Meaning
Legal and financial liability for goods that are damaged, destroyed or stolen during transit or storage. This concept determines whether the buyer or the seller must bear the cost if something happens to the merchandise before it reaches its final destination. It is typically defined by specific contract clauses in domestic shipping or by international trading terms.
Transfer Point
Ownership and the risk of loss do not always move from one party to another at the same time. A contract might state that the buyer takes title to the goods at the factory gate, but the risk of loss remains with the seller until the items are loaded onto the ship.
Insurance Requirement
The party holding the exposure must secure adequate coverage to protect their investment. If the risk of loss has passed to a buyer who has not yet insured the shipment, a maritime accident could result in a total financial loss without any recourse against the seller.
Dispute Resolution
Clear documentation of the condition of the goods at each hand-off point is essential for settling claims. Inspection reports and bills of lading serve as the evidence needed to prove when the damage occurred and who was responsible for the risk of loss at that moment.
