In March 2008, the ocean vessel MSC Sabrina ran aground in the St. Lawrence River near Trois-Rivieres, Quebec, Canada. The vessel had more than 1,500 containers worth approximately $100 million in cargo. Tugboats made initial attempts to free the vessel, but they were unsuccessful as the vessel was mired in two feet of clay.
A rescue plan was devised, including offloading 400 containers onto another vessel in hopes of lightening the MSC Sabrina and allowing her to float free from the mud once the high tides and four tugboats came to aide in the refloating. After spending one month stuck in the clay, the owners declared General Average.
The Law of General Average (GA), which dates to Rhodian Law of approximately 800 BC, states that if a ship was in danger and cargo was jettisoned to save the ship, then the cargo owners would be jointly responsible for losses occurring through the voluntary sacrifice of a part of a vessel or cargo. The first recorded English decision regarding General Average was in 1799.
While the MSC Sabrina did not necessarily lose cargo or experience damage to its structure, it was able to apply the General Average law because cargo had to be jettisoned or removed to lighten the load and save the voyage. Once General Average is declared, the vessel owner has a lien on the cargo until the cargo owners’ share of the General Average payment is made.
According to Allianz’s 2018 Safety and Shipping Review, it was reported that 94 vessels of 100 gross tons or more were declared a total loss, with six of these caused by fires or explosions. Additionally, Allianz recently discussed the factors causing losses to be greater each year – including vessel size, lack of fire reduction technology on the vessels, inaccurate cargo information and many other factors.
Cargo insurance assures importers that their interests will be protected should General Average be declared. Without cargo insurance, cargo owners would be required to contribute a percentage of their cargo values to offset the loss in cash or a cash bond. Their cargo would be held until that payment was received, incurring detention, demurrage and storage costs. General Average claims can take years to resolve. With cargo insurance, the insurance company provides the bond and contribution required for the loss, thus expediting the held cargo’s release.
During the month of August, Ascent Global Logistics is conducting a Cargo Insurance Awareness campaign to encourage our current and potential clients to review their current cargo insurance policies to ensure they are adequate to cover the potential losses in today’s marketplace.
If you are unsure whether your insurance is adequate or covers General Average sufficiently, please reach out to your sales or operational team for a quote. Our team can help you minimize your financial loss and protect your assets should a General Average claim be declared. As strange as it seems, this ancient law can still be troublesome for cargo owners in the present day.
Who said logistics has to be complicated? We certainly didn’t. Contact our team to learn more about minimizing potential financial loss through cargo insurance.