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01 September 2020 | 5-minute read 

It is hard to believe that if General Average (GA) were to be invented now, namely a concept, where due to an incident that was not your fault, your cargo could be held, pending production of security, or possibly even sold and the cargo owner picks up the bill despite having previously paid for the conveyance of cargo to destination. Yet it has survived, partly through historical reasons, but partly because there has been no replacement to date.

To someone outside of the insurance industry, unfamiliar with its history, it would all seem grossly unfair. And yet, in the marine world it is a tried and tested concept, supported by regulations, and binding precedent that provides a framework for dealing with casualties. It has its critics that say the practice is flawed, corrupt and outdated, but that same quote could be found in a letter to The Times, deriding GA, published in 1875.

It may therefore be a safe bet that it is here to stay, at least as a concept. If so, then do we really believe we are ready for its continuance? A few decades ago now I recall completing individual GA guarantees to secure swift release of cargo in the hope that one day an advance would be made, so that this laborious process would no longer be necessary. Sadly, the only determinable advance has been in the capacity of container ships, having grown from that time from a maximum capacity of circa 2000 teu to 24000 teu. Working practices have gone from dictation to email and fully functioning remotely for months in the wake of pandemics. And yet, to secure release of cargo, one still has to produce a word-perfect guarantee and also harass the cargo owning client for an average bond, normally much to their confusion.

By and large it worked pretty well until a few decades ago but time has moved on and the provision of GA security cannot go on the same way. Applying very traditional methods to the huge volume associated with the modern shipping world is draining the marine insurance world of resources, and reputation. Customer service cannot be maintained, in the wake of increased containership capacity. The HMM Algeciras recently docked in the UK, fortunately without incident. If however a 24000 teu vessel suffered a casualty that led to the collection of GA security, how could the insurance industry cope? How could it preserve its reputation for customer service? How could it release cargo without enduring some further losses through deterioration and unnecessary charges?

The delays are compounded by different security wordings being requested, leading to arguments and exchanges at the most time critical period of a casualty. Security that would then have to be reproduced each time for each cargo. Advances have been made; on-line security and grouping of cargo under one security can be permitted, but the fact remains that shipping advances are made more quickly than those in the legal or insurance professions. Whilst anachronistic, in the absence of any alternative to GA, the insurance, legal and Average Adjusting communities need to do their bit to adapt the process to the modern world.

A solution needs to be found and the Comite Maritime Internationale (CMI) are working with law associations around the world in an attempt to standardise a guarantee, globally, and if successful this would be a huge step forward and the IUMI Salvage Forum are assisting in this process.

Preservation of defences remains vital, but surely a document could be developed that would preserve these rights for both parties. Guarantees are outdated in their construction and assume a position that is no longer tenable and sits poorly with other procedures. The Salvage Forum is therefore trying to draft a guarantee that explains how GA functions, in a way that does not scare compliance and legal departments, but is still compatible with conventions. If we could have one guarantee used globally it would avoid all of the above arguments and move towards a swifter process.

Customer service is a concept that has also developed at greater pace than GA provisions and in these client focused times, is it really appropriate to ask a cargo owner to sign an Average Bond? This document, never knowingly called upon, is also something we are looking to be deemed unnecessary and, if successful, will halve the number of documents to be signed.

These are seemingly unambitious targets but established practices have made them difficult to meet. New initiatives are underway between the CMI, Association of Average Adjusters, the Association Mondiale de Dispacheurs and the IUMI Salvage Forum to find a way to avoid requiring bonds, and to standardise guarantees.

Once completed, it is hoped the entire process will be streamlined and the result will be one method to secure the release of any cargo, anywhere in the world, when GA is declared.

Phil Norwood
Senior Executive, Underwriting

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