Leather is one of the important export commodities in Ethiopia. However, itsquality and physical characteristics are affected by diseases, handling  and storage problems. A cross-sectional study was conducted to identify major hide and skin defects and assess their effect on quality grades and physical characteristics of crust leather. A total of 6530 hides and skins were inspected at Sheba Tannery and Leather Industry Private Limited Company (PLC) through standard operative procedures. For tests on physical characteristics of crust leather, top 6 defects of skin and hide were identified thereby each 5-crust leather per defect were evaluated by standard experiments for determining testing tensile strength, tear strength and percentage elongation at break. The overall hide and skin rejection was 32.7%. The rejection in wet blue hide (23.5%) was higher than for wet blue salted and dry goatskins (5.1%) and pickled sheepskins (4.1%). Scratch (20.5%), Wound (14.6%) and Cockle (12.7%), were the most common pre-slaughter skin and hide defects found in wet blue hide, goatskin and pickled sheepskin, respectively. Knife cut with proportion of 21.1%, 17.5% and 4.5% respectively in wet blue hide, goatskin and pickled sheepskin was the major slaughter defect. Putrefaction was of the most common post-slaughter defect in wet blue hide (5.3 %), pickled sheepskin (1.6%) and goatskin (2.7%). Among the identified major defects, statistically significant reduction (p<0.05) were noted in tensile strength, tear strength and percent elongation of the crust leather. Major skin and hide defects lead to considerable economical losses through reducing quality and physical performance characteristics of crust leather. Hence, innovative leather grade  correction technologies are timely important. Keywords: Defects; hide; physical characteristics; quality; skin