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Friday, 07 July 17
SHOULD WE BE AVOIDING GENERAL AVERAGE? - ALEX KEMP
 KNOWLEDGE TO ELEVATE
Calls for general average to be abolished are nearly as old as the regime itself. A representative of Lloyd’s attended the eponymous Antwerp Conference in 1873 and latterly described general average as a “a nest of fraud and abuses, a lurking place for speculation and waste”. Even in 1913 commentators were complaining about the increasing size of vessels and the volume of bills of lading they created. The Chairman of the US Association of Average Adjusters said of general average that year “the time, trouble, expense and delay are out of all proportion to the benefit achieved”. These comments are surprisingly familiar and it is interesting to see that the same weakness in general average are made today.
Unsurprisingly those involved in transporting or insuring cargo have little love for the regime, when they are usually the paying party. There have been calls in the past for the loss to simply lie where it falls for the respective hull and cargo insurers to absorb. A key piece of research by Mr Matthew Marshall of the Institute of London Underwriters for the IUMI Tokyo conference in 1994 (updated to 1999) really energized the modern debate. His work highlighted the fact that 10% of the cost of general average was adjusters’ fees and another 10% commission (something that has now been abolished in the most recent rules). Perhaps most importantly it was suggested that the majority of general average events were the fault of the ship owner. This helped lead to the ill-fated York-Antwerp Rules 2004 which have now been replaced.
Whilst the York-Antwerp Rules 2004 may now have been replaced with a more moderate regime, the circumstances which give rise to criticism of general average are more relevant than ever. Many commentators have written about the increasing size of container ships, the increasing complexity of their contracts of carriage and the severe impact this has on the cost and time required to adjust such a general average event. This observations were again aired in the negotiations to the York-Antwerp Rules 2016.
For the time being, at least, general average does not seem to be in any grave threat of abolition and the status quo (broadly speaking) will continue. However, that doesn’t mean to say that the market is not evolving and adapting to meet the reality of modern general average. General average absorption clauses have long been a feature of H&M policies as a way to avoid low value general average events. Their limits have increased as vessel size and casualty complexity has increased. We have seen examples of such limits being as much as US$1 million.
However, more recently parties involved in container shipping have taken even more aggressive steps. Vessel sharing agreements and slot charters used in the management of container ships often now contain provisions which compel the parties to “consult” to determine whether they can absorb all the general average sacrifices and losses and to try and persuade the Owners not to declare general average. Often these agreements go further and compel the parties to absorb general average between the parties up to a limit of say US$0.5 million (this should be distinguished from a general average adsorption clause in a H&M policy). This shows a commercial decision in container shipping that general average, in principle, should be avoided as it is not in the interests of shippers, who are the customers of container lines.
It is easy to see why. With adjuster’s fees, through no fault of their own, to collect security often running into the hundreds of thousands of dollars and adjustments taking anything up to a decade, it is an unattractive way to deal with losses arising from a casualty in complex container casualties. As a result we have seen container lines go further than the provisions in their contractual agreements in the aftermath of a casualty and enter into bespoke agreements resolving to fund all general average expenses and sacrifice on certain terms. More often than not this prevents any need to collect general average security or obtain cargo documentation for the entire manifest. This simply leaves the carriers to deal with cargo claims (be them sacrifice or otherwise) in the usual way. One might say that this places a greater financial burden on the carriers who are absorbing cargo’s proportion of general average from their bottom line (such a voluntary liability would not ordinarily be insured by the carrier) as ordinarily, cargo’s proportion of general average would be reimbursed by cargo insurers. This may simply be the effect of what is undoubtedly an extremely competitive market place for container shipping, notwithstanding recent mergers.
Ultimately, whether parties should be considering more aggressive steps to avoid general average following an incident, will depend upon the nature of the casualty, the scale of expenses/sacrifice, the legal regimes involved and the number parties. Clearly, the benefits of modifying the “usual” general average process will be greatest in a container casualty scenario but that’s not say that it should not be considered when other types of vessel are involved.
By: Alex Kemp, Senior Associate at Solicitors Holman Fenwick Willan LLP and Associate of the Association of Average Adjusters
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Wednesday, 07 June 17
MARKET INSIGHT - PANOS MAKRINOS
2017 undoubtedly began with very optimistic signs for the future of the Oil & Gas industry on the back of the Vienna Agreement. OPEC and non-OP ...
Tuesday, 06 June 17
THE FREIGHT MARKET WAS CONTINUE TO TUMBLE THIS PAST WEEK
COALspot.com: The Freight market continued to tumble this past week, as BDI and cape index showed a negative trend week over week.
The Baltic ...
Friday, 02 June 17
THE WORLD COAL ASSOCIATION HAS RESPONDED TO THE WITHDRAWAL OF THE UNITED STATES FROM THE PARIS AGREEMENT
“This decision is the result of a failure to build a genuine coalition on climate action that recognises the role of all technologies, includ ...
Friday, 02 June 17
MOL SIGNS COAL TRANSPORT DEAL WITH THERMAL POWERTECH CORPORATION INDIA LIMITED
MOL Signs Coal Transport Deal with Thermal Powertech Corporation India Limited - Contributing to a Stable Power Supply in India -
Jun ...
Friday, 02 June 17
U.S THE PAST WEEK'S COAL PRODUCTION ESTIMATE UP 4.4% - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 15 million short tonnes ...
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- Directorate General of MIneral and Coal - Indonesia
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- GN Power Mariveles Coal Plant, Philippines
- Heidelberg Cement - Germany
- Minerals Council of Australia
- Goldman Sachs - Singapore
- Oldendorff Carriers - Singapore
- Alfred C Toepfer International GmbH - Germany
- Power Finance Corporation Ltd., India
- The State Trading Corporation of India Ltd
- Sarangani Energy Corporation, Philippines
- Africa Commodities Group - South Africa
- The University of Queensland
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- OPG Power Generation Pvt Ltd - India
- Neyveli Lignite Corporation Ltd, - India
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- ASAPP Information Group - India
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- Merrill Lynch Commodities Europe
- Australian Coal Association
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- Indian Oil Corporation Limited
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- Banpu Public Company Limited - Thailand
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- Attock Cement Pakistan Limited
- GAC Shipping (India) Pvt Ltd
- Eastern Energy - Thailand
- Ministry of Transport, Egypt
- Rio Tinto Coal - Australia
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- International Coal Ventures Pvt Ltd - India
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- ICICI Bank Limited - India
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- SN Aboitiz Power Inc, Philippines
- Madhucon Powers Ltd - India
- Binh Thuan Hamico - Vietnam
- Metalloyd Limited - United Kingdom
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- Tamil Nadu electricity Board
- Planning Commission, India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Kepco SPC Power Corporation, Philippines
- Price Waterhouse Coopers - Russia
- Semirara Mining and Power Corporation, Philippines
- Economic Council, Georgia
- Sindya Power Generating Company Private Ltd
- Vedanta Resources Plc - India
- Bulk Trading Sa - Switzerland
- GVK Power & Infra Limited - India
- Lanco Infratech Ltd - India
- IHS Mccloskey Coal Group - USA
- The Treasury - Australian Government
- Commonwealth Bank - Australia
- Intertek Mineral Services - Indonesia
- White Energy Company Limited
- Videocon Industries ltd - India
- Aditya Birla Group - India
- Meenaskhi Energy Private Limited - India
- Samtan Co., Ltd - South Korea
- Carbofer General Trading SA - India
- Ceylon Electricity Board - Sri Lanka
- Independent Power Producers Association of India
- Thiess Contractors Indonesia
- Coal and Oil Company - UAE
- Pipit Mutiara Jaya. PT, Indonesia
- Electricity Generating Authority of Thailand
- Chettinad Cement Corporation Ltd - India
- Ministry of Finance - Indonesia
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- Bukit Makmur.PT - Indonesia
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- PetroVietnam Power Coal Import and Supply Company
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- Edison Trading Spa - Italy
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- Simpson Spence & Young - Indonesia
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- Energy Development Corp, Philippines
- Bank of Tokyo Mitsubishi UFJ Ltd
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- Latin American Coal - Colombia
- Trasteel International SA, Italy
- Formosa Plastics Group - Taiwan
- Miang Besar Coal Terminal - Indonesia
- Deloitte Consulting - India
- Georgia Ports Authority, United States
- Ministry of Mines - Canada
- PowerSource Philippines DevCo
- Central Electricity Authority - India
- Vizag Seaport Private Limited - India
- Larsen & Toubro Limited - India
- Antam Resourcindo - Indonesia
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- Renaissance Capital - South Africa
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- Sakthi Sugars Limited - India
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- Romanian Commodities Exchange
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- Xindia Steels Limited - India
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- Thai Mozambique Logistica
- Eastern Coal Council - USA
- Petron Corporation, Philippines
- Therma Luzon, Inc, Philippines
- Coalindo Energy - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Indo Tambangraya Megah - Indonesia
- Electricity Authority, New Zealand
- Indogreen Group - Indonesia
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- Indian Energy Exchange, India
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- Energy Link Ltd, New Zealand
- CNBM International Corporation - China
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- Mintek Dendrill Indonesia
- Wood Mackenzie - Singapore
- Mercator Lines Limited - India
- New Zealand Coal & Carbon
- European Bulk Services B.V. - Netherlands
- PNOC Exploration Corporation - Philippines
- Sical Logistics Limited - India
- Leighton Contractors Pty Ltd - Australia
- Iligan Light & Power Inc, Philippines
- Uttam Galva Steels Limited - India
- Gujarat Electricity Regulatory Commission - India
- Bukit Baiduri Energy - Indonesia
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- Standard Chartered Bank - UAE
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- Maheswari Brothers Coal Limited - India
- PTC India Limited - India
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- Indonesian Coal Mining Association
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- MS Steel International - UAE
- Sinarmas Energy and Mining - Indonesia
- Bangladesh Power Developement Board
- Interocean Group of Companies - India
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- Bukit Asam (Persero) Tbk - Indonesia
- Parliament of New Zealand
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- LBH Netherlands Bv - Netherlands
- Star Paper Mills Limited - India
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- Dalmia Cement Bharat India
- Agrawal Coal Company - India
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