In-transit inventory is the stock that has already left a supplier but has not yet reached the buyer. It sits between two points in the supply chain, loaded onto trucks, ships, or planes waiting to arrive at its final destination. For many businesses, this stage is easy to overlook, yet it directly affects cash flow, stock availability, and customer satisfaction. By understanding how in-transit inventory works and how to track it, companies can improve planning, reduce delays, and make smarter financial decisions.
What Is In-Transit Inventory?
In-transit inventory is stock that is on its way from the supplier to the buyer but has not yet been received. It is sometimes called pipeline inventory because it is moving through the supply chain rather than sitting in a warehouse. These goods are no longer in the supplier’s storage, but the buyer has not added them to their available stock. Tracking in-transit inventory gives businesses a clear view of where products are, when they will arrive, and how soon they can be used or sold. This clarity helps prevent shortages, improves delivery planning, and keeps operations running smoothly.
Ownership Rules
In-transit inventory ownership depends on the shipping terms agreed between the buyer and the supplier. The two most common terms are:
- FOB Shipping Point – The buyer takes ownership as soon as the goods leave the supplier’s location. From that point, the buyer is responsible for the inventory while it is in transit.
- FOB Destination – The supplier keeps ownership until the goods reach the buyer’s location. The supplier is responsible for the inventory during transit.
Knowing which rule applies is important for accurate accounting, insurance coverage, and risk management. It ensures both parties understand who records the in-transit inventory and who carries the risk if something happens during shipment.
Why Tracking In-Transit Inventory Is Hard
In-transit inventory is difficult to track because it moves across different carriers, routes, and checkpoints before it arrives. Goods may face delays from weather, traffic, port congestion, or customs inspections. In some cases, theft or damage can also occur while the shipment is on the move.
Without real-time updates, it becomes challenging to know the exact location or arrival time of your stock. This lack of visibility can lead to inaccurate records, late deliveries, and production slowdowns. Reliable tracking tools and clear communication with suppliers and carriers are essential to reduce these risks and keep in-transit inventory under control.
How to Estimate In-Transit Inventory Cost
In-transit inventory creates costs even before the goods reach your warehouse. To estimate this cost, you consider the value of the shipment, your annual storage rate, and the number of days the goods spend in transit. The simple formula is:
(Inventory value × Annual storage rate ÷ 365) × Transit days
For example, if your in-transit inventory is worth $20,000, your annual storage rate is 15%, and transit takes 14 days, the cost is:
($20,000 × 0.15 ÷ 365) × 14 = $115
This calculation gives you a clear picture of the hidden carrying cost of in-transit inventory. With it, you can compare shipping methods, decide if faster delivery is worth the extra price, and plan more accurately for your supply chain expenses.
How Software Helps
In-transit inventory becomes easier to manage when supported by the right software like ArmPOS. Modern inventory systems provide real-time visibility, showing the status and location of goods while they move through the supply chain. You can connect purchase orders, shipping updates, and stock records in one place, reducing the chance of errors or delays. Features like automated alerts, demand forecasting, and order synchronization keep in-transit inventory aligned with sales and production needs. By using software, businesses gain better control, cut unnecessary costs, and deliver accurate updates to customers with confidence.
Conclusion
In-transit inventory represents goods that are moving between the supplier and the buyer but have not yet been received. Understanding ownership rules, tracking challenges, costs, and the role of software makes it easier to manage this stage of the supply chain. Clear visibility helps reduce delays, improve planning, and support better financial decisions.
Action Steps:
- Define ownership rules with suppliers using clear shipping terms.
- Track in-transit inventory with real-time software tools.
- Calculate carrying costs to understand the financial impact.
- Protect high-value shipments with proper insurance.
- Review and update your in-transit inventory data regularly.
