Exclusive Patronage Contract

Exclusive Patronage Contract

Summary of Exclusive Patronage Contract

Also known as a merchant’s contract or shipper’s rate agreement, an agreement whereby a shipper of goods by water agrees to ship all his cargo over a given trade route aboard carriers that are member lines of the steamship CONFERENCE (read this legal term for further details). In return for this commitment, the shipper receives a rate (usually 15 percent) lower than that available to those who have not executed a pledge.

A firm so pledged to ship its goods aboard conference vessels is a contract shipper; the lower rate accorded the contract shipper is the contract rate. Conversely, firms that have not signed an exclusive patronage agreement are noncontract shippers and receive the (higher) noncontract rate. A contract shipper who deviates from the terms of the agreement by shipping goods aboard nonconference vessels is subject to economic penalties, which are enforceable.

Exclusive patronage contracts are authorized by the Shipping Act of 1916. The exclusive patronage contract is a form of loyalty agreement, differing in that a loyalty agreement does not necessarily commit the signatory merchant to give 100 percent of its business to the conference. As a practical matter, the terms are virtually synonymous since loyalty agreements in the United States do not provide for a commitment of less than 100 percent of a merchant’s cargo.

(Main Author: William J. Miller)


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