Transit inventory as the name suggests is the inventory that has been shipped by the seller but has not yet reached the buyer’s destination. Since the inventory is in-transit it is also called pipeline inventory and believe it or not it is a crucial part of inventory management.
For example, a lot of crude oil is exported from Saudi Arabia to Europe and we all also know that these two locations are quite far away and the delivery takes weeks to reach the destination. So all the crude oil that is being shipped is called transit inventory and while it is in transit it is the responsibility of the seller to pack and store the product in the appropriate way since it is a Hazmat material.
However, in such a situation the question of ownership arises. Since neither does the seller possess the inventory or the buyer. If the inventory is in transit, who has its ownership?
To solve this, various kinds of sales agreements started and hence started the different types of transit inventory based on their ownership mentioned in sales terms and conditions.
FOB Shipping – FOB is a popularly used short form of Freight on Board. Under Freight on Board Shipping agreement, the ownership of the goods goes to the buyer as soon as the inventory is boarded on the ship.
FOB Destination– Freight on Board Destination means that the ownership of the inventory remains with the seller till the time the shipment arrives at the destination of the buyer.
CIF shipment– CIF is a short form for Cost, Insurance and Freight. Under the Cost Insurance Freight shipment, the ownership of the goods is with the seller since he pays for shipment cost, insurance and freight. The buyer gets the ownership of it as soon as it reaches the destination port.
eCommerce shipping – This is one of the most trending shipment types these days since there is a huge boom in the world of online shopping.
An eCommerce merchant has the ownership of the inventory till it reaches the end-customer under the eCommerce shipping terms of agreement.