How an international commodity deal works

A physical commodity transaction follows a clear sequence: verification, offer, contract, inspection, shipment and settlement. Each step builds the trust the next one depends on.

Last updated: October 20264 min readAndalucia Premium

In brief

Verification of both parties comes first, before any commercial document is exchanged.

The signed sales and purchase agreement, not the offer or the purchase order, creates the binding obligations.

Independent inspection and a bank instrument tie payment to proof of quality, quantity and shipment.

What are the steps of a commodity transaction?

Typically: enquiry, verification of both parties, offer and negotiation, contract, payment instrument, inspection and loading, presentation of documents and payment. The exact order can vary with product and payment method.

Enquiry: product, specification, quantity, delivery window and destination.
Verification: know-your-customer check on buyer and seller.
Offer and negotiation: price basis, Incoterms®, inspection, payment.
Contract: the sales and purchase agreement is signed.
Payment instrument: for example a letter of credit is issued.
Inspection and loading: independent surveyors confirm quality and quantity.
Documents and settlement: documents are presented and payment is released.

What does a commodity broker do in a transaction?

A broker brings together a buyer and a seller that fit each other and accompanies the transaction until settlement. It does not buy or sell the goods itself.

In practice this means checking whether a request is realistic, verifying both sides, aligning specification and terms, coordinating inspection and documents and keeping communication between the parties precise. The broker’s commission is agreed in writing before the deal.

A serious broker does not issue offers without verified goods behind them and does not pass on documents from unknown parties unchecked.

Who are the parties in a physical commodity deal?

At the core are the seller and the buyer. Around them work banks, inspection companies, shipowners or carriers, terminals, insurers and, where involved, brokers.

Party	Role
Seller	Producer, refinery, mill or trading house that delivers the goods
Buyer	Importer, distributor, industrial user or trading house
Banks	Issue, advise, confirm and pay under the payment instrument
Inspection company	Confirms quality and quantity independently
Carrier	Transports the goods and issues the transport document
Broker	Connects the parties and coordinates the process

Why does verification come before the offer?

Because offers and contracts should only be exchanged between parties that are known to exist, may legally trade and are able to perform. This protects both sides against fraud and sanctions breaches.

Commodity markets attract offers without real goods and requests without real funds. A know-your-customer check covering company registration, beneficial owners, sanctions screening and proof of capability filters these out early. For us it is a fixed rule: no verification, no offer.

What should a commodity sales contract include?

At minimum: parties, product and specification, quantity and tolerance, price and price basis, Incoterms® rule with place, delivery period, inspection, payment instrument, documents, title and risk, force majeure, law and dispute resolution.

Quantity tolerance, for example “plus or minus a stated percentage at seller’s or vessel’s option”.
Inspection clause: which company, where, and whether the load-port result is final.
Document list that matches the payment instrument exactly.
Laytime and demurrage aligned with the charter party.
Sanctions clause and compliance obligations.
Applicable law and arbitration, chosen by the parties.

Contracts should be reviewed by the parties’ own legal advisers; we do not provide legal advice.

How is a commodity deal settled?

Usually through the agreed bank instrument: after loading, the seller presents the required documents, the bank checks them and pays if they comply. With bank transfers, payment follows the contractual schedule.

Under a documentary letter of credit, the seller is paid against compliant documents such as the bill of lading, commercial invoice and inspection certificates. The buyer receives the documents it needs to take delivery of the cargo. Any discrepancy can delay payment, which is why documents are prepared carefully before presentation.

What can delay a commodity transaction?

Common causes are incomplete KYC documents, slow opening of the payment instrument, unclear specifications, vessel or terminal delays and discrepancies in the shipping documents.

Documents for verification that arrive piecemeal.
Specifications that are only clarified after the contract is drafted.
Letters of credit whose terms do not match the contract.
Port congestion, weather or late vessel nomination.
Errors in names, quantities or dates across documents.

Most delays can be avoided by settling these points before signing.

Last updated: October 2026This page provides general information about trade practice. It is not legal, tax or investment advice.

FAQ

Frequently asked questions

Commodity trading questions, answered

Is an offer from a broker binding?

No, a broker passes on and coordinates offers but does not sell the goods itself. The binding obligations arise from the sales contract signed between buyer and seller.

Can a commodity deal be done without a broker?

Yes, many companies trade directly. A broker adds value where buyer and seller do not yet know each other or where verification, coordination and documentation need dedicated attention.

What is a spot deal and what is a contract deal?

A spot deal covers a single shipment, while a term contract covers several deliveries over a period, often with a price formula. Both are possible in our sectors, depending on supply and demand.

Who appoints the inspection company?

The parties agree on it in the contract. Often the seller appoints it at the load port and the buyer may appoint its own surveyor in addition.

What happens if a vessel is delayed?

The consequences follow the contract and the charter party, for example extensions of the delivery period or demurrage. That is why laytime and delivery windows should be clearly defined.

Do you take ownership of the goods?

No. As a broker we never take title to the goods; ownership passes directly between seller and buyer as agreed in their contract.

Sectors