By Eric Huang   photo : @ettoday

Small and medium-sized companies usually have less cash flow, so cargo insurance is very important to them. If they really encounter unfortunate events, they can at least compensate from it.

Few months ago, Evergreen’ s MV Ever Giving ran aground on the Suez Canal, causing a "long queue" phenomenon, which triggered extensive discussions. Especially it caused an uproar in the market after Evergreen announced a general average. The other example is MV ZIM Kingston. Her hull tilted due to severe weather and bad sea conditions, and more than 100 containers on board fell into the water on her way to Vancouver. ZIM then sent an email to notify the cargo owners and declared a general average. What exactly is general average? And how does it affect shippers?

General average is a long-established principle in maritime law, which requires all owners of rescued goods to jointly bear the losses of those who sacrificed the goods when they were in common danger. General average (GA) exists independently of the contract, but it is now not only included in the bill of lading clauses, but also included in the Marine Insurance Act of 1906, which defines general average as: " There is a general average act where any extraordinary sacrifice or expenditure is voluntarily and reasonably made or incurred in time of peril for the purpose of preserving the property imperiled in the common adventure."

The general average clause includes all damages, as well as related expenses, in accordance with the order of the captain to actively cause damage to the ship, fuel or cargo (or all three) in order to prevent the three from common danger. The two sides formed a dangerous community during the voyage. The damage and expenses caused by general average shall be borne by all parties. 

In the case of general average, the shipping company will require the shipper to pick up the container at the nearest port and must pay a "General Average Deposit" or provide a bill guarantee issued by the bank before the container is taken. If the shipper has insured cargo insurance, the insurance company will pay the deposit on behalf of the insured; conversely, if the shipper does not have any cargo insurance, they will need to pay a deposit of about 10% of the value of the goods by themselves in cash; in some special cases ( For example, in the accident of M/V Hyundai Fortune in March 2006, the vessel experienced a huge explosion on its way from Singapore to an European port via the Gulf of Aden and caused a fire at the stern. 27 crew members tried to fight the fire, but failed and abandoned the ship to escape), The owner may also be required to pay a "general average" deposit of up to 75% of the value of the goods. In addition, the insurance company also handles the "General Average Contribution" for the policyholder, and the cost is calculated based on the landed value of the goods. 

When the cargo owner pays the deposit according to its insurance policy, the receipt must be given to the insurer, and the insurer will refund the deposit in full under the premise of the goods not underinsured. If the cargo insurance is insufficient, the insurer will only refund the percentage of the deposit applicable to the insured value.

It can be seen that it is very important to have the cargo insurance when shipping the goods. Especially small and medium-sized enterprises usually have less cash flow, so cargo insurance is very important to them. If unfortunately encounter an accident, they will face the loss of the goods. Even if the goods are luckily without loss, they may also have to pay unexpected "general average" deposit and its apportionment and related expenses. This may cause them falling into a financial crisis.

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