General Average Contribution

Overview

General Average Contribution is the amount that cargo owners, shipowners and other interested parties may be required to pay when General Average is declared.

When a vessel, cargo and freight are saved from a common maritime danger, the costs and sacrifices incurred for that common safety may be shared among the interests that benefited from the saving of the voyage.

Even if the cargo itself arrives without physical damage, the cargo owner may still be required to contribute if the cargo is considered to have been saved together with the vessel and other cargo.

If the cargo is not insured, the cargo owner may need to arrange a cash deposit, bank guarantee or other security by itself. For this reason, General Average Contribution is one of the clearest examples showing the practical importance of marine cargo insurance.

When General Average Contribution Arises

General Average Contribution may become an issue when a vessel faces a serious maritime casualty or emergency, such as grounding, fire, collision, engine breakdown, towage, entry into a port of refuge, jettison of cargo or firefighting operations.

In such cases, the burden is not borne only by the party whose property was physically damaged. Instead, reasonable sacrifices and expenses incurred for the common safety are shared among the parties whose interests were preserved.

Relationship with the York-Antwerp Rules

The adjustment of General Average is often carried out under the York-Antwerp Rules.

The reverse side clauses of the B/L or the charterparty often state which version of the York-Antwerp Rules will apply. The applicable rules may affect which expenses or sacrifices are allowed as General Average and how the contribution is calculated.

How the Contribution Is Calculated

General Average Contribution is not determined simply by whether the cargo itself was damaged.

An average adjuster reviews the expenses and sacrifices that may be allowed as General Average, and then calculates the contribution based on the contributory values of the saved interests, including the vessel, cargo and freight.

The following points are usually reviewed:

• Expenses and sacrifices allowed as General Average
• Value of the saved vessel
• Value of the saved cargo
• Whether freight is subject to contribution
• Arrived value of damaged cargo, where relevant

For cargo, the contributory value is usually considered based on the invoice value or CIF value. If the shipment is on FOB or CFR terms, freight and insurance may need to be added for calculation purposes.

Final adjustment may take several years depending on the size of the casualty and the number of parties involved. Therefore, the final contribution amount is often fixed long after the incident. During this period, the handling of guarantees, bonds and deposits becomes an important practical issue.

Relationship with Cargo Delivery

When General Average is declared, the carrier or the average adjuster may require security documents before the cargo is released.

This is because the final amount of General Average Contribution will be determined later, and the carrier or relevant parties need to secure future recovery of the contribution.

In practice, cargo interests may be asked to submit the following documents:

• General Average Bond
• Cargo Value Declaration
• Commercial Invoice
• General Average Guarantee issued by the cargo insurer
• General Average Deposit if the cargo is uninsured

If submission is delayed, cargo release may be stopped. This may lead to delivery delay, storage charges and other additional costs.

Relationship with Marine Cargo Insurance

If the cargo is insured under marine cargo insurance, the insurer may issue a General Average Guarantee and handle the payment of General Average Contribution on behalf of the cargo owner.

Marine cargo insurance therefore has an important role not only in covering physical loss of or damage to cargo, but also in supporting the practical procedures relating to General Average Contribution and salvage charges.

If the cargo is uninsured, the cargo owner may be required to arrange a cash deposit or bank guarantee. This can create a significant financial and administrative burden.

When Refusal of Payment Becomes an Issue

The declaration of General Average does not always mean that every contribution must be paid without question.

For example, if the vessel was unseaworthy before the voyage and that unseaworthiness caused the casualty, the carrier’s responsibility may become an issue under the Hague-Visby Rules or the applicable B/L terms.

In such cases, cargo interests may dispute payment of the General Average Contribution, or the cargo insurer may pay first and later pursue recovery against the carrier.

However, even when the contribution itself is disputed, security documents may still be required for cargo release. The issue of whether the contribution is ultimately payable should be separated from the practical need to provide security for cargo delivery.

Practical Points for Forwarders and Cargo Owners

When a General Average declaration is received, forwarders and NVOCCs should promptly inform cargo owners of the required documents, submission destination, deadline and whether the cargo insurer must be contacted.

This is especially important for LCL cargo. In consolidated shipments, the insurance status and document submission status of multiple cargo owners may affect cargo release. If some cargo owners are uninsured, arrangements for deposits or guarantees may be delayed, and this may affect the overall release process.

General Average Contribution is different from ordinary freight, port charges or local charges. Forwarders and cargo owners should review the quotation terms, B/L clauses, cargo insurance and contractual arrangements with the customer to clarify who is responsible for each part of the procedure.

Documents to Check in Practice

• General Average Declaration
• B/L and reverse side clauses
• Invoice
• Packing List
• Cargo insurance policy or certificate
• General Average Bond
• Cargo Value Declaration
• General Average Guarantee
• General Average Adjustment

Key Takeaway

General Average Contribution is the amount shared by the saved interests when sacrifice or expense is incurred for the common safety of the maritime adventure.

A cargo owner may be required to contribute even when its own cargo has arrived without physical damage. Cargo release may also require a General Average Bond, Cargo Value Declaration, insurer’s General Average Guarantee or cash deposit.

The final amount is not normally fixed immediately after the casualty. It is determined later by the average adjuster. Cargo owners, forwarders and insurers should therefore manage two separate issues: security for cargo release and the later adjustment of the General Average Contribution.