general average contribution that Clause 2 otherwise picks up.

If you buy a policy through a freight forwarder, a non-vessel operating carrier or a single-shipment certificate, ask whether general average is expressly covered and whether the limit applies to the contribution on top of any other loss.

Worked example (hypothetical)

Say a Texas furniture importer has a container of goods with a landed value of $250,000. The vessel loses power, grounds and is refloated by tugs. The owner declares general average. The adjuster computes contributory values as follows, using invented figures.

Sacrifices and expenditures allowed in general average come to $12 million, or 12% of $100 million. Every interest pays 12% of its value. The importer's contribution is 12% of $250,000, or $30,000, even though its goods never got wet. If the importer insured the cargo at $275,000 (invoice plus 10%), the policy is above the contributory value and the insurer should pay the contribution. If it insured at only $150,000 on a cheap certificate, the shortfall means the insurer may pay only 60% of the contribution, leaving the importer with $12,000 plus any excess. These numbers are illustrative; real percentages and wording vary.

What shippers should do

• Insure at landed value or higher. CIF value plus 10% is a common basis for the insured amount, and it keeps the policy above the contributory value.
• Confirm general average and salvage are covered and whether the limit applies in addition to loss of or damage to the goods.
• Know who holds the policy. Under some incoterms and who insures goods in transit terms the seller buys cover and under others the buyer does, and the party that bears the risk at the time of the casualty is the one with an insurable interest in the goods.
• Put the claims contact where operations staff can find it. The first sign of a declaration is usually an e-mail from a carrier or forwarder demanding a bond.
• Do not sign blind. Send the bond and any carrier correspondence to your broker or cargo insurer.
• Plan for the wait. Goods held pending security stop production or sales. Consider contingent business interruption insurance and supply chain risk or other cover for the revenue gap, and see supply chain risk and insurance: what is covered and what is not for the wider exposure.
• Watch the time bar. The York-Antwerp Rules 2016 added Rule XXIII, a one-year limit from the issue of the adjustment for proceedings over contribution claims. The Comité Maritime International recommends the 2016 version, with a technical change to Rule XXI on interest made in October 2022, though some bills of lading still refer to older versions.

Where to go for help

A general average declaration is a claim event. Notify the cargo insurer or broker the day you hear of it. Wholesalers, manufacturers and online sellers who import regularly (Wholesaler and distributor insurance, Manufacturer insurance, E-commerce business insurance) often discover the exposure only when a bond arrives. An attorney who handles maritime and cargo claims can advise on disputes over fault or on contract terms, and a broker with marine experience can review a policy before the next shipment.

Key takeaways

• General average makes all property saved on a voyage share an intentional sacrifice or extraordinary expense, in proportion to value, so undamaged cargo can owe money.
• After a declaration the carrier can hold cargo until you post a bond backed by a cargo insurer's guarantee or a cash deposit, and the final adjustment can take years.
• Marine cargo policies usually cover general average under Clause 2 of the Institute Cargo Clauses (A), but insured value below landed value can reduce what the insurer pays.
• Send any bond or carrier demand to your broker or cargo insurer before signing, and check your policy wording before the next ocean shipment.