Who owns the product at each point in the chain?

Owning goods and holding goods are not the same thing

A factory can be standing in a warehouse full of finished T-shirts and not own a single one of them. A buyer can own T-shirts that are still sitting on a factory's cutting table on the other side of the world. Ownership and possession are two different things, and mixing them up is one of the most expensive mistakes a new merchandiser can make.

This lesson answers one question: at any point in the chain, which company legally owns the goods. A merchandiser is the person in a factory or a buying company who follows an order from the first request until the goods are shipped. Knowing who owns the goods tells you who carries the loss if something goes wrong, who can sell the goods on, and who can use them as security for a loan. Lesson 1.1 showed you the ten stages and the shapes an order can take. This lesson takes one thread from that picture — ownership — and follows it all the way through.

What you need, and what this lesson does not cover

You need: the idea of a full package order and a CMT order from lesson 1.1. If you have not read lesson 1.1, the key terms below give you enough to continue.

By the end of this lesson you can:

• state the rule that decides who owns goods at any point in a chain;
• recognise the common variants: full package, CMT, buyer-nominated, consignment stock, and partial payment;
• trace ownership of Order A through the ten stages, from fabric delivery to loading on the ship;
• work out the value of goods a factory owns at a given stage, and what it would lose if those goods were destroyed;
• use the three questions that find who owns the goods right now, on any order;
• tell the difference between possession and ownership, and explain why the two do not always sit with the same company.

Not covered here: how a price is built (lesson 1.3), who carries transport risk in detail beyond ownership (lesson 1.4), and how a timeline is planned (lesson 1.5).

Words you will meet in this lesson

Ownership follows who paid, not who is holding the goods

The rule is simple to state and easy to get wrong in practice: ownership follows who paid for the material or the goods, unless the contract says otherwise. It does not follow who is physically holding them. A factory holding fabric it did not pay for does not own that fabric, no matter how long the fabric sits in its warehouse.

Ownership also does not automatically follow delivery terms. FOB, CIF and DDP (introduced in lesson 1.1) decide who pays freight and who carries transport risk. They are about the journey. The contract's ownership and payment clause decides ownership itself. In most orders these two things are written to happen at the same moment — for example, "ownership and risk pass to the buyer on loading" — but they are two separate promises in the contract, and a contract can set them apart. Read both.

The same goods can be owned in different ways, depending on who paid for them

None of these shapes is more "normal" than the others. What decides which one applies to your order is the contract, and the three questions in the method below.

Order A: tracing ownership through the ten stages

Order A is the full package, FOB order from lesson 1.1: Northline Apparel orders 15,000 basic cotton T-shirts from Delta Garments. Delta Garments chooses and pays for the fabric, sews the T-shirts, and delivers them on board the ship at its own port.

Because this is a full package order, Delta Garments owns the fabric from the moment the dyeing and finishing mill delivers it. It owns the cut pieces while they are being sewn. It owns the finished T-shirts sitting in its own warehouse, waiting for the ship. Ownership stays with Delta Garments the whole way through production. It only passes to Northline Apparel at one moment: when the T-shirts are loaded on board the ship at Delta Garments' port. That is the FOB transfer point, and the contract sets ownership to pass there, at the same moment as risk.

If Order A had been a CMT order instead, Northline Apparel would have owned the fabric and the T-shirts made from it at every one of these stages, even while they sat inside Delta Garments' factory. The stages are the same; the ownership column would be entirely different.

What Delta Garments owns at the cutting stage, before shipment

At any point before shipment, Delta Garments owns the value that has accumulated in the goods so far: the fabric, the trims already attached, and the labour already spent making them. Using the Order A cost figures from lesson 1.1's costing (fabric 1.15, trims 0.20, making 1.10, per piece), here is the value per piece that Delta Garments owns at the cutting stage, once cutting and the first sewing steps are done:

USD 36,750 is the value Delta Garments owns, and would lose, if something destroyed the goods before shipment. Northline Apparel owns none of this value yet, because ownership has not reached the FOB transfer point. This is exactly the value at stake in the workplace scenario below.

Three questions that find who owns the goods right now

To find who owns the goods at any point in any order, answer these three questions in order:

1. Who paid for the material this thing is made from? Trace the fabric and trims back to who bought them, not to who is holding them.
2. Does the contract set a different ownership point? Look for a clause naming a moment such as "on shipment" or "on full payment". If the contract is silent, ownership normally stays with whoever paid for the material.
3. Has that point been reached yet? Check the facts on the ground against the contract's ownership point. Loaded on the ship or not. Paid in full or not.

Write the answers on the working template in block 10. Do this for any order, at any point in its life, and you will always be able to say who owns the goods.

Mistaking possession for ownership, in both directions

A common mistake is assuming that physical possession equals ownership. A factory holding fabric supplied by the buyer does not own that fabric. It cannot sell it to someone else, and it cannot use it as collateral for a loan, no matter how long it sits in the factory's stores.

The reverse trap is just as common: assuming that because a factory paid for something once, it still owns it after selling it on. Once Northline Apparel pays for the T-shirts, Northline Apparel owns them — even while they sit in Delta Garments' warehouse waiting for the shipping line to collect them. Delta Garments is holding goods it no longer owns. It must look after them and hand them over, but it cannot decide to sell them to another buyer.

• Ownership follows who paid, not who is holding the goods.
• In a CMT order, the buyer owns the fabric and the finished goods the whole time they are in the factory.
• A deposit does not usually transfer ownership of the whole order; most contracts transfer ownership on full payment or on shipment.
• FOB, CIF and DDP decide who pays freight and typically who carries transport risk; the contract's ownership clause decides ownership itself, and the two usually move together.
• A factory holding goods it does not own cannot sell them or use them as collateral.
• Once a buyer has paid for goods, it owns them even while they still sit in the factory.

A fire in Delta Garments' finishing area damages 5,000 of 15,000 finished T-shirts before the ship arrives

Order A is finished: all 15,000 T-shirts are sewn, finished and sitting in Delta Garments' warehouse. The ship is not due for four more days. A small electrical fire breaks out in the finishing area and damages 5,000 of the 15,000 T-shirts beyond use. The goods have not yet been picked up by the shipping line.

The sales contract's delivery clause reads:

You are the merchandiser at Delta Garments. Who bears the loss of the 5,000 damaged T-shirts — Delta Garments or Northline Apparel? Decide before you open the decision.

Order shape sheet: the ownership rows

Lesson 1.1 introduced this sheet. This lesson fills in the two rows about ownership. Copy this table into your order file and fill it from the contract, not from memory.

Download the Order Shape sheet (Excel)

Lesson 1.3: How the price is built

You now know who owns the goods at every point in the chain. The next lesson opens the costing sheet and shows how each cost, from fabric to profit, adds up to the price the factory charges, and how that price climbs on from there. Back to the course map