Averaging Out Loss

Q: Can you explain something called “general averaging” as it applies to marine carriers’ liability for cargo loss and damage?

I’ve seen this mentioned in connection with the container ship Rena that ran aground off New Zealand this month, and I don’t understand it. Supposedly, some shippers with goods on the vessel may be required to pay for losses incurred by other shippers, which makes no sense to me.

The same article I read also said the Rena’s captain and navigation officer are facing criminal charges in New Zealand. If they’re convicted, will this have any effect on carrier liability to shippers?

A: Probably neither issue will come into play respecting loss and damage liability in the Rena disaster, though the first one — general averaging — does indeed require what you say in cases when it’s applicable.

The notion behind general averaging, as set forth in the international treaty governing maritime liability, the Hague Rules and the U.S. Carriage of Goods by Sea Act deriving from that treaty, is that shippers should share equitably in losses resulting from perils of the sea.

It works like this: Say a cargo ship gets in trouble on the high seas. To keep it from foundering, the captain decides to jettison some part of the cargo; the balance is thereby saved, whereas it, too, would have been lost had the vessel sunk.

Thus, in a very real sense, those shippers whose goods survived the near-sinking owe their good fortune in part to the jettisoning of the others’ freight. So the unlucky owners of the jettisoned goods may not unreasonably consider that they’re entitled to compensation from those other shippers; and general averaging codifies the idea that the loss is prorated among all shippers with goods on board.

The reason I say it won’t apply to the Rena is that the lost containers weren’t intentionally jettisoned; rather they were stowed on deck and swept overboard by the storm that sent the Rena onto a reef. General averaging comes into play when cargo is intentionally jettisoned, whereas this cargo loss was the result of an accident.

Now, I suppose it could be argued the accidental loss of these containers did have the effect of allowing the ship and its remaining cargo to survive. I’ve never seen this in court, but if that could be proved, it might be treated in law the same as if it were a deliberate act, because the result was the same. But it would be awfully tough to prove this was in fact the case.

As for the charges levied against the two Rena officers, they may well bear on the environmental damage — the ship leaked oil big time — but will have no impact on carrier liability for the freight. Ocean ship lines are exempt from liability for cargo losses deriving from the “[a]ct, neglect or default of the master, mariner, pilot, or the servants of the carrier in the navigation or in the management of the ship;” COGSA, 46 U.S.C. Section 1304(2)(a).

(I’ve used the U.S. legal citation, but the words are taken verbatim from the Hague Rules, to which almost every seagoing nation subscribes. So the exception applies internationally.)

Now, shippers and carriers are free to contract for terms other than those of the statute and treaty. That almost surely won’t bear on the general averaging issue, because it would require that every last shipper have the selfsame agreement with the Rena’s operator. But, conceivably, it could give some shippers recourse against the carrier for the captain’s and/or navigation officer’s failings.

More importantly, such agreements also could increase the amount of the carrier’s liability for any lost or damaged freight. Under COGSA, that liability is capped at $500 per package or other shipping unit, which may even extend to an entire containerload. (Emendations to Hague by the Hamburg Rules and the Visby Amendments increase that dollar ceiling, and some countries have ratified one or both, but the U.S. hasn’t.)

That is, the carrier may have agreed with some of the Rena’s shippers to accept a higher dollar liability, either by an independent contract or simply modification of the bills of lading. If so, that agreement would trump both the law and the treaty(ies).

But it would, of course, do so only on a one-to-one basis. That is, the carrier would have this higher liability only to those particular shippers with which it cut the deal; other shippers wouldn’t be affected, meaning that carrier liability won’t necessarily be uniform across all the Rena’s cargo.

Consultant, author and educator Colin Barrett is president of Barrett Transportation Consultants. Send your questions to him at 5201 Whippoorwill Lane, Johns Island, S.C. 29455; phone, 843-559-1277; e-mail, BarrettTrn@aol.com. Contact him to order the most recent 351-page compiled edition of past Q&A columns, published in 2010.

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