If transports of a fleet carrying land units are lost, so that the transport capacity of the entire fleet cannot portage all of the land unis, the excess portion of the land units will be transferred from the water location, where this situation occurs, to the closes land region.
No land units are drown nor destroyed.
This occurred to me a long time ago during testing, and Pocus confirmed that it is WAD.
How the land units are chosen I have no idea.
Don't get the idea that this is a great boon for the land units. Landing with a small, random force on an enemy coast, possibly with no supplies, with enemy fleets marauding about, spells for ... interesting times