Incoterms & trade contracts

Spot purchase vs. term contract

A spot purchase is a one-off deal at the current market price for prompt delivery: flexible, but exposed to price and supply swings. A term contract secures regular shipments over a period (a quarter, a year) at a fixed or formula-linked price, giving security of supply but often with a minimum off-take (take-or-pay) obligation. Manufacturers usually balance risk by covering part of their needs on term and buying the rest spot.

Related terms

Sales contract

The core document setting out the parties’ rights and obligations in an international raw material sale. It should cover the product and specification, quantity and tolerance, price and currency, Incoterm and named place, shipment period, payment method, quality and quantity determination (inspection), insurance, force majeure, remedies for breach, governing law and dispute resolution. Where the parties’ countries allow it, the UN Convention on Contracts for the International Sale of Goods (CISG) applies unless expressly excluded.

Formula pricing (index-linked pricing)

A method in which the price is tied to a market index instead of a fixed figure – for example “LME copper average of the shipment month + USD 85/t premium”, “Platts Dated Brent + USD 2.50/bbl” or “ICIS PP homopolymer CFR Türkiye monthly average minus 1 %”. The pricing period (B/L month, arrival month or quotational period, QP), the index source and the exchange rate used for payment must be stated clearly in the contract. In term contracts it protects both parties fairly against price swings.

Minimum order quantity (MOQ)

The smallest order a supplier will accept. For raw materials the MOQ is usually defined by a container (e.g. 20–25 t of resin, one 40’HC), a production batch or a truckload; for bulk cargo it may be a ship parcel such as 5,000 t. Requests below the MOQ are served at a higher unit price, from stock or via distributors. On the platform, large transactions go to the deal room, while small quantities are routed to direct contact with the supplier.

Explained in the trade handbook

Trade handbook