General Average Guarantee

A General Average Guarantee is a document issued, usually by a cargo insurer, to secure the cargo owner’s possible General Average contribution after General Average has been declared.

In practice, it may also be called a G.A. Guarantee, General Average Letter of Guarantee, Letter of Guarantee or L/G.

When General Average is declared, the carrier, shipowner or average adjuster may require security before releasing cargo. If the cargo is insured, the cargo insurer may issue a General Average Guarantee instead of the cargo owner providing a cash deposit.

Overview

A General Average Guarantee is one of the key documents used to secure the cargo owner’s future General Average contribution.

General Average is not finally adjusted immediately after the casualty. The average adjuster reviews the casualty, allowable expenses, sacrifices, salvage-related costs, cargo values, vessel value, freight interests and other relevant information before calculating the final contribution.

Because the final amount is not known at the early stage, the carrier or average adjuster may require security before cargo release. The General Average Guarantee helps secure the cargo interest’s future payment obligation while allowing cargo release to proceed.

Role of the General Average Guarantee

The main role of a General Average Guarantee is to replace, in many insured cargo cases, the need for the cargo owner to provide a cash General Average deposit.

If the cargo is insured under appropriate cargo marine insurance, the insurer may issue the guarantee to the carrier, shipowner or average adjuster.

The guarantee confirms that the insurer will pay the cargo owner’s legally and properly due General Average contribution, subject to the wording of the guarantee and the insurance policy.

For forwarders, the practical point is that cargo release may depend on whether the required guarantee and related documents are submitted and accepted.

Difference from a General Average Deposit

If the cargo is not insured, the cargo owner may be asked to provide a General Average deposit, cash security, bank guarantee or other security.

If the cargo is insured, the cargo insurer may issue a General Average Guarantee so that the cargo owner does not need to provide cash security directly.

• Insured cargo: the insurer may issue a General Average Guarantee.
• Uninsured cargo: the cargo owner may need to provide a cash deposit or bank guarantee.
• Delayed security: cargo release may be delayed until the required security is accepted.

Forwarders should therefore confirm cargo insurance status as soon as a General Average notice is received.

Difference from General Average Bond and Cargo Value Declaration

A General Average Guarantee, General Average Bond and cargo value declaration may be requested in the same General Average process, but they have different functions.

A General Average Bond is usually signed by the cargo owner or consignee. It is an undertaking by the cargo interest to pay the General Average contribution that is legally and properly due.

A cargo value declaration is a document in which the cargo owner declares the value of the cargo. This value is used as part of the basis for calculating the General Average contribution.

A General Average Guarantee, by contrast, is normally issued by the cargo insurer to secure payment of the cargo owner’s contribution.

• General Average Bond: undertaking signed by the cargo owner or consignee.
• Cargo Value Declaration: declaration of cargo value for adjustment purposes.
• General Average Guarantee: payment security issued by the cargo insurer.

These documents should not be confused. Submitting one document does not automatically satisfy all General Average security requirements.

Unlimited General Average Guarantee

Some General Average Guarantees state a monetary limit, while others may be requested without a fixed limit.

In practice, carriers or average adjusters may request an unlimited General Average Guarantee because the final contribution amount is not known at the time of cargo release.

The reason is practical. If the final contribution later exceeds the amount stated in a limited guarantee, the carrier or average adjuster may face a shortfall in security.

However, even where an insurer issues an unlimited General Average Guarantee, the insurer’s actual payment obligation may still be affected by the cargo insurance policy terms, insured value, exclusions, deductibles or other policy conditions.

In some cases, the insurer may request counter-security, additional confirmation or clarification from the cargo owner before issuing the guarantee.

How to Request Issuance

A General Average Guarantee should be requested from the cargo insurer or insurance broker as soon as possible after the General Average declaration or notice is received.

Delay in issuing the guarantee may directly affect cargo release. This can lead to storage charges, demurrage, detention, delivery delay and customer complaints.

The following documents are commonly required when requesting a General Average Guarantee:

• General Average declaration or notice
• B/L and reverse-side terms
• Commercial invoice
• Packing list
• Cargo insurance policy or certificate
• Copy of the General Average Bond, where available
• Copy of the cargo value declaration, where available
• Freight documents where cargo value or insured value requires confirmation
• Instructions from the carrier or average adjuster

After the guarantee is issued, it should be submitted to the party designated in the General Average notice, usually together with the General Average Bond, cargo value declaration and other required documents.

Relationship with Cargo Release

The General Average Guarantee is directly connected with cargo release.

When General Average is declared, the carrier or average adjuster may require the following documents before cargo release:

• General Average Bond
• Cargo value declaration
• Commercial invoice
• General Average Guarantee from the cargo insurer
• General Average deposit or other security if the cargo is uninsured

If the required documents are not submitted or accepted, D/O exchange, cargo release or delivery may be delayed.

Such delay may cause storage charges, demurrage, detention, delivery delay and additional disputes with the consignee or cargo owner.

Difference from Salvage Security

A General Average Guarantee and Salvage Security are different documents.

A General Average Guarantee is normally issued for the benefit of the carrier, shipowner or average adjuster to secure the cargo owner’s General Average contribution.

Salvage Security, by contrast, is requested by salvors to secure payment of salvage remuneration.

In simple terms, a General Average Guarantee is directed toward the General Average process, while Salvage Security is directed toward the salvage claim process.

In a serious marine casualty, both may be required separately. A General Average Guarantee does not necessarily solve the Salvage Security issue.

Forwarder and NVOCC Practical Notes

When a General Average declaration is received, forwarders and NVOCCs should promptly inform the cargo owner and ask whether cargo marine insurance is in place.

It is important not to leave the guarantee process entirely to the cargo owner without guidance. Even if the cargo is insured, the insurer will usually need documents such as the insurance certificate, B/L, invoice, packing list and General Average notice before issuing a guarantee.

If the cargo is uninsured, the cargo owner may need to arrange a cash deposit or bank guarantee. This may take time and may delay cargo release.

NVOCCs should also consider their own position. Where multiple cargo owners are involved, it may be necessary to explain the process clearly, collect documents from each cargo owner and avoid mixing up cargo interests.

Documents to Check

The following documents should be checked in relation to a General Average Guarantee:

• General Average declaration or notice
• Instructions from the average adjuster
• B/L and reverse-side terms
• Commercial invoice
• Packing list
• Cargo insurance policy or certificate
• General Average Bond
• Cargo value declaration
• General Average Guarantee
• Salvage Security or salvage guarantee, if separately requested
• Correspondence from the carrier, insurer or average adjuster

Forwarders should confirm the purpose, recipient and deadline for each document. General Average documents and salvage documents may be requested through different channels.

Common Problems

• The cargo owner assumes that cargo release will be automatic after General Average is declared.
• The cargo owner does not know whether cargo insurance is in place.
• The insurer is contacted too late.
• The General Average Bond or cargo value declaration is missing.
• The insurer cannot issue the guarantee because necessary documents are incomplete.
• The cargo is uninsured and the owner cannot prepare a cash deposit quickly.
• The forwarder confuses General Average Guarantee with Salvage Security.
• Storage charges, demurrage or detention arise while documents are being arranged.

These problems may lead to cargo release delay, additional cost, customer complaints and disputes between the cargo owner, insurer, carrier, average adjuster and forwarder.

Practical Notes for Japan-Related Shipments

For Japan-related shipments, the consignee or cargo owner may need to respond quickly after receiving a General Average notice.

The practical priority is to identify the cargo insurer, collect the required documents, request the General Average Guarantee and submit it to the correct recipient before cargo release is blocked or delayed.

Japanese cargo owners may not be familiar with the difference between a General Average Guarantee, General Average Bond, cargo value declaration and Salvage Security. Forwarders should explain these documents separately and avoid giving unclear guidance.

Written records of notices, document requests, submission dates and communications with insurers or average adjusters should be kept.

Key Takeaway

A General Average Guarantee is a document usually issued by a cargo insurer to secure the cargo owner’s possible General Average contribution after General Average has been declared.

If the cargo is insured, the insurer’s guarantee may allow cargo release without the cargo owner providing a cash General Average deposit.

However, a General Average Guarantee, General Average Bond, cargo value declaration and Salvage Security have different roles. Forwarders, NVOCCs and cargo owners should contact insurers early, check the required documents and submit the correct security to the correct recipient to avoid cargo release delay.