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General Average understanding, and why cargo insurance is so important

General average is an ocean marine loss that occurs through a voluntary sacrifice of part of a vessel or cargo to safeguard the vessel or cargo from a common peril. If the sacrifice is successful, all parties contribute to the loss based on their cargo's value.


If cargo is insured

The marine cargo insurer should be notified immediately. The insurance company will post the general average bond and guarantee to meet the cargo owner's contribution and facilitate the release of cargo.


If cargo is not insured

The cargo will not be released until a guarantee has been returned and accepted, which must be in the form of a cash deposit, bank guarantee or bond.


Example of above scenario

General average claims require all cargo owners on a vessel to contribute to the loss. It is a shared event. Even if your cargo isn't damaged, a contribution based on the total value of all of the ship's cargo must still be made to get your cargo released.

Think about this: Each cargo owner must contribute 10 percent of the value of their cargo before their cargo can be released.
  • Value of vessel: $60 million
  • Value of cargo: $140 million
  • Total value of voyage: $200 million
    • Assume cargo loss and vessel repairs total $20 million.
    • Therefore, $20 million out of $200 million or 10 percent of the voyage suffered a loss.

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