+86-21-61406313
Login query
Login query
Declare general average? Will shippers face huge payouts?
Apr 07, 2024|
View:60The fallout from the Baltimore bridge collapse continues. The damage caused by the accident has made it increasingly likely that the owners of the container ship DALI will declare general average (GA), meaning owners could be under pressure to pay huge sums. While lawyers for ship owner Grace Ocean and operator Synergy filed petitions in the District Court of Maryland on April 1 claiming no liability for the accident and seeking cap damages, limiting any damages to $43.67 million based on the ship's valuation of $42.5 million, Unpaid shipping costs were $1.17 million.
The 9.000TEU container ship DALI crashed into the famous Francis Scott Key Bridge, forcing the closure of the passage into the Port of Baltimore and causing serious damage to the ship and cargo.
Insurance claims company "WK Webster" stated: "As stated in the initial report, it is highly probable that the incident will trigger a declaration of general average. After further review and assessment, we now consider it more likely that general average will be declared in view of the substantial costs that would be required."
General average is a basic principle in the maritime field, that is, in the course of maritime navigation, all parties concerned should share the losses caused by common dangerous accidents. The share paid by the shipper is related to the share of the cargo, and the shipowner, manager and charterer will also bear part of the liability.
"It's certainly one of the most complicated procedures in the insurance world," said Patrizia Kern, chief insurance officer at Breeze, a cargo insurance provider. In the face of such circumstances, insurance companies need to accurately calculate the total value of all cargo on board in order to reasonably determine the amount payable by each shipper. Kern further explained, "Determining the value of the cargo is the biggest challenge because we don't know exactly what kind of cargo is in each container." She added that, based on past experience, the process often takes four to five years to complete.
In fact, insurance claims company "WK Webster" has issued a warning to its customers: "It may be some time before the incident is resolved and the ship can be safely towed away from its current position. After that, a detailed inspection of the ship and cargo will also be imperative."
Despite the frequency of average incidents in recent years, general average incidents are still rare in the shipping industry. Many shippers know little about it, let alone insure it.
"Every time a general average is declared, it reveals how many people are not insured," Kern said. A large amount of cargo on board is unsecured because shippers mistakenly believe that freight forwarders or shipping lines will cover them."
While a freight forwarder or carrier may offer some level of insurance under standard terms of trade (STC), Kern explained that these policies often only cover the cost of transporting a kilogram of goods, rather than the actual value of the goods.
Insurance claims company "WK Webster" believes that the reason why general average may be declared is because of the scale of the disaster. "Given the significant costs required to extract the vessel from its current position and bring it to a safe location, the likelihood that general average will now be declared has increased significantly," it said.
"All cargo on board will inevitably suffer significant delays, as will containers waiting to be shipped ashore. As inbound vessels are currently unable to reach ports, goods may have to be diverted to other ports for shipment in advance. "Anything that is sensitive to temperature or time is extremely vulnerable, and that can set off a chain reaction."
In addition, general average charges may also be used to pay for bridge reconstruction and related costs, which undoubtedly exacerbates the overall economic burden. Kern concluded: "Such a claim is undoubtedly a superposition of multiple unfortunate circumstances, and someone must eventually bear a heavy price for it."
The latest news is that the ship's owner, Grace Ocean Private Limited, and operator Synergy Marine are trying to avoid potentially hundreds of millions of dollars in liability. The companies filed papers in the District Court of Maryland arguing that any liability should be limited to the value of the ship and its associated freight, estimating a maximum award of $43.7 million, which includes the value of the ship and the freight to be collected, minus the cost of repair and rescue after the accident. However, this amount is only a preliminary estimate and is subject to change. Despite this, both owners and operators insist that the ship was not responsible for the accident and that they did not commit any fault or negligence.
