According to the China Council for the Promotion of International Trade’s “General Average Adjustment Rules,” “general average” in maritime transport refers to special losses and reasonable additional expenses incurred by reasonable measures taken to relieve the common danger caused by natural disasters, accidents, or other extraordinary circumstances to the vessel and cargo during the same sea voyage.
When a general average occurs, the following steps are generally followed:
- Declaration of general average: If a vessel suffers an accident at sea, barring extraordinary circumstances, a declaration of general average should be made no later than forty-eight hours after arrival at the first port; if an accident occurs in port, a declaration of general average should be made no later than forty-eight hours after the accident, and all parties involved in the cargo should be notified as soon as possible.
- Collection and submission of supporting documents: Upon receipt, the relevant parties should submit supporting documents of the general average accident and losses to the average adjuster as promptly as possible. All documents should be submitted within one year after the completion of the voyage.
- Determine the amount of general average loss: The amount of loss of the vessel shall be calculated based on the reasonable repair costs actually incurred for the lost portion, with reasonable deductions for replacement of old with new; the amount of loss of cargo shall be calculated based on the onboard value of the lost portion plus insurance and freight, less any freight not incurred due to the loss; the freight loss caused by the loss of cargo in general average shall be calculated based on the freight loss caused by the loss of cargo, less any operating expenses not incurred due to the loss.
- Contribution to the general average: General average losses and expenses shall be shared by each beneficiary according to their respective proportions of contribution value. The vessel’s contribution value is calculated as the vessel’s local sound market value at the end of the voyage, less the amount of loss, plus general average loss compensation. The cargo’s contribution value is calculated as the cargo’s value at the time of shipment, plus insurance and freight, less any loss not attributable to general average and any freight incurred by the carrier at risk. The freight’s contribution value is calculated as the freight the carrier is entitled to collect at risk at the end of the voyage, less any operating expenses incurred to complete the voyage after the general average casualty to obtain such freight, plus any general average sacrifice.
- Providing General Average Security: To ensure contribution to general average losses, upon request from the relevant parties, each contributor must provide appropriate general average security, either by providing a reliable letter of guarantee or a security deposit.
- Preparation of General Average Statement: Based on the results of the above steps, the average adjuster prepares a general average statement to determine the amount to be contributed by each beneficiary.
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