LOI vs ICPO vs SPA: The Document Chain of a Physical Commodity Transaction

Every physical commodity transaction, whether ICUMSA 45 sugar, EN 590 or copper cathodes, moves through a chain of documents. The abbreviations LOI, ICPO and SPA appear in every offer, but they are used loosely and often in the wrong order. This article explains what each document is, what it commits the parties to, and how the chain continues after the contract is signed.

LOI, ICPO and SPA in one sentence each

A letter of intent (LOI) is a non-binding expression of interest from a buyer. An irrevocable corporate purchase order (ICPO) is a firm purchase offer on stated terms. A sale and purchase agreement (SPA) is the signed contract. Only the SPA creates enforceable delivery and payment obligations; everything before it is negotiation, and everything after it is performance.

Letter of intent

The LOI opens the discussion. It names the buying entity, the product and specification reference (EN 590 10 ppm, ICUMSA 45, copper cathodes Grade A to LME specification), the quantity, the Incoterms 2020 delivery term and port, the shipment window and the intended payment method. It is signed by an officer of the buyer and is expressly non-binding. A proper LOI does not include passport copies, bank account numbers or a bank letter. Producers rarely ask for one at all; they answer an enquiry with a firm offer once the buyer has passed onboarding.

Irrevocable corporate purchase order

The ICPO is the buyer's firm offer to purchase. It repeats the commercial terms and adds price basis, payment instrument (typically a documentary letter of credit at sight under UCP 600), inspection agency, and validity period. It is "irrevocable" for that validity: if the seller accepts without change, a contract exists. In institutional practice the ICPO is a short document issued after the seller's offer so that the two mirror each other. In the intermediary market it has become a ten-page form requiring banking details, a "soft probe" authorisation and acceptance of a procedure the buyer never negotiated. Signing it commits the buyer to that procedure.

Rule: nothing before the signed SPA obliges anyone to ship, pay or issue a bank instrument. A party that demands a fee, a bank message or an instrument on the strength of an LOI or ICPO is asking for performance before a contract exists.

Sale and purchase agreement

The SPA is the contract. For a one-off cargo it may be called a sales contract or confirmation; for a twelve-month supply it is a framework with delivery schedule. The essential clauses are:

• Parties, with registration numbers and signatories' authority
• Product and specification, referencing the standard and test methods, with rejection limits
• Quantity and tolerance (for instance ±5 % at seller's option for bulk cargoes)
• Price and price basis, including any index formula and the pricing date
• Delivery term under Incoterms 2020, load and discharge ports, laycan and shipment period
• Payment: instrument, issuing bank, document list, latest issue date
• Performance bond, if any: issuer, amount, timing, expiry
• Inspection: agency, sampling point, binding nature of the certificate, cost allocation
• Title and risk transfer, demurrage and laytime, force majeure
• Governing law, arbitration seat and rules

A producer's SPA references its own general terms and contains no "transaction procedure" of MT799, POP and SBLC steps. The absence of such a procedure is itself a marker of an institutional counterparty.

The chain after signature

Most documents in this chain are issued by third parties with defined roles. That is what makes it verifiable: the inspector can confirm its certificate, the carrier its bill of lading and the bank its message. A chain in which every document comes from the seller or its mandate is not verifiable.

Documents that do not belong in the chain

• Soft corporate offer (SCO): an unsolicited offer with no allocation behind it. Producers issue firm offers to onboarded buyers, not SCOs to lists.
• Proof of product (POP): a bundle of tank receipts, allocation letters and SGS reports from previous cargoes. Proof of product is the inspection certificate on the parcel being sold, issued at loading, and the bill of lading.
• Non-circumvention, non-disclosure agreement (NCNDA) and irrevocable master fee protection agreement (IMFPA) signed before the SPA: these are broker documents and commit the buyer to pay intermediaries regardless of performance.

Order of events in an institutional trade

1. Enquiry from buyer; KYC exchange both ways.
2. Firm offer from seller with validity, or ICPO from buyer in response to an indication.
3. Negotiation of the SPA text, including the letter of credit draft and the inspection clause.
4. Signature of the SPA.
5. Letter of credit, then performance bond, then shipment, then documents and payment.

Whether the cargo is sugar, diesel or copper, the chain is the same. A counterparty who places a bank message before the contract or a fee before the letter of credit is not following a different procedure. It is avoiding the only one that works.