{"id":1317,"date":"2021-10-21T16:05:32","date_gmt":"2021-10-21T21:05:32","guid":{"rendered":"https:\/\/www.shipbob.com\/au\/blog\/goods-in-transit\/"},"modified":"2025-08-08T04:15:37","modified_gmt":"2025-08-08T04:15:37","slug":"goods-in-transit","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/au\/blog\/goods-in-transit\/","title":{"rendered":"Goods In Transit 101: Accounting for In-Transit Inventory"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What are goods in transit?<\/a><\/p>\n\n\n\n

Accounting for goods in transit<\/a><\/p>\n\n\n\n

How to calculate goods in transit<\/a><\/p>\n\n\n\n

Who owns goods in transit?<\/a><\/p>\n\n\n\n

Is in-transit insurance a good idea?<\/a><\/p>\n\n\n\n

Stop worrying about inventory management<\/a><\/p>\n\n\n\n

Goods in transit FAQs<\/a><\/p>\n\n\n\n

<\/a><\/p>\n<\/div>\n\n\n\n

Managing inventory flow is key to managing a sustainable supply chain<\/a>.<\/p>\n\n\n\n

A successful ecommerce business depends on proper <\/span>inventory management<\/span><\/a>. Without it, it\u2019s hard to understand how much inventory you need, when you need it, and where it should be stored to meet demand and keep costs at a minimum. <\/span><\/p>\n\n\n\n

It\u2019s easy to account for inventory that\u2019s been purchased and received, but what about inventory that\u2019s still in transit?<\/p>\n\n\n\n

For a holistic picture of how much inventory you have in each phase of the supply chain, you don\u2019t want to forget to account for in-transit inventory that\u2019s been purchased.<\/p>\n\n\n\n

This article explores the topic of goods in transit and how you can account for it within your overall inventory accounting<\/a> process. <\/span><\/p>\n\n\n\n

Let\u2019s dive in.<\/span><\/p>\n\n\n\n

What are goods in transit?<\/h2>\n\n\n\n

Also known as \u201cpipeline inventory<\/a>,\u201d goods in transit refers to the amount of finished goods<\/a> ordered from a supplier or manufacturer that is currently in transit and has yet to reach a physical store or distribution centre<\/a>.<\/p>\n\n\n\n

Goods in transit refers to purchased inventory that is currently on its way to a physical store, an ecommerce warehouse<\/a>, or a distribution centre<\/a>. Goods in transit should be accounted for similarly to what\u2019s already on hand to provide a holistic picture of current inventory value. <\/span><\/p>\n\n\n\n

Accounting for goods in transit<\/h2>\n\n\n\n

Managing an ecommerce business requires proper <\/span>inventory valuation<\/span><\/a>. This includes having full inventory visibility<\/a> of all finished goods<\/a> purchased \u2014 whether its inventory on hand or goods currently in the <\/span>first-mile delivery<\/span><\/a>\u00a0or drayage<\/a> phase.<\/span><\/p>\n\n\n\n

Most ecommerce brands will always have goods in transit to consistently meet demand. As part of the inventory replenishment<\/a>\u00a0process, brands will look at inventory performance,\u00a0production lead lines<\/a>, transportation timelines, and warehouse receiving<\/a> times to order inventory according to a specific timeline, so it\u2019s more likely to arrive, be accounted for, and be ready for fulfilment when needed.<\/p>\n\n\n\n

But to know how much it costs to ship new inventory and have it stored, you will need to determine the average shipment value. You will need to know this at the end of an accounting period or fiscal year when it\u2019s time to report ending inventory<\/a> value.<\/p>\n\n\n\n

In terms of ownership of in-transit inventory, certain rules might apply. It\u2019s important to determine whether the goods are shipped under FOB (freight on board) destination or an FOB shipping point (more on this later). <\/span><\/p>\n\n\n\n

How to calculate goods in transit<\/h2>\n\n\n\n

To determine the cost of goods in transit per year, you will first need to calculate the average shipment value. Since it costs money to ship and store new inventory, you will first need to know the average cost of transportation, as well as your carrying cost<\/a>. <\/span><\/p>\n\n\n\n

Let\u2019s say the average inventory shipment is valued at $20,000 and takes approximately 20 days to reach its destination. Assuming the cost to store each shipment is about 20% of the merchandise cost, we can figure out the average shipment value per day using the following formula:<\/span><\/p>\n\n\n\n

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Merchandise Cost x Carrying Cost Percentage \/ 365 = Average Shipment Value Per Day<\/span><\/p>\n\n\n\n

$20,000 x .20% \/ 365 = $10.95 per day<\/span><\/p>\n<\/blockquote>\n\n\n\n

From here, we can calculate the average cost of transportation per shipment:<\/p>\n\n\n\n

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Average Shipment Value Per Day x Number of Days of Transit = Cost of Transportation<\/p>\n\n\n\n

$10.95 x 20 = $219<\/p>\n<\/blockquote>\n\n\n\n

So the overall cost of goods in transit would be $20,219 per shipment<\/strong>.<\/p>\n\n\n\n

Who owns goods in transit?<\/h2>\n\n\n\n

Ownership of goods in transit depends on the terms of sale. <\/span>In the case of FOB destination, the seller is the owner of the goods in transit and is, therefore, liable for the shipment. But under FOB selling point, the buyer is the owner of the in-transit inventory, making them liable for the shipment.<\/span><\/p>\n\n\n\n

Here is a breakdown: <\/span><\/p>\n\n\n\n