General average is a maritime law concept where people involved in a shipping business share the risk of common perils. Compensation for lost cargo is proportional to travel quota, but with extensive insurance coverage, it may not be necessary. The sacrifice of cargo ensures the ship’s safety, and compensation is paid pro rata to those who suffer a loss. Without general average, determining ownership and value of cargo puts the entire vessel at risk.
General average is a maritime law concept. It recognizes the mutual risks taken by people involved in an ocean enterprise. In the event that cargo has to be jettisoned or part of the ship is damaged in an effort to avoid a common peril, persons with cargo which lands intact are liable to compensate persons who have suffered a loss. This refund is proportional to your travel quota. With the extensive insurance coverage available for shipping today, shippers may not have to rely on the general average concept to provide compensation for lost cargo.
The origins of the general average are very ancient. People involved in a shipping business include the owners of the ship, people who pay for the carriage of goods, and other people with financial interests in the voyage. Common dangers can include things like fires on board and situations where the vessel is taking on water because it is going too shallow. These hazards could endanger the entire vessel and cargo unless crew on board takes action.
Cargo can be jettisoned or damaged as the crew navigates the perilous conditions, and the vessel itself can also be damaged in the process. This transfers the risk to the cargo owned by specific people. These individuals will not be able to profit from the voyage because their cargo is no longer intact, but the sacrifice of their cargo ensures that the ship has been saved and that cargo belonging to others has arrived safely. With a general average, people pay pro rata to the person who suffered a loss to provide compensation.
The person who suffers a loss also pays as part of the overall average. If someone with a 10% stake in a vessel’s financial interests loses the cargo, that person will receive 90% of the value of the cargo from other people who share the overall average. This keeps the policy fair. Everyone involved in the enterprise shares the risk and can be sure that if something goes wrong they will be compensated.
Without an overall average, crew members may be forced to spend time determining the ownership and value of cargo and trying to select the least valuable cargo to be thrown overboard or otherwise exposed to danger. This would put the entire vessel, along with crew members, at risk. The distribution of risks allows the crews to concentrate on carrying out their work to bring the ship to port safely.
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