Risk Transfer Mechanism

The risk transfer mechanism refers to the rules in international trade that define the timing and conditions under which the risk of loss or damage to goods passes from the seller to the buyer. Its core basis is the International Commercial Terms (Incoterms) and the United Nations Convention on Contracts for the International Sale of Goods. Different trade terms correspond to different risk transfer points: for example, under FOB, CFR, and CIF, risk transfers when the goods are loaded on board the vessel; under FCA, CPT, and CIP, risk transfers when the goods are handed over to the carrier; under DAP, DPU, and DDP, risk transfers upon delivery at the destination. In terms of application scenarios, it determines whether the buyer must bear cargo damage during transit and whether the seller must obtain insurance. Points to note include: risk transfer may not be synchronized with the transfer of ownership or the division of costs; if the seller delivers at a specific place, risk transfers upon completion of delivery, but if the seller fails to give proper notice to the buyer, risk may not transfer. Unlike 'delivery' and 'transfer of ownership,' risk transfer concerns only the bearing of loss and does not necessarily affect payment or insurance claims. Foreign trade practitioners should clarify the applicable Incoterms version in the contract and specify the exact point of risk transfer to avoid disputes.