The Federal Maritime Commission (FMC) is an independent federal agency responsible for the regulations of ocean-borne international shipping. Due to assumed knowledge of international shipping laws amongst NVOCCs, importers, and exporters, many don’t pay attention to the fine print released by the FMC. Many of these laws may impact your potential earnings and costs. Whether or not you are aware of it, you may end up paying for others’ cargo on a steamship in a case of disaster due to General Average Law.
General Average Law: What is it?
General average law is a legal principal released by the Federal Maritime Commission. It specifies that all parties involved in a sea venture assume equal proportional costs in the case of a voluntary sacrifice of the ship’s cargo. In other words, should an emergency such as a storm or engine failure occur whereby a reduction in weight may save the ship, steamships are allowed and protected under general average legal principle to throw cargo overboard in order to spare the vessel. In this case, the cost of the cargo thrown overboard will be distributed proportionally amongst all parties shipping on that particular vessel.
Examples
General average law comes into play occassionaly despite vessels’ improved technology and transportation practices. In 2008, the M/V MSC Sabrina steamship was grounded in an attempt to cross the St. Lawrence River. The ship got stuck in 2-feet of clay and went to extreme measures to escape. The ship and its $100 million in cargo were saved by another ship with onboard cranes unloaded 400 containers from the vessel. After being stuck for a month, the plan was successful and the ship escaped with the rest of its cargo. However, the shipper’s owners declared general average, thus distributing the cost of the 400 containers amongst the rest of the parties involved in the vessels shipment.
Another example occurred in 2012 when the Hanjin Osaka had an engine incident. When in transit from Pusan to the US east coast, the ship’s engine exploded. The vessel and its 2,000+ containers were left stranded in the ocean. After being towed to shore, the ship owners declared general average law to protect their own recovery costs.
How to Stay Protected
Cargo insurance isn’t just for fragile and breakable goods. Statistically, there may be a better chance of you paying for a general average fee than a cargo claim. The best way to mitigate your risk is purchasing all-risk marine insurance. If you have Clause A or all-risk insurance, you will be protected against general average fees.
Likelihood of Occurrence
Although these cases are not common, it’s important to understand the risks you assume with international shipping. While it can be a bit of work, we strongly encourage everyone to familiarize themselves with Federal Maritime Commission regulations. Reading up on general average law and other principles can protect you from potential disaster. Better understanding shipping laws can better equip you to select the best shipping solution for your company.
If you have been burned in the past with cargo claims, or are simply looking to better protect yourself from the future possibility, call us at Interlog USA, Inc. and we would be happy to help you select the right insurance for your cargo.