Answers to General Average questions

Here are the answers to the General Average questions that were posted on this site last week.. These questions and answers are courtesy of Barton Jennings – Professor Emeritus, Supply Chain Management and Transportation practitioner

1. What is the basic concept of the General Average practice?

The concept of General Average is that everything involved with a voyage should share in the benefits and risks. Basically, you are responsible for any “rescue” actions based upon the percentage of total value (ship plus cargo) that your cargo represents. General Average applies when three items happen.

These are:

1. 1. There is a danger to the entire vessel, crew, and shipments.
   2. There must be a direct action to jettison a part of the cargo or similar action that removes the peril from the entire sailing to a part of the sailing. This action has been expanded to include rescue from stranding, fire, and other perils where the shipowner experiences losses or costs to save the shipments.
   3. The action taken was successful and ended or prevented other losses.

2. Explain the difference between an overboard loss and a jettison loss. Which would likely be covered by the General Average practice, and why?

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Overboard Losses – Waves and rocking can cause products to fall off a ship. Basically, it is an accidental loss. Jettison – Containers and other cargo may be jettisoned if they risk the safety of the vessel.

Typically, containers or vehicles that come loose in rough waters are pushed overboard. Additionally, containers that catch fire or pose an immediate threat to the crew and/or other cargo may be jettisoned. Basically, it is a loss done on purpose to save other shipments and the ship. This type of loss gets covered or included by General Average.

3. You have cargo worth $2.8 million in several containers. The entire cargo on the ship is valued at $140 million, and the ship is valued at $120 million. The ship has been stranded due to an unusual storm, and the shipowner has spent $22 million to rescue the ship and have it hauled to port. What is your potential General Average liability from this incident? Show all of your calculations.

1. 1. Total Value = $140 million + $120 million = $260 million
   2. Your Cargo Value = $2.8 million Total General Average Loss = $22 million
   3. Your General Average Share = ($2.8 million/$260 million) x $22 million = $236,922.40