Transportation & Logistics Analysis

Ever Given owner declares general average: what shippers should do

April 08 2021

Shoe Kisen Kaisha, the Japanese company which owns the Ever Given, has declared general average. Its decision will have major consequences for cargo owners.

The probably necessary but highly costly operation carried out by salvage company Smit to free the container ship Ever Given, which was stuck in the Suez Canal, led to an early decision by the vessel's Japanese owner and operation Shoe Kisen Kaisha to declare general average. The company appointed London-based firm Richard Hogg Lindley as its average adjuster.

This very particular maritime law provision sets out the principle of solidarity between the owners of a vessel and its cargo. As we recalled in an article spelling out the need to be vigilant on this point when choosing transport insurance, when general average is declared, cargo owners accept a share of responsibility for the cost of restoring a vessel to the state of operation it was in before the casualty occurred.

A long and costly procedure

We might be surprised that the operator of the Ever Given decided to declare general average when the causes of the accident and the damages it caused have not yet been officially established. It is not rare for this to happen, however. If the operator has opted for this extreme course, it is very probably because he intends to ensure that the ship side is not accused of having committed an "inexcusable error" or, if such were to be the case, because the Japanese owner has sufficient grounds to enable him to lay a claim against the company which provided the vessel's crew. It is also a first acknowledgement that the damage suffered by the ship is greater than the images taken of it might lead us to think.

It is still much too soon to be able to determine who was responsible for the grounding of the Ever Given but what is sure is that the declaration of general average is going to involve cargo owners in a long and costly even if not particularly complex procedure. This is how cargo owners concerned should proceed.

Stage 1

Recover the transport insurance certificates, bills of lading and bills for the merchandise concerned. This should include a "free of particular average unless" (FPA unless) policy, which is a sort of basic cargo insurance policy which protects its owner from the risk of general average, or, better, a more complete and necessarily more expensive policy.

The owners of uninsured cargo can expect major problems, however. It is clearly impossible to take out a policy after the event. It is quite common for owners to abandon their cargoes in such instances but this is not really a solution either. Such an approach tends to worsen the position of owners of cargo without insurance, even if they consider that they have already suffered a prejudice in as much as they have not received their cargo as and when they should have.

To recover uninsured cargo and, more importantly, avoid becoming the target of legal action, cargo owners should produce a bank guarantee in their company's name. If the amount of the guarantee exceeds the company's resources, the company's legal representatives can be forced to make payment from their personal resources. Such dramatic occurrences are not that rare.

Stage 2

Contact your insurance company, either directly or via the third party through which the insurance was obtained and instruct it to contact the average adjuster quickly to involve itself in the general average procedure. 

Stage 3

Ensure that bank guarantees have been put in place. Since the final financial quota to be borne by each of the parties concerned will only be known at a very late stage, the adjuster will set provisional amounts to be paid early on by each bill of lading holder concerned.

Stage 4

Get the cargo released. At this stage, we do not know if the Ever Given is in a fit state to resume its journey. This is a key point since, if it is not recognised as being in a fit state to sail, the vessel owner can end its journey in the port nearest to its current location. Once the cargo has been unloaded and cleared, it will be for the owner to provide the means for it to pursue its voyage.

In such cases, it is for the shipping company carrying the cargo (in this case, essentially Evergreen, CMA CGM and COSCO) to take the commercial decision as to the share of the cost of transporting it to its port of destination it is ready to pay. This often comes as a shock to shippers, who are thus further penalised, but the reality is that the shipping company is under no obligation to finance the cargo's onward voyage. 

Stage 5

The final stage consists of fixing the final quota to be borne by each of the parties involved. This stage is sometimes only reached several years after general average has been declared, after all the different procedures concerning the ship itself have been fully completed. In the case of the Ever Given, give the size of the ship and the amount of cargo it was carrying, a long process can be expected before a final release is pronounced.

Conclusion

  • A declaration of general average effectively gives the shipping company the right to hold on to the cargo until the procedure has been satisfactorily completed. The procedure can take weeks and even months. It is recommended, therefore, to make an effort from an administration point of view to deal quickly with requests for documents from the average adjuster.
  • In the case of the Ever Given, cargo owners would probably be wise to reorder their merchandise. It seems highly likely that an identical new order will get the goods to destination before those concerned by the original one, which are still waiting to be released. Placing a fresh order can, therefore, be considered good practice in such cases.
  • Finally, never forget to insure your goods in maritime. A few euros invested in a "FPA unless" policy can make the difference between an embarrassing delay... and the seizure of your own goods.

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Expert in Ocean shipping for 25 years, Jerome puts all his knowledge of the industry to contribution for Upply. Ship captain at heart, he has written the English-French Lexicon of Containerized Shipping (Paris: CELSE, 2001).