A gentlemen’s agreement is an informal, often unwritten agreement or deal backed only by the honesty of the counterparty to actually keep its terms. Such an agreement is usually informal, made verbally and not legally binding.

Despite their informal nature, breaking a gentlemen’s agreement can damage business relationships if one of the parties decides to go back on its promise. A gentlemen’s agreement may be sealed with a handshake, or not sealed at all.
 

Key points
 

• Gentlemen’s agreements are informal, unwritten agreements between two parties to carry out a deal or other obligations.
• These agreements are not legally binding but are upheld by honesty, social norms and pressure from other market participants.
• Despite their informal status, gentlemen’s agreements have been common in business and trade for centuries.
   

Understanding gentlemen’s agreements
 

A gentlemen’s agreement, being more a matter of honour and etiquette, relies on two or more parties’ goodwill to fulfil verbal or unspoken obligations. Unlike a binding contract or legal agreement, if a gentlemen’s agreement is broken, there is no court remedy or compensation.

Gentlemen’s agreements are commonly made in international trade and relations, and in most industries. They were especially widespread at the dawn of the industrial age and in the first half of the 1900s, because regulation often lagged behind new business practices. Such agreements have been used to fix prices and restrict competition.

The role of a gentlemen’s agreement in international freight is to create an informal, but still important, mechanism for regulating and coordinating activity between transport companies and other participants in global shipping. The agreement is usually based on trust, mutual respect and honesty, and its aim is to help international transport services run more smoothly and efficiently.
 

The main aspects of the role of a gentlemen’s agreement in international freight include:
 

• Aligning standards and procedures: A gentlemen’s agreement allows the parties to agree on common standards and procedures, which simplifies their cooperation. This can include exchanging information about routes, schedules, rates, customs procedures and other aspects that affect the carriage of goods.
• Smoothing out competition: Competition in international freight can be fierce, and a gentlemen’s agreement helps prevent unfair competition or price cuts to levels that may be unprofitable for all participants. In this way the agreement contributes to stability and predictability in relations between companies.
• Resolving disputes: A gentlemen’s agreement can provide a mechanism for resolving disputes and unsettled issues between participants in the freight industry. This can help avoid lengthy and costly legal proceedings and lead to quicker solutions.
• Improving the reliability and quality of services: Cooperation between transport companies and the commitments set out in a gentlemen’s agreement help improve the reliability and quality of the services provided. This strengthens the participants’ reputation in the market and helps attract new customers.
• Adapting to change: The global freight market is constantly changing, and a gentlemen’s agreement can make it easier to adapt to new conditions. When rules, regulations or other circumstances change, the parties can look for solutions together and coordinate their actions.
   

Despite the importance of the gentlemen’s agreement in international freight, it should be noted that such agreements can be criticised for possibly violating antitrust laws and distorting competition. For this reason, the strategy and limits of cooperation must be carefully agreed and must not breach free-competition legislation.