There are five major sources of disputes that frequently arise from international trade transactions, particularly commodity trade transactions. These are discussed below:

1. Pricing- Sales contracts may provide different pricing parameters. Commodities may be traded on a firm fixed price basis (i.e., prices are agreed at the outset usually on a per metric basis except the United States which is on a per pound basis). Commodities may also be traded under price-to-be-fixed (PTBF) contracts. Under this arrangement, the buyer and seller agree that the price of the commodity will be fixed when certain events e.g., upon shipment or bill of lading date. Under this arrangement, prices could be negotiated and fixed at that time or based on a prevailing commodity exchange price. Banks that intend to finance commodity trade transactions always prefer fixed-price contracts as they reduce uncertainty. They also prevent potential disputes from buyers who may want to delay taking delivery of goods when prevailing prices do not suit them.

 2.     Quality of commodity delivered- Most exchange-traded commodities have well-defined quality references. Banks that intend to finance commodity trade transactions usually insist on independent quality inspection agents in the country of original shipment whose certifications will be binding on the buyer and seller. Contracts that require quality inspection at the destination are usually unacceptable to financing banks.

3.     Quantity of goods delivered- Commodity contracts usually specify the quantity of commodities to be delivered and allow for tolerance (positive or negative deviations from the pre-agreed quantity). Where the exporter fails to match the minimum quantity agreed upon in the sales contract, disputes may arise especially when the buyer is a trader who has committed to another contract to sell the commodities upon completion of the purchase.

4.     Shipment date- Contracts for commodity trade transactions normally provide the latest or cut-off date on which shipment must be done. Certainty regarding this date is important to both the buyer and the seller as some commodity buyers are traders who enter into other contracts tied to the transaction and intend to sell upon purchase. Timely delivery could therefore be of critical importance.

5.     International Commercial Terms (INCOTERMS)- The INCOTERMS specify the risks and responsibilities of the buyer and seller in a trade transaction as well as the point where risk and responsibilities are shifted from one to another. Understanding what implications, the chosen INCOTERMS have on the buyer and seller is of critical importance. Banks that are considering financing a particular transaction will also be interested in the INCOTERM chosen and its implications on the party they are financing. For example, one of the risk factors associated with a Free On Board (FOB) contract is the buyer’s failure to nominate a vessel. Where a bank is offering pre-shipment financing to an exporter/seller in such a scenario, the exporter/seller will have to deal with increased costs from warehouse charges and possible rejection of goods due to a decline in quality when or if a new buyer is eventually found. This will harm the ability of the borrower/exporter to fully repay the loan owed to the financing bank.

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