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I’ve heard from some people involved in the shipping industry that (based on the size of the incident) this ship is probably going to declare General Average, w
by wolfgang42 6y ago
I’ve heard from some people involved in the shipping industry that (based on the size of the incident) this ship is probably going to declare General Average, which is a sort of weird concept that AFAIK doesn’t really have a parallel on land. It’s basically, “we’ve lost an awful lot of cargo—everyone who had stuff on board, chip in to pay for what got lost.” From what I understand, the idea is that you don’t want to waste time in an emergency trying to figure out which cargo is OK to jettison, so the shippers whose stuff arrived safely pay the ones who didn’t for their sacrifice, but I imagine it can be quite the surprise bill.
- system2 6y agoAren't there supposed to be some sort of insurance for this type of a thing?
- wolfgang42 6y agoWikipedia traces the origins of General Average to 800 BC, so it rather predates the modern insurance industry—it’s basically a group insurance policy where you only have to pay the premium if something happens. Nowadays if you’ve insured your container that will also cover GA for the shipment, but if you shipped uninsured you have to pay it yourself.
- cromka 6y agoThat doesn't sound bad. If you ship a lot, you may save money on the insurance fees and only chip in in the event something actually gets lost. The insurance fees would obviously include the actual premiums (income) of the insurers, which you save the money on, so in the long term it should cost you less, shouldn't it?
- est31 6y agoActually a pretty cool idea. Otherwise you'd have people bribing the captain to make them throw out their stuff last, increasing fare prices for everyone, but in a hidden way.
- dannyw 6y agoI mean if I have important or. valuable cargo, let’s say MacBook Pros, it seems efficient and beneficial to have some clothes thrown out first before my container.
- ocdtrekkie 6y agoIf three people died trying to save your MacBook Pro, that'd be bad. Which is why the idea is based around not caring what's in a given container.
- deleted 6y ago[deleted]
- wolfgang42 6y agoNot if they spend so long moving aside your laptops to find the clothing that the entire ship sinks. With General Average they can sort out the problem ASAP and then do the math later to repay you so that you and the clothing manufacturer both only lose 10% of your cargo’s respective values.
- deleted 6y ago[deleted]
- tshaddox 6y agoCouldn’t this just...still be happening? Wouldn’t this general average concept only provide better cover for a secret bribing system?
- est31 6y agoIndeed you can still bribe the captain for throwing someone else's cargo out, but that wouldn't bring you any benefits, except of some hassle. In the event of cargo being thrown out, you will have to pay your part of the loss, regardless of if it was your crate that was thrown out or someone else's. If it was your crate, you will get its value replaced (minus your part of the lost value ofc). As there is no damage, why would you want to bribe them?
- MereInterest 6y agoSounds sort of like a post-hoc insurance plan. Everybody "pays in" by accepting the risk of lost cargo, and the payout averages out the losses on that individual ship. If a ship is large enough, then that may be sufficient spreading of the risk.
- Trias11 6y agoAs a society we should vote for car insurance work this way too instead of feeding fraudulent car insurance industry.
- judge2020 6y agoCan you describe what exactly is wrong about the current car insurance industry? It sounds like this is exactly how car insurance currently works and it's a very regulated industry, perhaps only behind the financial industry and car manufacturing itself.
- Trias11 6y agoIn the true market "ship" model you'd pay 1/10 of what you're paying now. In the government enforced model you're overpaying 10x+ fold.
- speedgoose 6y agoI don't understand. My car insurance is run by a mutual organization and they don't collect 10 times more money for no reasons. If you reduce the income of the insurance, who is paying ?
- Scoundreller 6y agoMaybe OP is suggesting there’s a lot of fraudulent claims in auto insurance, or poor driving/maintenance practices that lead to more claims. When your insurance company has a lot of customers, you don’t care about your big claim’s contribution to rate increases because it will be pennies/month. (Yes, I understand your rates can go up if you’re at fault, but you can also stop driving, drive without insurance (in some places) or reduce your policy). While this ship has thousands of containers, they probably run through a handful of shipping agents that won’t be in business for long if they make fraudulent claims.
- ponker 6y agoSounds like a horrible idea since the insurance pool is limited to the size of the ship. Hopefully at least it’s averaged by value rather than number of containers so that if someone is shipping corn and a container of iPhones gets jettisoned they don’t get a bill for their life savings.
- wolfgang42 6y agoYes, the idea is that everyone loses the same percentage of what they had (including the ship owner—the value of the ship before and after the incident is also included in the calculation). General Average long predates modern containerized shipping, so doing it by container count wouldn’t have been a thing anyway.
- 1123581321 6y agoA larger pool would require more frequent payouts to other vessels, or collecting regular premiums.
- kissickas 6y agoFor more info on the nautical origins of the word "average," check out this episode of The History of English Podcast: https://historyofenglishpodcast.com/2020/04/06/bonus-episode-stay-at-home-edition/ https://historyofenglishpodcast.com/2020/04/06/bonus-episode...
- wolfgang42 6y agoInteresting! I assumed “General Average” came from the mathematical sense, but it turns out it was the other way round. Etymonline has a good summary: https://www.etymonline.com/word/average https://www.etymonline.com/word/average
- oconnor663 6y agoHow does this work when one type of cargo is more valuable than others? If you lost a couple crates of bananas, and I lost a couple Ferraris, presumably you don't owe me a Ferrari now? :)
- wolfgang42 6y agoNo, everyone else whose stuff survived owes me 90% of two crates of bananas and you 90% of a pair of Ferraris. (I should have edited in that it’s based on percent of value while I had a chance, this seems to have caused more confusion than I expected.)
- tlrobinson 6y agoI think the question should have been phrased “If your crate of bananas was recovered, and I lost a couple Ferraris, presumably you don't owe me a Ferrari now?” It seems like the “fair” thing to do would be to pretend the entire cargo was lost, and the value of the remaining cargo is distributed in proportion to the value of each person’s cargo. So if $500,000 of Ferraris were lost and $500 of bananas were recovered the Ferrari guy would get $499.50 and the banana guy would get $0.50.
- wolfgang42 6y agoYeah, I’m not doing a great job of explaining it but that’s more or less how it works. I think the way it actually happens is that the banana guy pays $499.50 and gets his bananas back, but that’s effectively the same thing. Also there are administrative costs and the value of this ship is also involved in the calculation, but that’s a bit in the weeds.
- oconnor663 6y agoMakes sense, thanks!
- relix 6y agoI may be misremembering, but from how I understood container shipping works, that is always the case with lost / damaged containers, no matter the size of the event. If only one container falls off the boat, all entities who were shipping things on that boat are required to chip in proportionally to the amount of containers they were shipping, to make the owner of that container whole. The idea being that otherwise it's not fair to the owners of the top level containers, which have a higher chance of falling off than the bottom level containers. Everyone's share of the boat is equal. For this reason you always want to take the insurance that is offered against this, just in case that one container contained something worth a few million, and suddenly you're on the hook to pay an amount that is a multiple of what you were shipping in the first place.
- asdfaoeu 6y agoFrom some rudimenatary googling it's based on the value of the goods. So unless your cargo is expensive you wouldn't pay nearly as much. Unless there were expenditures there's no way you would be out more than its worth. Also because if this they'd likely load extremely valuable cargo in positions were it's not likely to be lost or jettisoned.
- hef19898 6y agoShows quite nice how important it is to really understand your Incoterms. And to procure insurance to cover any risk left open.
- sebmellen 6y agoReminds me of a Nassim Taleb talk I saw at a blockchain conference in 2018, where he talked extensively about Hammurabi's Law. See: - https://www.youtube.com/watch?v=Da0aXfshlxM https://www.youtube.com/watch?v=Da0aXfshlxM and - https://fs.blog/2017/11/hammurabis-code/ https://fs.blog/2017/11/hammurabis-code/.
- GekkePrutser 6y agoThat sounds weird, shouldn't the owner of the ship be responsible? With this general average there is no incentive to the operator to operate safely. Spending time to properly securing containers, not overloading etc.
- jeffrallen 6y agoThe rules only take effect if the loss was reasonably incurred. So declaring General Average opens up the operator to an investigation of the question, "was the cargo stowed according to industry standards". See: https://comitemaritime.org/wp-content/uploads/2018/06/YAR-2016-English-with-Rule-XVII-correction.pdf https://comitemaritime.org/wp-content/uploads/2018/06/YAR-20...
- GekkePrutser 6y agoAh ok fair enough! Thanks for the explanation.
- Balgair 6y agoAdditionally, there are many methods by which shipped goods are insured/paid/credited under Admiralty Law [0]. This part of law is particularly 'old' and traditional, so it's fairly complicated, but a fascinating thing to look into. To give a taste, with tramp shippers there are largely three classes of contracts, called charters [1]: 1) Demise charter hires a ship with no administration or technical maintenance included. The charterer gets possession and full control of the ship with legal and financial responsibility of it. The charterer pays for operating expenses, like fuel, crew, port expenses, and P&I and hull insurance. Demise chartering is common with tankers and bulk-carriers. 2) Voyage charters hire a ship and crew for a voyage between ports. The charterer pays the ship owner per-ton or lump-sum. The owner pays port costs (but not stevedoring), fuel costs, and crew costs. Payment for vessel use is called freight. A Voyage charter specifies laytime for loading and unloading cargo. If laytime is exceeded, the charterer pays demurrage. If laytime is saved, the charter party requires the shipowner to pay despatch. 3) Time charter is the hiring of a ship for a period of time; the owner still manages the ship but the charterer chooses ports and directs the ship where to go. The charterer pays for fuel, port charges, commissions, and a daily hire to the owner of the vessel. [0] https://en.wikipedia.org/wiki/Admiralty_law https://en.wikipedia.org/wiki/Admiralty_law [1] https://en.wikipedia.org/wiki/Chartering_(shipping) https://en.wikipedia.org/wiki/Chartering_(shipping)
- algorias 6y agoCan confirm this. The concept is not as weird as it sounds once you consider that the ship's captain is a naval officer who has duties and a social role roughly similar to that of a doctor. For any task related to navigating/operating the vessel (emergency or not), the captain's word is final and there are penalties for negligent behavior that are determined completely outside of the "corporate" chain of command. Decisions of whether or not to ditch a block of unstable containers are made with 0 interference from commercial interests. The captain is also the one responsible for upholding the laws of whatever flag the vessel flies under.
- eru 6y ago> Decisions of whether or not to ditch a block of unstable containers are made with 0 interference from commercial interests. Or rather, the commercial interest operates in the long run and influences the mechanisms through which decisions are made. The concepts of eg general average or making the captain's word final were developed very much in correspondence to commercial necessity. In some sense your analogy to a doctor is apt. Individual medical decisions might not look much at costs, but the system as a whole ignores costs at its own peril.
- golergka 6y ago> surprise bill That policy sounds like something that would be common in shipping for a long time, and something that insurance companies would long have had covered against, no?
- wolfgang42 6y agoIf you have insurance, yeah, they’ll take care of everything for you. But if you didn’t buy insurance for your container, imagine getting a letter that says “your container arrived safely, but you have to pay an extra $1,000 because some other peoples’ didn’t. Oh, also, that’s only an estimate that you have to pay a deposit on, it could take months to sort everything out and get an actual total.”
- bharathsnvs 6y agoThis reminds me of the way exodus parties across deserts used to use a simple risk-sharing mechanism against potential theft/pirates. Put simply, it was agreed upon that those on the extreme ends of a migrating party were more vulnerable to attacks from desert pirates. So, they would be compensated by the rest of the group (in the case of any such events) for shouldering the riskier positions in their migration.