Having both of these traits on a dog causes the dog to prioritize sinking into nearby water sources, which then drowns any mob it's carrying.

I understand how this might make sense, but given that players have fairly little control over what the dog actively decides to do, this just results in a rather annoying and unfortunate situation in which the dog repeatedly drowns animals you're trying to transport

Can we make the dog not go underwater if carrying a mob that can't breath underwater?
Or something else

This will be considered. Thank you for the suggestion 💖.

Really sorry that this took a while, finally got the chance to address this. Fixed in DTN 1.18.58