What Is General Average? An Insurance Disaster Explained

Published: March 31, 2025

When a cargo ship faces a disaster—like running aground, catching fire, or encountering extreme weather—who pays for the losses? Many businesses assume that if their goods aren’t damaged, they’re in the clear. However, in maritime law, the principle of General Average can require all cargo owners to contribute to the losses.

A Historical Look at General Average

General Average is not a modern concept—it dates back to around 800 BC in the Mediterranean, where early merchants and sailors faced unpredictable dangers at sea. Based on Archimedes’ Principle, when wooden ships suffered underwater damage, the quickest way to save the vessel was to reduce its weight and raise the hole above the waterline. The solution? Throw cargo overboard.

While the vessel was saved, the merchants who lost their goods weren’t left empty-handed. General Average was declared, ensuring that all cargo owners and the vessel owner shared the cost of compensating those who lost their goods. This principle of shared responsibility has stood the test of time and remains a cornerstone of maritime law today.

Whether you’re a shipper in Calgary or an international business relying on logistics and shipping, understanding General Average is crucial for protecting your bottom line.

How Does General Average Work?

Imagine a cargo ship carrying millions of dollars in goods, is at risk of sinking. The crew may need to jettison cargo to stabilize the vessel, or the ship might require costly emergency repairs. In these cases, General Average applies, meaning that all cargo owners—even those whose goods remain intact—must help cover the costs.

After an incident, a General Average declaration is made, and a professional adjuster assesses the total losses and expenses. Shippers then receive a notice requiring them to provide security or payment before their cargo is released. If you’re unprepared, your goods could be delayed for months.

To see an example of General Average in action, read this detailed account of the MSC Sabrina incident, where cargo owners faced significant delays and costs after the vessel ran aground, leading to General Average being declared.

Why General Average Matters for Businesses

Whether you’re shipping agricultural products, industrial equipment, or any other retail goods, General Average can have serious financial implications. Here’s why understanding it matters:

Unexpected Costs – Even if your cargo is safe, you may still owe a share of the expenses.
Delays in Cargo Release – Without proper insurance or financial security, shipments can be held until payments are settled.
Insurance Protection – Having the right marine cargo insurance can help cover General Average costs, preventing unexpected financial strain.

If you rely on logistics and shipping from Calgary or beyond, preparing for General Average is key to ensuring smooth operations and avoiding costly surprises.

How to Protect Your Business from General Average

While General Average cannot be avoided, businesses can take proactive steps to minimize risks and financial exposure:

Invest in Marine Cargo Insurance – A comprehensive policy can cover your share of General Average costs, ensuring you don’t face unexpected losses.
Understand Shipping Contracts – Read the fine print on shipping agreements to know your liabilities and financial responsibilities.
Work with an Experienced Logistics Partner – Companies like Ramsay Customs & Logistics help businesses navigate complex shipping regulations and ensure they are prepared for potential maritime claims.
Stay Informed on Shipping Risks – Monitoring global shipping conditions can help anticipate disruptions and take preventive measures.

Final Thoughts: Be Prepared for the Unexpected

The recent MSC Baltic III incident off Newfoundland is a reminder that maritime risks are real, and businesses must be prepared. Whether you’re shipping from Calgary or managing global trade, understanding General Average ensures you’re not caught off guard by unexpected costs and delays.

At Ramsay Customs & Logistics, we specialize in helping businesses navigate the complexities of international shipping, customs, and risk management. If you have questions about General Average or need expert logistics support, reach out to us today!

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