Accounts For In-Transit Inventory

Inventory management is crucial for a successful ecommerce business. It’s difficult to figure out how much inventory you’ll need, when you’ll need it, and where you should keep it to fulfill demand while keeping costs low if you don’t have proper inventory management.

It’s simple to keep track of inventory that has already been acquired and received, but what about goods that are yet in transit?

You don’t want to overlook in-transit inventory that has been purchased when preparing for a comprehensive view of your inventory levels throughout the supply chain.

This article looks at the issue of goods in transit and how to include it into your overall inventory management approach.

Let’s get started.

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What are goods in transit?

Goods in transit, also known as “pipeline inventory,” refers to the amount of finished products ordered from a supplier or manufacturer that is presently in transit and has not yet arrived at a physical store or distribution center.

Inbound goods, also known as incoming products, are items that have been purchased and are currently on their way to a physical shop, an ecommerce warehouse, or a distribution center. In order to provide a comprehensive picture of current inventory worth, items in transit should be tracked similarly to what’s already on hand.

Accounting for goods in transit

Inventory valuation is an important part of running an ecommerce business. Having complete inventory visibility of all completed items acquired, whether it be on hand or in the first-mile delivery phase, is critical.

Most ecommerce companies will always have goods in transit to keep up with demand. Brands will evaluate inventory performance, production lead lines, transportation timelines, and warehouse receiving times to order inventory according to a pre-determined timeline in order to ensure that it arrives, is accounted for, and is ready for fulfillment when required.

To know how much it costs to send new goods and store them, you must first calculate the average shipment value. When it’s time to report ending inventory value at the end of a financial year or fiscal year, you’ll need to know this.

Certain requirements might apply in terms of inventory control. It’s critical to figure out whether the products are being carried on board (FOB) or at an FOB shipping terminal (more on this later).

How to calculate goods in transit

The cost of goods in transit is the total amount it costs to send 1,000 shipments in a year. To determine the annual cost of goods in transit, you must first compute the average shipment value. Because transporting and storing new inventory costs money, you’ll need to know your transportation expenditure as well as your carrying charge first.

Let’s assume the average inventory shipment is worth $20,000 and takes 20 days to get to its destination. We can calculate the average shipment value per day using the following equation if we assume that each storage charge is about 20% of the product price:

We can determine the average cost of transportation per shipment from here:

Who owns goods in transit?

The terms of sale influence ownership of goods in transit. The seller is the owner of the items in transit and is thus responsible for their transportation under FOB destination. However, under FOB selling point, the buyer holds title to the inventory while it is in transit, making them liable for its safe arrival.

Here is a breakdown: 

  • Under FOB destination, The seller is going to provide a refund in the event of an unsatisfactory purchase. When you return things, you have 30 days from delivery to file for a refund with your bank or credit card provider (or whichever company processed the initial purchase). If you buy something from a third party using PayPal, it will be marked as pending. The buyer pays
  • Under FOB shipping point, When the goods arrive at a shipping point, the sale occurs and therefore the buyer obtains title to the items before they are sent out. This implies that the buyer now owns the items while in transit. The seller can record this as a sale, but the buyer records it as a purchase and accounts for the merchandise in its ending inventory value.

Is in-transit insurance a good idea?

It’s a good idea to have a contingency plan in place even if the purchase is on the buyer’s books. Even if there are no issues during transit (slowdowns, shipping damages, or misplaced items), you need a strong contingency strategy in place. You may reduce your risk by having inventory shipments covered by shipping insurance, so you don’t lose

You may generally get coverage for loss or damage caused by:

  • Disasters caused by extraordinary natural forces
  • Theft
  • In-transit accidents
  • Sinking (in case of shipment by sea)
  • Derailing (in case of shipment by train)
  • Accidental damages

If the conditions of purchase are favorable, the owner of the in-transit inventory will be required to obtain appropriate in-transit insurance.

If you’re the one who is held responsible, keep in mind that even if you don’t have to file a claim, you must pay the premium. Furthermore, if you have to make a claim, the insurance company will charge you an extra premium to compensate you for your losses. Some claims may need thorough and time-consuming research.

Stop worrying about inventory management

Since there are so many different elements of your logistics operations that demand your full attention, keeping track of your shipments is difficult.

Launch Fulfillment can remove a lot of stress from your life by allowing you to outsource fulfillment and storage to a 3PL like it does. Launch Fulfillment can also help you keep track of your inventory throughout the supply chain, allowing you to better prepare for end-of-year accounting.

Launch Fulfillment inventory management system can help you meet the demands of your customers and transform the way your business does business. We will work with you to strategically allocate inventory across multiple fulfillment centers to enable quick and efficient fulfillment. This allows you to delegate all of your shipping, transit, and fulfillment operations to professionals while still having access to real-time inventory

Launch Fulfillment fulfillment software comes with pre-installed tools that allow you to keep track of inventory activity and trends at no additional cost. You may connect Launch Fulfillment technology with industry-leading inventory management systems or use the Inventory API to enhance your inventory planning.

Launch Fulfillment gives you complete insight into warehousing, inventory activity, order fulfillment, and shipping performance so that you may have a more optimized supply chain and improved delivery management.