Understanding General Average

Import and export traffic in our globalized world generally runs quite smoothly, but occasionally, the very real risks associated with the natural elements at sea or simple human error impact transportation adversely. Severe weather including wind, rain, swells  and lightning storms can create a recipe for disaster for traveling ships. Less violent, but still serious issues can arise when technology fails or a mistake is made by a crewman which puts the ship and cargo in peril.  General Average (GA) is the legal principle in maritime law that permits the ship-owner to voluntarily sacrifice part of the ship or cargo to save the rest or majority of the vessel  and cargo. The term “average” in this case should be understood to mean “loss”. When an event is declared as a General Average, the ocean carrier is fully relieved of the liability of loss; that burden is instead, distributed collectively  to each cargo owner who’s goods were on that ship.

The most common instance of GA is when crews jettison cargo to lighten a threatened ship; other bases for GA claims include stranding, fires and collisions that may occur either in international waters or on the high seas. These partial losses may be small or reflect millions of dollars in damage. An insurance policy with a General Average protection can, in these instances, protect cargo owners from thousands in out of pocket costs for these claims. It is important to note that there is a difference between General Average protection and Particular Average protection which is covered under a marine insurance policy.

To have a valid General Average claim, the sacrifice must be a voluntary, rather than inevitable decision, necessary for common interests, not merely a part of the property involved, and successful. When a GA claim is made, landed cargo will be detained until a cash bond or security deposit is provided prior to release. Until such bond or security is made, ship-owners hold a lien on the cargo (see our recent post about liens by clicking here). If the General Average claim is small, and the cargo is insured, ship-owners may release the cargo under a General Average Guarantee. This guarantee is a simple form that states the insurers agree to pay the ship owner the owed contribution for the General Average, salvage and any other incurred charges. This guarantee form should include the:

  • Ship/ vessel name
  • Date
  • Brief description of goods insured

Note that you may be required to also place an Average Bond along with the Guarantee if the insured amount of the cargo is less than its contributory value. Please click here for more detail

The General Average claim will be assessed by a general average surveyor who is responsible for determining and reporting the official loss amount. This process can take years and the fee for the adjuster is also billed across the cargo owners. Once all the fees have been applied and totaled with the damages, billing is typically split by percentage according to the amount and value you had on the vessel. The ultimate goal of the General Average Principle is to place the carrier who incurred the loss in as close to a financial position as the carriers for whom the sacrifice was made.

For a full breakdown of General Average as well as a look at the York-Antwerp Rules which govern this principle please click here.

If you are facing legal action with regard to a General Average claim or have any further questions, please contact us.

 

Other useful links:

http://www.shapiro.com/resource-center/resources/cargo-insurance-what-is-general-average/

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Inside FMC Licensing: References

Becoming an ocean transportation intermediary (“OTI”), a freight forwarder (“OFF”) or a non-vessel operating common carrier (NVOCC), is a great way to get involved in the international trade industry.  OFFs and NVOCCs facilitate the movement of goods overseas (via ocean carrier) from the original shipper, individuals or corporations, to their final point of distribution.  While the U.S. has regulations for each category of OTI, both OFFs and NVOCCs require a license granted by the Federal Maritime Commission (“FMC”) in order to begin operating as an OTI.  One of the many requirements for obtaining an FMC license is that OTI’s qualifying individual (“QI”) must have at least three (3) years’ experience in conducting OTI activities in the United States.  Foreign NVOCCs may also obtain an FMC license (not foreign OFFs) by demonstrating its QI has at least three (3) years’ experience as well, though not necessarily in the U.S.

To prove the minimum experience requirement, a QI must provide the FMC with information on the jobs she has held or currently holds in which she obtained the experience as well as three (3) non-related references who have firsthand knowledge of the QI’s OTI experience.  After having worked with the FMC on licensing for clients for many years, our firm has found that the FMC is very specific about the references it will accept.  The following are a few tips for those of you who are hoping to obtain your license:

  • The FMC will not accept more than one reference from a single company.
  • Each reference should ideally be from a different source type; i.e. Vessel Operating Common Carrier (“VOCC”), NVOCC, Shipper, Client, Customs House Broker, Ex-Supervisor, Ex-Coworker, etc.
  • Each reference is not required to have known the QI for three years.  The cumulative time period for all references’ knowledge of the QI’s experience is three years.  For example:
    • Reference 1 can attest to six months of the QI’s experience, and Reference 2 can attest to one year of the QI’s experience; therefore, Reference 3 must be able to attest to one and a half years of the QI’s experience.
  • If references do not respond, the FMC will close the OTI application and another application will have to be started with duplicate fees.  Make sure you contact your references and let them know the FMC will be contacting them, most likely via email, with a questionnaire about your, or your company’s QI’s, experience as an OTI.  If you think one of your references might be out of the country for a while or unable to answer the questions choose another reference as back up.  This can save you a lot of time, money, and hassle.  You should also confirm the emails addresses of your references by exchanging messages before submitting the application, as changed or erroneous email accounts are a primary reason for lack of responses.

For more information on FMC licensing, visit www.fmc.gov or contact our offices for more information.  We are able to provide both FMC licensing consulting services as well as prepare, file, and conduct all follow up on your application for you.

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