Who pays for the loss if products are damaged in transit?

By Yaurapulse

Published 2026-10-06 Updated 2026-10-06

If you have ever ordered from Alibaba and opened a container to find broken, crushed, or moldy goods, you know that sinking feeling. Your first instinct is to message the supplier and demand a refund. And their first response is almost always the same: not our problem.

The short answer: it depends on your shipping terms, but for most Alibaba orders under FOB, the risk is yours once the goods are loaded onto the ship at the origin port.

That is the hard truth no one wants to hear. But understanding who pays for what — and when — is the first step toward actually protecting yourself. The good news is that you do not have to just accept the loss. With the right insurance, the right packaging requirements, and the right documentation, you can shift that risk somewhere else.

In this guide, I will break down exactly when responsibility transfers, why Trade Assurance will not save you, how freight insurance actually works, and what to do when your goods arrive damaged anyway.

It all comes down to your incoterm — FOB, CIF, EXW, and who owns the risk
FCL vs. LCL: why your shipping method matters — more handling means more damage
What about Trade Assurance? — the hard truth most buyers learn too late
Freight insurance is your real safety net — what it covers, what it does not, and how to buy it
How to file a claim when cargo is damaged — step-by-step, with the exact documents you need
When the supplier is on the hook — the scenarios where it actually is their fault
Container loading supervision: your last line of defense — before the ship sails
FAQ — the damage and insurance questions I get most often

It all comes down to your incoterm

The question of who pays for damaged goods is not a matter of fairness — it is written into the shipping term you agreed on. Incoterms, published by the International Chamber of Commerce (ICC), define the responsibilities, risks, and costs of buyers and sellers under terms like EXW, FOB, CIF, and DDP.

Let me walk you through the ones you will actually see on Alibaba.

FOB (Free On Board) is the most common term by far. Under FOB, the supplier is responsible for the goods — and any damage to them — up until the moment they are loaded on board the vessel at the origin port. Once that cargo crosses the ship's rail, every scratch, dent, and lost box is on you.

If a crane drops a container in Shanghai and your ceramic mugs shatter before the ship even sails? That is the supplier's problem. If a storm at sea crushes half the cartons three weeks later? That is entirely yours.

In FOB, if a full container load becomes damaged during onboard freight, that becomes the buyer's liability, not the seller's. This catches new buyers off guard every single time.

CIF (Cost, Insurance, and Freight) means the supplier arranges shipping and buys cargo insurance on your behalf. The risk transfer point is the same as FOB — once on board, it is yours — but at least there is an insurance policy already in place. The supplier pays for it, but you are the one who files the claim.

CIF price = EXW price + export declaration costs + shipping cost from the factory to the destination port + cargo insurance.

EXW (Ex Works) is the most buyer-heavy term of all. Risk transfers the moment the goods leave the supplier's factory door. If the truck carrying your order gets into an accident on the highway to the port, every penny of damage is yours. Most experienced buyers avoid EXW for bulk orders precisely because it puts so much early-stage risk on the buyer.

DDP (Delivered Duty Paid) is the opposite. The supplier is on the hook all the way to your doorstep. Damage at any point in the journey is their problem to fix. DDP is rare on Alibaba for bulk orders because it shifts so much risk onto the seller, and they will charge you a significant premium for it.

Under FAS (Free Alongside Ship), the seller only needs to put the goods alongside the ship at the port of origin, and you are responsible for risks from then on. FAS is not commonly used, but it is worth knowing it exists.

Bottom line, the more the supplier handles, the more they charge. But for most standard Alibaba orders, you are on FOB terms, and the risk is yours from port of origin onward.

FCL vs. LCL: why your shipping method matters

How you ship matters almost as much as the incoterm. FCL (Full Container Load) and LCL (Less than Container Load) carry very different damage profiles.

FCL means you rent an entire container for exclusive use. There is no need to share space with others. It is like taking a taxi, not a bus. Since the container is sealed at the factory and only opened at your destination, there is a lower risk of damage. Fewer people handle your cargo, and no one else's goods are stacked next to yours, potentially crushing or scratching yours.

FCL shipping could help strengthen cargo security and reduce cargo damage. It is one of the underappreciated benefits of filling a container.

LCL is the opposite. Your cargo shares a container with other shippers' goods. The freight forwarder consolidates everything at the origin port and deconsolidates it at the destination. All that extra handling — loading, unloading, reloading — dramatically raises the risk of damage or loss.

LCL shipping is economical for small shipments, but your packages face a higher risk of damage and loss because of container space sharing. More handling means more opportunities for something to go wrong. Cargo is consolidated at origin, unloaded at a destination facility, and released separately, which adds time, raises the risk of delay or damage, and creates CFS and documentation fees at both ends.

If you are importing electronic goods that are very sensitive and must be handled carefully, honeycomb carton or corrugated carton is the best choice — but even that only helps so much when your pallet is being moved in and out of consolidation warehouses multiple times.

Many importers start with LCL, only to realize later that it comes with hidden fees, delays, and a higher risk of damage. Once you reach roughly 15 CBM, FCL usually becomes both cheaper and safer.

What about Trade Assurance?

Here is the hard truth most buyers learn too late: Alibaba Trade Assurance does not cover shipping damage if the goods left the factory in good condition.

Think about it from Alibaba's perspective. Their job is to make sure the supplier delivers what was promised — the right products, at the right quality, on time. Once those products are verified as good and loaded onto the ship, the supplier has held up their end of the deal. What happens at sea is between you, the shipping line, and your insurance.

I learned this the hard way with a shipment of handkerchiefs that arrived at our warehouse covered in mold. The supplier had not added desiccant to the packaging. Was it their fault? Partly. They should have known better. But was it entirely their responsibility? No — because under FOB terms, checking packaging details is part of my due diligence as the buyer. It was both of our faults, and the cost fell on both of us to sort out.

Alibaba will not refund you for shipping damage on a Trade Assurance order unless you can prove the goods were already damaged before they left the factory. That is a very high bar.

Alibaba claims that Trade Assurance service is free for buyers, and it is — but only for what it actually covers, which is product quality and on-time delivery, not what happens to the goods in the container after they sail.

Trade Assurance is an important layer of buyer protection, but it is not a shipping insurance policy. Keep that straight in your head and you will save yourself a lot of frustration.

Freight insurance is your real safety net

If you want actual protection against damage in transit, freight insurance is what you need — not Trade Assurance.

Cargo insurance covers damage and loss during shipping, and in many cases, the shipping company or insurer will pay out the full cost of damaged goods. For high-value shipments, this is non-negotiable. The premium is usually a small fraction of the cargo value — often well under 1% — making it one of the cheapest forms of peace of mind in international trade.

One more thing: you can buy cargo insurance, especially for goods of high value. If your goods are damaged or lost, you can ask your freight forwarder for claims. Remember to add shipping insurance fees to the total shipping cost if you buy cargo insurance.

When buying marine insurance, the "All Risks" policy is often the easiest and safest option. This covers a wide range of issues, from theft and damage to packaging failures and environmental factors like moisture and rain.

However, it is important to note that war risks and strike risks are not covered under the "All Risks" policy. If your cargo is heading to war-torn regions or areas prone to strikes, such as parts of South America or India, consider purchasing additional coverage.

The right amount of coverage should reflect the total value of your goods, including any additional costs such as shipping fees and potential delays. It is often recommended to insure your cargo for 110% of the CIF value to cover unforeseen expenses.

How to buy China cargo insurance

There are two main ways to purchase cargo insurance for goods shipped from China:

Through your freight forwarder or shipper. This is often the simplest option, as many forwarders offer bundled insurance. The downside is that coverage might be limited to the shipping period, and premiums can be higher than arranging your own policy.

Get your own cargo insurance. This allows for greater control and potentially better coverage. You can work with an insurance broker who specializes in marine cargo insurance. International insurers like AIG, Allianz, Chubb, and Zurich offer comprehensive policies that can be customized to cover the entire shipping process, from the factory in China to your final destination.

Generally, you will buy cargo insurance. If your goods are damaged or lost, you can ask your freight forwarder for claims instead of requesting suppliers to compensate. After all, the seller only needs to ensure that the goods are well when loaded at the origin port. Of course, your seller can help you communicate with the freight forwarder.

How to file a claim when cargo is damaged

When your cargo arrives damaged, do not panic. Follow these steps to file an insurance claim properly:

Notify the shipping company first. Contact the shipping company or their agent immediately after discovering the damage. Ensure they provide a written confirmation of the damage, which will be used as evidence in your claim.

Contact your insurance provider. Inform your insurance provider and arrange for an inspection of the damage. They will issue a "loss order" based on the extent of the damage.

Keep all documentation. Retain all relevant documents, such as the bill of lading, commercial invoices, and damage reports, to support your claim. This will help prove the cause of the damage and the value of the claim.

Documents you will need for the claim: - Original Bill of Lading: Proof of goods receipt by the carrier - Port Tally or Cargo Damage Report: Evidence of damage occurring during transportation - Commercial Invoice and Packing List: Supporting documents showing the value of the damaged goods - Repair Order: If applicable, this shows the cost of repairs - Inspection Report: For damage not immediately visible, hire a notary agency to issue an inspection report

Pro tip: Always take photos of the cargo before it leaves the factory (your inspector can do this) and immediately when it arrives at your warehouse. The before-and-after documentation is what makes or breaks an insurance claim.

In 2022, Company A imported electronics from China. During transit, several containers were damaged due to rough handling. Fortunately, they had comprehensive cargo insurance. The insurance company promptly processed their claim, compensating them for the damaged goods. This allowed Company A to reorder the products without significant financial strain, maintaining their business operations smoothly.

On the flip side, Company B decided to cut costs by skipping cargo insurance. Unfortunately, their shipment of fashion accessories was stolen during transit. Without insurance, Company B had to bear the full cost of the lost goods, resulting in substantial financial loss and strained relationships with their retailers.

When the supplier is on the hook

There are scenarios where the supplier is responsible even after the goods have shipped. The most common one: poor packaging.

If your products arrive damaged because the supplier used flimsy cartons, no bubble wrap, or forgot to add desiccant for moisture-sensitive goods, that is on them. The goods may have left the factory, but they left the factory improperly prepared for the journey.

This is why you should always inspect packaging with your supplier before shipment. Specify carton strength, inner packaging materials, whether pallets are needed, and any special handling requirements (fragile labels, this-side-up arrows, etc.). Put it in writing in your purchase agreement.

Decide if extra functions like moisture-proofing, anti-oxidation, light protection, or shock resistance are needed to well protect your products during transportation and storage.

For fragile goods such as glass, you should do a packaging inspection to prevent breaking. For goods such as small commodities, daily necessities and textiles, pay attention to moisture and fire prevention.

By pre-shipment inspection, you could greatly reduce product damage, except in rare cases of force majeure. The supplier is responsible for adequately doing the export packaging and ensuring that the cargo does not have any damage.

When damage clearly comes from bad packaging, you have a much stronger case to go back to the supplier for compensation — even under FOB terms. The key is documentation: photos of the unboxing, photos of the packaging materials, and a clear paper trail showing you specified better packaging upfront.

Another scenario: if logistics are arranged by the supplier, a responsible one will proactively communicate and help resolve delays or damage. If you are immediately asked to deal with the logistics company yourself, it is a sign to reconsider the partnership. Especially if the goods are damaged during transit, your supplier can step in and help coordinate a resolution.

I recommend beginners use the product supplier's forwarder. Lacking experience, the forwarders you find yourself may not be cheaper or more reliable than your supplier's. After all, if there is a shipping delay, it is much easier to deal with your supplier directly.

Container loading supervision: your last line of defense

One service many buyers overlook is the Container Loading Check (CLC). This inspection verifies that products are properly packaged and loaded into shipping containers to prevent damage during transportation.

Cartons may be reinforced, resized, or palletized to improve container space usage and reduce the risk of damage. Having someone on the ground watching the loading process ensures your goods are actually going into the container in good condition, and that they are packed in a way that will not shift or collapse during the voyage.

Some containers have endured a lot of wear and tear. They are reused, and after each trip, there is some physical degradation. Sometimes, the container used by the shipping agent can damage your cargo. Request photo proof of your cargo within the shipping container to ensure its condition.

Lack of container condition documentation is a red flag. Scammers may avoid providing such documentation to conceal potential damage caused by subpar containers.

Skipping inspection can lead to incorrect or damaged goods. Proper production inspection helps you avoid damaged products in stock. It filters out damaged products, and you also get a report of the supplier's quality.

FAQ

Does Trade Assurance cover shipping damage?

No, not if the goods left the factory in good condition. Trade Assurance covers product quality and on-time delivery, not what happens to the goods during transit. Once the supplier can show the goods were in good shape when loaded, shipping damage is between you and your insurance.

What incoterm puts the most risk on the buyer?

EXW (Ex Works). Under EXW, risk transfers the moment the goods leave the supplier's factory. Everything from there — trucking to the port, loading, ocean transit, customs — is on you. Most experienced buyers avoid EXW for bulk orders for this exact reason.

Is "All Risks" insurance really all risks?

No, and this is a common misunderstanding. "All Risks" covers most accidental damage, theft, and loss, but it does NOT cover war risks, strike risks, or intentional damage. If you are shipping to high-risk regions, you need to buy additional coverage on top of All Risks.

Should I buy insurance through my freight forwarder or on my own?

It depends. Through your forwarder is simpler and faster, but coverage may be limited and premiums can be higher. Buying your own policy through a broker gives you more control, better coverage, and potentially lower cost for larger or more frequent shipments. For one-off small orders, the forwarder's option is fine. For regular bulk importing, get your own policy.

How much does cargo insurance cost?

Usually well under 1% of the cargo value. The exact rate depends on the product type, shipping method, route, and coverage level. For most standard goods, it is one of the cheapest forms of protection you can buy. Always insure for 110% of CIF value to cover unforeseen expenses.

What is the difference between FCL and LCL damage risk?

FCL (Full Container Load) has much lower damage risk because your cargo is sealed in its own container and handled fewer times. LCL (Less than Container Load) means your goods share a container with other shippers' cargo, going through consolidation and deconsolidation at both ends. More handling = more opportunities for damage.

Bottom Line

If your goods are damaged in transit, do not automatically assume the supplier pays. Check your incoterm first. Under FOB — the default for most Alibaba orders — the risk is yours once the cargo is on board the ship.

Trade Assurance will not save you from shipping damage. Freight insurance will. Buy an "All Risks" policy, specify your packaging requirements in writing, document everything with photos before and after shipping, and consider a container loading inspection for high-value orders.

If you do find damage, move fast: notify the shipping company, contact your insurer, gather your documents, and file the claim properly. Those who prepare before the ship sails almost always fare better than those who scramble after the container arrives.