How general average insurance impacts customs and freight forwarding

Events like equipment failure and dangerous weather can force ocean shippers to lose cargo. This triggers the principle of General Average (GA), which shares the financial burden of loss.

GA is a legal framework that binds cargo owners and stakeholders who share a shipping vessel. In the event of a voluntary sacrifice to save the vessel and its cargo, the general average determines how the financial burden of the lost cargo will be divided.

The general average is a well-established maritime concept, but its implications for customs clearance, freight forwarding, and supply chain logistics are often overlooked. Learning how the GA can potentially affect your business helps to prevent costly surprises and delays.

How the general average affects customs duties

One of the biggest concerns for importers is whether they still owe customs duties and taxes on cargo involved in a GA situation. The short answer is that importers will still usually need to pay. Even if part of the cargo is lost or damaged due to GA measures, customs authorities may still require duties and taxes to be paid based on the original shipment value.

Costs related to the GA, such as salvage expenses or contributions, can also impact the declared customs value of goods. Unless the cargo is formally abandoned, duties and taxes must still be paid. Additionally, customs authorities may require importers to provide a bond or guarantee before releasing cargo affected by GA.

A GA declaration can also slow down the customs clearance process. Cargo may be held until the shipowner or GA adjuster confirms that the required GA security or guarantee has been provided by the importer or their insurer. This delay can lead to increased storage and demurrage fees at the port, operational disruptions due to supply chain delays, and higher administrative costs as businesses work to resolve the situation with shipping lines and customs authorities.

The impact of GA on freight forwarding and logistics

Freight forwarders play a critical role in helping importers navigate GA-related challenges. They’re responsible for notifying clients if their cargo is involved in a GA declaration, coordinating insurance claims, and ensuring proper documentation is submitted for customs clearance and GA contribution assessment.

GA events can also create financial risks for freight forwarders. If an importer does not have GA insurance coverage, the freight forwarder may need to provide a GA guarantee to release the cargo. There is also the risk of liability if the forwarder fails to properly inform cargo owners about their GA obligations.

Even if cargo is lost or damaged due to GA, freight charges still apply. Additionally, GA-related delays can lead to extra demurrage, detention, and storage fees, further increasing the financial burden on importers.

How importers and forwarders can protect themselves

One of the best ways to mitigate risks is to have marine cargo insurance that includes GA coverage. Without insurance, importers will have to pay their GA contributions out of pocket, which can be a substantial financial burden.

Proper documentation and communication are also essential. Staying informed about cargo status during transit, ensuring cargo descriptions and values are accurately documented, and providing GA guarantees can help minimize clearance delays.

Working with an experienced customs broker and freight forwarder is invaluable in a GA situation. They can assist with negotiations if duties or taxes need adjustment due to lost or damaged goods, help streamline customs clearance by ensuring all required paperwork is in order, and provide guidance on risk management strategies to avoid financial exposure.

Prepare for the unexpected to mitigate GA scenarios

GA is a complex maritime principle that extends beyond the shipping industry, directly impacting customs clearance, freight forwarding, and trade operations. Importers and freight forwarders should stay prepared for the financial and logistical challenges that GA situations present. Securing proper insurance, maintaining strong communication with logistics partners, and working with experienced brokers can mitigate the risks associated with GA and keep operations running smoothly.

Cole’s cohesive, collaborative logistics team provides advantages that separate, stand-alone companies simply can’t provide. Connect with Cole today.

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