How a commodity deal flows from enquiry to delivery

The big picture

Every physical commodity deal follows roughly the same path. The details differ by product and country, but the order is stable. Knowing the stages helps you see where you are, what is still open and what the other side will ask for next.

1. Enquiry and offer

A buyer states what is needed, or a seller states what is available. A useful message names the product and grade, the quantity, the delivery place and Incoterm, the payment terms and the timing. A vague message such as a request for the best price invites vague answers.

The offer should be specific enough to turn into a contract: price, validity period, specification, quantity, packing and delivery window.

2. Due diligence on both sides

Before money or cargo moves, both sides learn who they are dealing with. That usually means company registration, a signatory's authority, bank details, references and, for a first deal, a small lot or an inspection of the material. The KYC pack and the counterparty checklist articles cover this in detail.

3. Negotiation and contract

Terms are agreed and written down. A sales contract normally covers parties, product and specification, quantity and tolerance, price and currency, Incoterm and place, shipment period, payment terms and documents, inspection and testing, claims procedure, force majeure and governing law with a dispute route.

Simple deals may use a short sales and purchase agreement or a signed proforma invoice. Larger or repeat deals use a full contract, often prepared on the basis of a standard form used in that trade.

4. Payment security

Payment is arranged so that neither side carries all of the risk. Common routes are a documentary letter of credit, a transfer split between inspection and documents, or open account for established partners. The payment terms article compares them.

5. Production, loading and inspection

The seller prepares the goods and books or confirms transport according to the Incoterm. An independent inspector often attends loading to check quantity and condition and to take samples. The laboratory then issues a certificate of analysis. If the contract makes this result binding, it decides any later disagreement about quality.

6. Shipment and documents

The carrier issues a bill of lading when the goods are loaded. The seller prepares a commercial invoice, a packing list and usually a certificate of origin, plus any quality, quantity and insurance certificates the contract requires. These are presented to the bank or sent to the buyer according to the payment terms.

• Check each document against the contract and the letter of credit word for word.
• Names, quantities, ports, dates and descriptions must match across all documents.
• Fix errors before presentation, not after.

7. Arrival, discharge and delivery

At the destination, the buyer or an agent clears customs, takes delivery of the cargo and may arrange a final weight and quality check. If something does not match the contract, the buyer follows the claims procedure and time limits stated in it, often with a written notice backed by an inspection report and photographs.

8. Settlement and the next deal

Final payment is made, any adjustment for weight or quality is settled, and the file is closed. Brokers and introducers are paid according to their agreements. Good records at every step make the next deal faster, and many strong trading relationships start with one small container handled cleanly.

Where deals slow down

Raising these points at the start of a conversation costs a few minutes. Raising them at the port costs days.

• Specifications that differ between the offer, the contract and the certificate.
• A mismatch in a document, such as a different spelling of a company name or a wrong date.
• Unclear responsibility for inspection, port charges or customs clearance.
• Payment steps that one side cannot actually operate, such as a bank that does not handle the agreed instrument.

Frequently asked questions

How long does a typical commodity deal take?

It varies widely with product, route and payment method. Simple spot deals can complete in weeks, while deals with new counterparties, letters of credit and long voyages take longer.

When does ownership pass to the buyer?

It is set by the contract and the applicable law. Many contracts say title passes at a defined point, for example on payment or on delivery of the documents. Check the contract wording.

Do I need a written contract for a small deal?

A written agreement is strongly advisable at any size. Even a short signed document that lists product, quantity, price, delivery and payment removes most misunderstandings.

Who arranges the shipping?

That depends on the Incoterm. Under FOB the buyer books the vessel; under CFR or CIF the seller does. The Incoterms article explains the split.