Declare general average? The shippers will face huge claims

Last Tuesday, the "DALI" container ship with a capacity of 9,000 TEU crashed into the famous "Francis Scott Key" bridge, forcing the closure of the channel into the Port of Baltimore and causing serious damage to ships and cargo.

Insurance claims firm WK Webster stated: "Based on the initial report, this incident is highly likely to give rise to a declaration of general average. After further review and assessment, we now believe that a declaration of general average is more likely in view of the magnitude of the costs involved."

General average is a basic principle in the maritime field, that in the course of a voyage at sea, all parties concerned shall share the loss caused by an accident of common danger. The share paid by the shipper is related to the share of the goods, and the shipowner, manager and charterer will also bear part of the responsibility.

"This is undoubtedly one of the most complex procedures in the insurance sector," said Patrizia Kern, chief insurance officer at cargo insurance provider Breeze. When faced with such a situation, the insurance company needs to accurately calculate the total value of all cargo on board in order to reasonably determine the amount each shipper should pay. 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 vessel is safely towed away from its current location." After that, a detailed inspection of the ship and cargo is also necessary."

Despite the frequent occurrence of average accidents in recent years, general average incidents are still rare in the shipping industry. Many shippers know little about this, let alone insure it.

"Every time a general average is declared, it reveals how many people are not covered," Kern said. A lot of the cargo on board is not covered because shippers mistakenly believe that the freight forwarder or shipping company will cover them."

While freight forwarders or carriers may offer some level of insurance based on standard terms of trade (STC), Kern explained that these often only cover the cost of shipping per kilogram of goods, not the actual value of the goods.

WK Webster, an insurance claims company, said the scale of the disaster was the reason for the possible general average declaration. "Given the significant costs involved in rescuing the vessel from its current location and bringing it to safety, the likelihood of a general average declaration has now 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 the port, cargoes may have to be diverted to other ports in advance for shipment. "Any temperature-sensitive or time-sensitive cargo is vulnerable to loss, setting off a chain reaction."

In addition, general average costs may also be used to pay for bridge reconstruction and related costs, which undoubtedly adds to the overall economic burden. Kern concluded: "Such a claim is the culmination of multiple unfortunate circumstances for which someone must ultimately pay a heavy price."

The latest news is that ship owner Grace Ocean Private Limited and operator Synergy Marine are trying to avoid potentially facing hundreds of millions of dollars in liability. The companies filed papers in Maryland District Court arguing that, if liable, damages should be limited to the value of the vessel and its associated freight, and estimated a maximum of $43.7 million, which includes the value of the vessel and freight to be collected, but less the cost of repairs and salvage after the accident. However, this amount is only a preliminary estimate and is subject to change. Despite this, both the owner and the operator insisted that the vessel was not responsible for the accident and that they had not committed any fault or negligence.