Avoiding the bill that Dali shippers will face

The Francis Scott Key Bridge in Baltimore collapsed after the container ship, Dali, collided with it last Tuesday. The eventual cost of the disaster is expected to be hundreds of millions of dollars and shippers with cargo aboard the Dali could ultimately be responsible for the ship’s damages and associated costs.

An established maritime law known as General Average (GA) where all parties involved in a sea voyage share any losses incurred, ensures that all parties have a vested interest in the vessel, because they share the risk and cost of protecting it.

General average situations can occur when a ship is lost, suffers damage or becomes stranded, or when cargo needs to be damaged or thrown overboard to save the vessel.

It’s too soon to know whether costs incurred to free the Dali will qualify as a case of General Average, or whether General Average will be called by the owners, though the latter is extremely likely due to the sheer scale of the disaster.

General Average is one of the most complex procedures in insurance, because insurers will need to calculate the total value of all the goods onboard the vessel to work out the amount owed by each shipper.

With about 4,700 full containers (just under 50% of capacity) aboard the Dali at the time of the collision, establishing the value of each container is complex and using historical data, the process can often take several years.

Adding another level of complexity and probably cost is the fact that a large proportion of the cargo aboard will inevitably be uninsured, as too many shippers either assume it’s already in place, or covered by their freight forwarders or the shipping line.

Despite several high-profile casualties in recent years, General Average remains rare in shipping and something many shippers aren’t aware of, or think of insuring against.

While there might be some coverage by a freight forwarder or carrier under their standard trading conditions, these are typically limited, as opposed to the actual value of the goods.

When General Average is called, the consignee will need to provide security for the cargo’s proportion of the General Average, typically a percentage-based deposit, or an Underwriter’s Guarantee.

Metro’s All Risk marine insurance covers the full value of your goods and protects you against all loss of cargo and the risk of General Average.

For further information on our marine insurance cover and to ensure that you have full liability, please EMAIL Laurence Burford, CFO at our Birmingham HQ.