The historical origin of General Average can go a long way towards understanding the term, so let’s imagine, for a moment, that we have taken a step back in time. You are a merchant in the late Roman Empire, around 235 AD, and you are suddenly staring down a problem that is nearly as old as the concept of seaborne mercantilism itself. 

A ship has returned to harbor that ran into trouble on the high seas and had to throw some of  cargo overboard in order to make it back to port at all. Perhaps there was a fire, or a storm, or they needed to jettison some of it to outrun raiders; the reason doesn’t really matter, so long as the cause was outside this ancient carrier’s fault, and that your olives now reside at the bottom of the Mediterranean while your competitors get rich off the back of an act of God. 

Now, you, as this Roman merchant, are wondering exactly how you are going to recoup those losses. Lucky for you, a legal concept that was recently unearthed in Rhodes from around 800 BC is being introduced to Roman law, and it is exactly what you need.

That solution would come to be known as ‘General Average,’ and despite its advanced age, it is a legal principle that is increasingly important to modern importers - especially during turbulent times. 

What is a ‘General Average’? 

The original writing of the law was something to the effect of -  

If merchandise is thrown overboard for the purpose of lightening a ship, the loss is made good by the assessment of all which is made for the benefit of all.

Put another way, if goods are sacrificed in the name of saving a ship and its cargo, then every party involved should proportionally share the burden of the costs involved. 

Let’s say, for a modern example, a container ship is caught in a storm, and the decision is made to jettison over 100 shipping containers to lighten the load. The owners of those 100 containers do not have to bear the cost of that loss alone. Instead, the ship owner and the owners of every other container must pay a proportional cost. 

Once a ship owner declares that this misfortune is a ‘General Average’ situation, your goods will be held until your portion of the cost is paid. 

What Events Qualify as Force Majeure? 

Force Majeure (meaning superior force) is a term in maritime law that essentially works to free ocean carriers from liability related to unforeseen, unavoidable, or ‘act of God’ type events. For example, a carrier cannot be held liable for a hurricane, earthquake, tsunami, or even human events like strikes, wars, or piracy. 

There are typically three ‘tests’ that work to determine if an event is a Force Majeure case. The event must be unforeseeable, external, and unavoidable. Notably, it can be incredibly difficult to actually prove that any of these events qualify, and the question of who bears the financial burden of necessary diversions is deceptively complex, but it still remains an important piece of the ocean transport puzzle.

Force Majeure and General Average interact like two interlocking gears because Force Majeure cases are, in nearly every case, the instigating event that leads to a General Average declaration. A ship that catches fire due to non-Force Majeure causes, like negligence from the crew, is liable for the damages to the goods aboard; a rogue wave that forces the abandonment of some of the cargo is outside their hands, and therefore a different matter altogether. 

Force Majeure laws effectively serve as a carrier’s shield. A hurricane that destroys your goods is promptly washed from the carrier’s hands as Force Majeure, and a General Average is instigated to recoup the loss. Which is why, regardless of which side of this affair you are on, marine insurance for your goods is so important. 

How Can I Protect Myself and My Shipments? 

The hard truth of the matter is that due to the possibility of General Average or Force Majeure events, insurance is very nearly a necessity for overseas shipments, regardless of the size of your shipment. 

Consider the following: let’s imagine that you are importing small plastic toys with a total value of $100,000. What you don’t know is that, regardless of the size of your shipment, you are one fire or wave away from being on the hook for a portion of the damage incurred to the multimillion-dollar shipment that shares the same deckspace on the boat as you. If you do not have insurance, your portion of the General Average could very easily exceed the cost of your shipment entirely - and if you don’t pay, you don’t get your goods. 

There are, generally speaking, two kinds of marine insurance for overseas transport: 

Named Perils Coverage - This covers your goods against specific issues that are listed in the policy, including fire, collision, or theft. 

All-Risk Coverage - This covers, as the name might suggest, any possible damage or loss your goods might incur, with the exception of situations and exclusions named in the policy itself. 

The difference between named perils and all-risk cargo insurance is an important one, and those who engage in ocean freight must be careful when choosing an insurance option because they do not all cover General Average. Which can be doubly painful when you assume that it does. Getting AAA-rated, all-risks coverage is the surest way to make sure you are covered when engaging in ocean shipping, and the best way to do that is to work closely with your freight forwarder to determine the level of protection that works best for you.

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