For those shippers and freight forwarders with cargo on the Ever Given the clean up has begun. Freeing the vessel and re-opening the Suez Canal was just the start for the vessel’s owners. Salvage and vessel costs will need to be paid and this will prove costly.
Recovery cost is considerable which isn’t a surprise. The ship’s owner have no alternative to declare General Average. For those of us involved in shipping this will come as no surprise. Shipper’s on the Ever Given need to brace themselves to wait for a cargo release date. Insured customers will receive their cargo first. Un-Insured shippers need the full costs to obtain release.
What is General Average
Forwarders Matter cover General Average regularly. It allows the Ship Owner to recover funds from those with cargo on board. For those with insurance in place this will not be an issue as your freight forwarders provides the insurance certificates to the ship-owner. This allows release of cargo. For those without insurance this will lead to significant delays whilst they work out the level of General Average required.
The term is simple : General Average is a maritime law that requires the Shipowner and the customers share a proportionate amount of the costs associated with saving a ship after a major casualty. General Average declares and cargo owners contribute to a GA fund. Cargo release is obtained by payment of a security deposit into the GA Bond.
In this instance that cost is likely to be large and complex to work out. The costs include claims from other parties which will delay claims adjustors assessing the level of costs incurred. Those with insurance in place will simply provide an insurance certificate. Those without insurance need the final figures to pay their deposit. Difficult to provide a time-frame, could be weeks or month’s.
An example of cargo under General Average
A good example of how general average works was the Maersk Honam. Back in 2018 the vessel had a fire on board. The claims adjustor settled the fixed salvage security at 42.5% of cargo value and 11.5% as a GA Deposit. Cargo value at $100,000 the deposit to obtain release of your cargo was $54,000.
It allowed the vessel owner to put a Lien on the cargo. Authorising them to sell where the security bond is not paid by the cargo owner.
Should freight-forwarders sell insurance
This question should a freight forwarder sell insurance. Is your logistics provider only interested in providing and competing on the cheapest price. Are you asking the freight forwarder the correct questions.
Would you blame the freight forwarder if he is coming to you as a shipper to request a GA payment and advising if you do not pay you will lose your goods? Have they made you aware of the risks involved in shipping cargo by sea un-insured. It isn’t the value of your goods that you are risking. General average can increase that risk considerably. Should you as goods owner risk shipping without insurance?
Only the shipper can answer the question of whether the risks of saving a small percentage of freight costs by removing insurance is worthwhile. We at Forwarders Matter cannot see any justification for taking that risk. Especially when shipping goods by sea.