Contributing Editor Toby Gooley is a writer and editor specializing in supply chain, logistics, and material handling, and a lecturer at MIT's Center for Transportation & Logistics. She previously was Senior Editor at DC VELOCITY and Editor of DCV's sister publication, CSCMP's Supply Chain Quarterly. Prior to joining AGiLE Business Media in 2007, she spent 20 years at Logistics Management magazine as Managing Editor and Senior Editor covering international trade and transportation. Prior to that she was an export traffic manager for 10 years. She holds a B.A. in Asian Studies from Cornell University.
Suppose you're importing containers of machine parts from, say, Japan. Every week, the containers are loaded on a ship operated by the same carrier you've used for years. The ship casts off and your cargo heads out on what looks to be another routine voyage across the Pacific. What could go wrong?
An earthquake and tsunami, followed by a nuclear disaster, for one thing. Or the steering could fail and cause the ship to run aground, the engine could catch fire, or a collision could leave the ship with a hole punched through its hull—to name just a few of the more common possibilities.
When disaster strikes, many people assume the ocean carrier will absorb the cost of recovery and repairs. But that's generally not the case. Under a doctrine of maritime law known as "general average," cargo owners are required to pay a share of those costs.
General average allows carriers to charge beneficial cargo owners for costs that meet criteria established by international maritime law. Examples include the costs of towing the ship to safety, repairs, unloading and reloading cargo, rescuing the crew, and compensating customers for jettisoned cargo.
This legal principle, enshrined in international maritime treaties, contracts, and insurance policies, dates back to ancient times. Yet many importers and exporters are taken by surprise when a carrier declares that general average is in effect and the bills start rolling in. It's a complex matter best addressed by transportation lawyers and cargo insurance professionals, but the following overview will explain how general average works and what you can do to make sure you're prepared for the worst.
ANCIENT PRACTICE IN A MODERN AGE
The concept of general average dates back nearly 3,000 years. In centuries-old maritime parlance, "average" refers to loss, and "general" means that something is spread among all parties, according to Richard W. Bridges, a vice president with Roanoke Trade Insurance Inc., which specializes in international insurance solutions. Thus, general average is a pooling of a financial loss by all parties involved in an ocean voyage. (A variation is "particular average," or partial loss, which applies only to directly affected parties.)
More specifically, general average acts as a mechanism for reimbursing the carrier for the extraordinary expenditures or sacrifices it makes for the common good and safety of a voyage, says Laura Otenti, a lawyer with the firm Posternak Blankstein & Lund LLP. "In other words, losses incurred for the common benefit of the participants in a maritime voyage are paid proportionately by all who participate in the voyage," she says.
When would an ocean carrier declare general average? Historically, it typically happened when a ship was in imminent danger and the crew had to jettison cargo to lighten the vessel, Otenti says. That still applies, but today a ship's owner or master (captain) may also declare general average for other reasons, such as when a ship is not in imminent danger but cannot complete the voyage, she explains. Some examples include damage to the vessel caused by bad weather, running aground due to navigational errors, or a mechanical breakdown such as the loss of steering.
These scenarios are uncommon. But they are not rare. According to a report issued by the insurance company Allianz Global Corporate & Specialty, 25 cargo ships were lost in 2014, and hundreds more suffered damage of some type. Most incidents involve bulk vessels, but containerships are also at risk; from 2005 through 2014, a total of 36 sank or suffered serious damage. The largest loss in 2013 was the MOL Comfort, a containership that broke in half and sank off the coast of Yemen, the report said.
PAY YOUR PERCENTAGE
When general average has been declared, the carrier, the vessel owner, or more likely a third party called an "average adjuster" will notify cargo owners and shippers of record. In Otenti's experience, that initial communication usually explains the circumstances that caused the carrier to declare general average and may also include instructions for providing a bond, guaranty, or cash payment. The vessel owner must also prepare a general average statement that allocates the expenses to be paid by each cargo owner, Otenti explains.
How much you'll pay is based on the value of your cargo as a percentage of the total value of the voyage: the value of the ship itself plus the value of the cargo on board, says Bridges. If the value of your cargo is equal to 5 percent of the total value of the voyage, then you'll be required to pay 5 percent of the costs that meet the general average criteria.
The cargo owner's actual outlay over the course of a general average event can be significant. "When I started in the business 20 years ago, a typical general average payment was equivalent to 3 to 5 percent of the value of the cargo, but now we are seeing 7 to 10 percent as the norm," mostly because today's larger ships cost more to tow, unload, and repair, says Bridges. (See the sidebar for a hypothetical example of how a cargo owner's share is calculated and some very costly real-life examples.)
To ensure that cargo owners pony up, the carrier places a lien on all shipments aboard the stricken vessel. The cargo cannot be picked up until whoever owns the risk at that point—the exporter or the importer, depending on the terms of sale—or that party's insurer pays an estimated share of the expenses that are already known. Early on, that's usually the cost of towing the ship, and possibly crew rescue and cargo handling expenses.
But there's more to come, Bridges cautions. Cargo owners or their insurers must also post a bond to guarantee payment of additional charges that may be calculated after the cargo has been released. Examples might include ongoing costs like debris removal and environmental remediation. It can take a long time for the carrier to complete those activities and determine its final expenses, according to Bridges. Then it has to correctly apportion those costs among potentially hundreds of cargo owners—a monumental task he compares with handling a class-action lawsuit. "Some general average claims take up to seven years to complete, and three years is the norm," he observes.
BE PREPARED
Although many aspects of general average are out of the cargo owner's control, there are steps you can take to manage your costs and make sure your rights are protected.
One that may seem obvious but is often overlooked is to become thoroughly familiar with the terms of the carrier's bill of lading, says Suzanne Richer, director, trade advisory practice at Amber Road, a provider of global trade management software and advisory services. "People forget that the bill of lading is a contract of carriage. The back of the bill of lading is loaded with restrictions favoring the carrier, yet few people read it," she says. As a result, some shippers and consignees are not fully aware of their contractual obligations and may be unprepared for what's coming.
Surprisingly, another often-overlooked protective measure is to educate yourself about what your insurance policy does and does not cover, Richer says. That's because people frequently "set it and forget it" when it comes to cargo insurance.
Most policies, including "all risk" and less-inclusive ones, provide coverage for expenses incurred as a result of a general average declaration. But even with coverage, shippers can still get into trouble. For instance, if you purchase insurance through a broker who knows little about cargo, your general average claim may not be handled with urgency. And an importer that buys on sales terms where the seller bears the risk of loss may find that the exporter is in no hurry to pay a general average claim. "In some cases, the exporter may even decide to abandon the freight, leaving the importer stuck," Bridges says.
Be aware that there's more at stake than just covering the cost of general average assessments. There's also the physical loss or damage to the goods, and business costs associated with the delayed delivery and loss of the use of the cargo. Such unpredictable matters are excluded by most policies, but it's possible to purchase additional coverage, Richer says.
Richer recommends carefully considering the legal liabilities and contractual obligations that may apply and quantifying the financial impact in light of the value of the cargo and business impacts. "With that information, you can make a decision about the best option: to pay this or reject the freight, and if I do that, what will be the repercussions?" She also suggests working with your insurance carrier to find out how often such incidents occur in the trade lanes your shipments frequently traverse, and whether it's more economically advantageous to absorb a certain amount of loss.
Regardless of how well informed and prepared you might be, if you export or import a large volume of cargo on a regular basis, sooner or later a notice of general average is likely to arrive in the mail (or your inbox). Don't let the notice sit around, advises Otenti. Alert your insurance carrier and transportation lawyer that you've received the notice and consult them right away about what to expect and the best way to proceed, she says.
I have to pay how much?
When a carrier declares general average, the amount of money you'll be required to pay will be based on the value of your cargo as a percentage of the total value of the voyage—in other words, the value of the ship itself plus the value of the cargo on board.
To illustrate how the losses might be apportioned, Richard W. Bridges, a vice president with Roanoke Trade Insurance, offers a hypothetical example of a ship valued at $50 million that carried cargo valued at $50 million, which combined would yield a $100 million voyage value. If you were a cargo owner with $1 million worth of goods on board, you would be a 1-percent participant. Now suppose that the ship ran aground, and that subsequently, $5 million worth of cargo (not yours) was jettisoned to float the vessel off a sandbar and a salvage tug charged the ship owner another $5 million to tow the vessel to safety. You would be responsible for paying 1 percent of $10 million, or $100,000, though additional payment might be required once the final costs have been determined.
The actual amount to be paid, though, depends on the carrier's total cost and how much cargo is on board the ship. Although typical costs run around 7 to 10 percent of the value of the freight, that figure can go much higher, Bridges says. He cites the example of a 2006 fire on board the Hyundai Fortune, which was caused by undeclared flammable liquids loaded near the engine room and which destroyed over 500 containers. About $160 million in cargo was ruined and the vessel, worth $70 million, was a total loss. The demand on cargo owners was about 40 percent of the value of their freight.
Another large general average loss arose from the 2012 fire on board the MSC Flaminia, which resulted in an initial general average contribution (demand) of all the cargo owners for 110 percent of the value of their cargo. No definitive cause has been found, but most experts agree the ignition source was misdeclared hazardous cargo.
It’s probably safe to say that no one chooses a career in logistics for the glory. But even those accustomed to toiling in obscurity appreciate a little recognition now and then—particularly when it comes from the people they love best: their kids.
That familial love was on full display at the 2024 International Foodservice Distributor Association’s (IFDA) National Championship, which brings together foodservice distribution professionals to demonstrate their expertise in driving, warehouse operations, safety, and operational efficiency. For the eighth year, the event included a Kids Essay Contest, where children of participants were encouraged to share why they are proud of their parents or guardians and the work they do.
Prizes were handed out in three categories: 3rd–5th grade, 6th–8th grade, and 9th–12th grade. This year’s winners included Elijah Oliver (4th grade, whose parent Justin Oliver drives for Cheney Brothers) and Andrew Aylas (8th grade, whose parent Steve Aylas drives for Performance Food Group).
Top honors in the high-school category went to McKenzie Harden (12th grade, whose parent Marvin Harden drives for Performance Food Group), who wrote: “My dad has not only taught me life skills of not only, ‘what the boys can do,’ but life skills of morals, compassion, respect, and, last but not least, ‘wearing your heart on your sleeve.’”
Congestion on U.S. highways is costing the trucking industry big, according to research from the American Transportation Research Institute (ATRI), released today.
The group found that traffic congestion on U.S. highways added $108.8 billion in costs to the trucking industry in 2022, a record high. The information comes from ATRI’s Cost of Congestion study, which is part of the organization’s ongoing highway performance measurement research.
Total hours of congestion fell slightly compared to 2021 due to softening freight market conditions, but the cost of operating a truck increased at a much higher rate, according to the research. As a result, the overall cost of congestion increased by 15% year-over-year—a level equivalent to more than 430,000 commercial truck drivers sitting idle for one work year and an average cost of $7,588 for every registered combination truck.
The analysis also identified metropolitan delays and related impacts, showing that the top 10 most-congested states each experienced added costs of more than $8 billion. That list was led by Texas, at $9.17 billion in added costs; California, at $8.77 billion; and Florida, $8.44 billion. Rounding out the top 10 list were New York, Georgia, New Jersey, Illinois, Pennsylvania, Louisiana, and Tennessee. Combined, the top 10 states account for more than half of the trucking industry’s congestion costs nationwide—52%, according to the research.
The metro areas with the highest congestion costs include New York City, $6.68 billion; Miami, $3.2 billion; and Chicago, $3.14 billion.
ATRI’s analysis also found that the trucking industry wasted more than 6.4 billion gallons of diesel fuel in 2022 due to congestion, resulting in additional fuel costs of $32.1 billion.
ATRI used a combination of data sources, including its truck GPS database and Operational Costs study benchmarks, to calculate the impacts of trucking delays on major U.S. roadways.
Hyster-Yale Materials Handling today announced its plans to fulfill the domestic manufacturing requirements of the Build America, Buy America (BABA) Act for certain portions of its lineup of forklift trucks and container handling equipment.
That means the Greenville, North Carolina-based company now plans to expand its existing American manufacturing with a targeted set of high-capacity models, including electric options, that align with the needs of infrastructure projects subject to BABA requirements. The company’s plans include determining the optimal production location in the United States, strategically expanding sourcing agreements to meet local material requirements, and further developing electric power options for high-capacity equipment.
As a part of the 2021 Infrastructure Investment and Jobs Act, the BABA Act aims to increase the use of American-made materials in federally funded infrastructure projects across the U.S., Hyster-Yale says. It was enacted as part of a broader effort to boost domestic manufacturing and economic growth, and mandates that federal dollars allocated to infrastructure – such as roads, bridges, ports and public transit systems – must prioritize materials produced in the USA, including critical items like steel, iron and various construction materials.
Hyster-Yale’s footprint in the U.S. is spread across 10 locations, including three manufacturing facilities.
“Our leadership is fully invested in meeting the needs of businesses that require BABA-compliant material handling solutions,” Tony Salgado, Hyster-Yale’s chief operating officer, said in a release. “We are working to partner with our key domestic suppliers, as well as identifying how best to leverage our own American manufacturing footprint to deliver a competitive solution for our customers and stakeholders. But beyond mere compliance, and in line with the many areas of our business where we are evolving to better support our customers, our commitment remains steadfast. We are dedicated to delivering industry-leading standards in design, durability and performance — qualities that have become synonymous with our brands worldwide and that our customers have come to rely on and expect.”
In a separate move, the U.S. Environmental Protection Agency (EPA) also gave its approval for the state to advance its Heavy-Duty Omnibus Rule, which is crafted to significantly reduce smog-forming nitrogen oxide (NOx) emissions from new heavy-duty, diesel-powered trucks.
Both rules are intended to deliver health benefits to California citizens affected by vehicle pollution, according to the environmental group Earthjustice. If the state gets federal approval for the final steps to become law, the rules mean that cars on the road in California will largely be zero-emissions a generation from now in the 2050s, accounting for the average vehicle lifespan of vehicles with internal combustion engine (ICE) power sold before that 2035 date.
“This might read like checking a bureaucratic box, but EPA’s approval is a critical step forward in protecting our lungs from pollution and our wallets from the expenses of combustion fuels,” Paul Cort, director of Earthjustice’s Right To Zero campaign, said in a release. “The gradual shift in car sales to zero-emissions models will cut smog and household costs while growing California’s clean energy workforce. Cutting truck pollution will help clear our skies of smog. EPA should now approve the remaining authorization requests from California to allow the state to clean its air and protect its residents.”
However, the truck drivers' industry group Owner-Operator Independent Drivers Association (OOIDA) pushed back against the federal decision allowing the Omnibus Low-NOx rule to advance. "The Omnibus Low-NOx waiver for California calls into question the policymaking process under the Biden administration's EPA. Purposefully injecting uncertainty into a $588 billion American industry is bad for our economy and makes no meaningful progress towards purported environmental goals," (OOIDA) President Todd Spencer said in a release. "EPA's credibility outside of radical environmental circles would have been better served by working with regulated industries rather than ramming through last-minute special interest favors. We look forward to working with the Trump administration's EPA in good faith towards achievable environmental outcomes.”
Editor's note:This article was revised on December 18 to add reaction from OOIDA.
DAT Freight & Analytics has acquired Trucker Tools, calling the deal a strategic move designed to combine Trucker Tools' approach to load tracking and carrier sourcing with DAT’s experience providing freight solutions.
Beaverton, Oregon-based DAT operates what it calls the largest truckload freight marketplace and truckload freight data analytics service in North America. Terms of the deal were not disclosed, but DAT is a business unit of the publicly traded, Fortune 1000-company Roper Technologies.
Following the deal, DAT said that brokers will continue to get load visibility and capacity tools for every load they manage, but now with greater resources for an enhanced suite of broker tools. And in turn, carriers will get the same lifestyle features as before—like weigh scales and fuel optimizers—but will also gain access to one of the largest networks of loads, making it easier for carriers to find the loads they want.
Trucker Tools CEO Kary Jablonski praised the deal, saying the firms are aligned in their goals to simplify and enhance the lives of brokers and carriers. “Through our strategic partnership with DAT, we are amplifying this mission on a greater scale, delivering enhanced solutions and transformative insights to our customers. This collaboration unlocks opportunities for speed, efficiency, and innovation for the freight industry. We are thrilled to align with DAT to advance their vision of eliminating uncertainty in the freight industry,” Jablonski said.