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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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Monday, 17 April 17
THE PANAMAX INDEX (BPI) ROSE (12.89%) WEEK OVER WEEK
COALspot.com: The Freight market was firm, week over a week as all segments show a positive upward trend this past week.
The Baltic Exchange, ...
Monday, 17 April 17
U.S. WEEKLY COAL OUTPUT FELL 5% WEEK OVER WEEK - EIA
COALspot.com – U.S., the world’s second largest coal producers have produced approximately totaled an estimated 13.8 million short tons ...
Thursday, 13 April 17
OPEC OVER-DELIVERS ON OIL CUTS, BUT SEES RIVALS' OUTPUT RISING
Crude Oil Price Movements
The OPEC Reference Basket averaged $50.32/b in March, representing a decline of 5.7% from the previous month. Crude fut ...
Wednesday, 12 April 17
THE PORT OF NEWCASTLE SHIPPED 13.791 MILLION TONS OF COAL IN MARCH 2017
COALspot.com: The Port of Newcastle, Australia’s major trading ports and the world’s largest coal export ports has shipped $AU 1,688.5 ...
Wednesday, 12 April 17
SHIPPING MARKET INSIGHT - VASSILIS VASSILIOU
The first quarter of 2017 started relatively busy for the ship repair sector, with most of the repair facilities being nearly fully occupied till t ...
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- Bhushan Steel Limited - India
- Aditya Birla Group - India
- South Luzon Thermal Energy Corporation
- Edison Trading Spa - Italy
- Africa Commodities Group - South Africa
- Indogreen Group - Indonesia
- Mercator Lines Limited - India
- White Energy Company Limited
- Tata Chemicals Ltd - India
- Makarim & Taira - Indonesia
- Agrawal Coal Company - India
- Simpson Spence & Young - Indonesia
- CIMB Investment Bank - Malaysia
- MS Steel International - UAE
- Kohat Cement Company Ltd. - Pakistan
- Planning Commission, India
- Standard Chartered Bank - UAE
- Toyota Tsusho Corporation, Japan
- Parliament of New Zealand
- Sarangani Energy Corporation, Philippines
- International Coal Ventures Pvt Ltd - India
- Commonwealth Bank - Australia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- Electricity Authority, New Zealand
- Sical Logistics Limited - India
- Trasteel International SA, Italy
- Global Coal Blending Company Limited - Australia
- Meenaskhi Energy Private Limited - India
- Kumho Petrochemical, South Korea
- TeaM Sual Corporation - Philippines
- Vedanta Resources Plc - India
- London Commodity Brokers - England
- Orica Australia Pty. Ltd.
- Binh Thuan Hamico - Vietnam
- Georgia Ports Authority, United States
- Kepco SPC Power Corporation, Philippines
- Jorong Barutama Greston.PT - Indonesia
- Port Waratah Coal Services - Australia
- PTC India Limited - India
- Wood Mackenzie - Singapore
- Bharathi Cement Corporation - India
- IHS Mccloskey Coal Group - USA
- Thai Mozambique Logistica
- Kapuas Tunggal Persada - Indonesia
- Semirara Mining and Power Corporation, Philippines
- Pipit Mutiara Jaya. PT, Indonesia
- Oldendorff Carriers - Singapore
- European Bulk Services B.V. - Netherlands
- Leighton Contractors Pty Ltd - Australia
- Baramulti Group, Indonesia
- PetroVietnam Power Coal Import and Supply Company
- New Zealand Coal & Carbon
- Thiess Contractors Indonesia
- Ambuja Cements Ltd - India
- Rio Tinto Coal - Australia
- Therma Luzon, Inc, Philippines
- Bukit Asam (Persero) Tbk - Indonesia
- Lanco Infratech Ltd - India
- Aboitiz Power Corporation - Philippines
- Billiton Holdings Pty Ltd - Australia
- Carbofer General Trading SA - India
- Kartika Selabumi Mining - Indonesia
- Central Electricity Authority - India
- Larsen & Toubro Limited - India
- Chamber of Mines of South Africa
- SMC Global Power, Philippines
- Siam City Cement PLC, Thailand
- Krishnapatnam Port Company Ltd. - India
- CNBM International Corporation - China
- Gujarat Sidhee Cement - India
- Uttam Galva Steels Limited - India
- Holcim Trading Pte Ltd - Singapore
- Mercuria Energy - Indonesia
- Central Java Power - Indonesia
- Savvy Resources Ltd - HongKong
- Alfred C Toepfer International GmbH - Germany
- Semirara Mining Corp, Philippines
- Mjunction Services Limited - India
- Meralco Power Generation, Philippines
- Madhucon Powers Ltd - India
- The Treasury - Australian Government
- Intertek Mineral Services - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- McConnell Dowell - Australia
- India Bulls Power Limited - India
- Karaikal Port Pvt Ltd - India
- PowerSource Philippines DevCo
- Renaissance Capital - South Africa
- Banpu Public Company Limited - Thailand
- Minerals Council of Australia
- Bahari Cakrawala Sebuku - Indonesia
- Bank of Tokyo Mitsubishi UFJ Ltd
- Pendopo Energi Batubara - Indonesia
- Latin American Coal - Colombia
- Kaltim Prima Coal - Indonesia
- Cigading International Bulk Terminal - Indonesia
- Essar Steel Hazira Ltd - India
- Directorate Of Revenue Intelligence - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- SN Aboitiz Power Inc, Philippines
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Sakthi Sugars Limited - India
- Riau Bara Harum - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Global Green Power PLC Corporation, Philippines
- Altura Mining Limited, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Rashtriya Ispat Nigam Limited - India
- Sree Jayajothi Cements Limited - India
- The University of Queensland
- Antam Resourcindo - Indonesia
- Price Waterhouse Coopers - Russia
- Straits Asia Resources Limited - Singapore
- Vizag Seaport Private Limited - India
- Merrill Lynch Commodities Europe
- OPG Power Generation Pvt Ltd - India
- Metalloyd Limited - United Kingdom
- Energy Link Ltd, New Zealand
- Star Paper Mills Limited - India
- Romanian Commodities Exchange
- Petron Corporation, Philippines
- Indian Oil Corporation Limited
- Bhoruka Overseas - Indonesia
- GAC Shipping (India) Pvt Ltd
- Samtan Co., Ltd - South Korea
- AsiaOL BioFuels Corp., Philippines
- Gujarat Mineral Development Corp Ltd - India
- Goldman Sachs - Singapore
- Sojitz Corporation - Japan
- Interocean Group of Companies - India
- LBH Netherlands Bv - Netherlands
- Manunggal Multi Energi - Indonesia
- Directorate General of MIneral and Coal - Indonesia
- Bhatia International Limited - India
- GMR Energy Limited - India
- Bangladesh Power Developement Board
- ASAPP Information Group - India
- Indian Energy Exchange, India
- Indonesian Coal Mining Association
- Miang Besar Coal Terminal - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Salva Resources Pvt Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- IEA Clean Coal Centre - UK
- Australian Coal Association
- Sinarmas Energy and Mining - Indonesia
- Bulk Trading Sa - Switzerland
- Eastern Coal Council - USA
- Videocon Industries ltd - India
- Bukit Baiduri Energy - Indonesia
- Anglo American - United Kingdom
- Bayan Resources Tbk. - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Tamil Nadu electricity Board
- Sindya Power Generating Company Private Ltd
- Jindal Steel & Power Ltd - India
- GVK Power & Infra Limited - India
- ICICI Bank Limited - India
- Heidelberg Cement - Germany
- Borneo Indobara - Indonesia
- Kalimantan Lumbung Energi - Indonesia
- Asmin Koalindo Tuhup - Indonesia
- The State Trading Corporation of India Ltd
- TNB Fuel Sdn Bhd - Malaysia
- Dalmia Cement Bharat India
- PNOC Exploration Corporation - Philippines
- Cement Manufacturers Association - India
- Coal and Oil Company - UAE
- Chettinad Cement Corporation Ltd - India
- Independent Power Producers Association of India
- Malabar Cements Ltd - India
- Posco Energy - South Korea
- Ministry of Transport, Egypt
- Kobexindo Tractors - Indoneisa
- Ind-Barath Power Infra Limited - India
- Bukit Makmur.PT - Indonesia
- Globalindo Alam Lestari - Indonesia
- San Jose City I Power Corp, Philippines
- Petrochimia International Co. Ltd.- Taiwan
- Barasentosa Lestari - Indonesia
- Ceylon Electricity Board - Sri Lanka
- Indika Energy - Indonesia
- Eastern Energy - Thailand
- Deloitte Consulting - India
- Kideco Jaya Agung - Indonesia
- Coalindo Energy - Indonesia
- Siam City Cement - Thailand
- Singapore Mercantile Exchange
- Orica Mining Services - Indonesia
- Maheswari Brothers Coal Limited - India
- Wilmar Investment Holdings
- Mintek Dendrill Indonesia
- Formosa Plastics Group - Taiwan
- Timah Investasi Mineral - Indoneisa
- Grasim Industreis Ltd - India
- Coastal Gujarat Power Limited - India
- Marubeni Corporation - India
- Xindia Steels Limited - India
- Australian Commodity Traders Exchange
- Energy Development Corp, Philippines
- VISA Power Limited - India
- Parry Sugars Refinery, India
- Ministry of Finance - Indonesia
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Jaiprakash Power Ventures ltd
- Electricity Generating Authority of Thailand
- Medco Energi Mining Internasional
- SMG Consultants - Indonesia
- Power Finance Corporation Ltd., India
- Iligan Light & Power Inc, Philippines
- Global Business Power Corporation, Philippines
- Neyveli Lignite Corporation Ltd, - India
- Indo Tambangraya Megah - Indonesia
- Ministry of Mines - Canada
- Economic Council, Georgia
- Attock Cement Pakistan Limited
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