Editor’s Note: This blog post was originally published in Jun 2023 and has been completely revamped and updated in May 2025 for better understanding and comprehensiveness
In transit inventory is a critical concept for businesses that rely on the movement of goods between vendors, warehouses, and customers. Whether you manage a retail store, run an eCommerce brand, or oversee a distribution network, understanding and managing inventory in transit can significantly impact your bottom line and supply chain efficiency. In this guide, we’ll explain how to calculate its cost and share expert tips to help you optimize this often-overlooked part of your inventory lifecycle.
What Is In Transit Inventory?
In transit inventory, also known as pipeline inventory or transportation inventory, refers to goods that have left the seller’s location (e.g., a factory or supplier warehouse) but have not yet arrived at the buyer’s facility.
In simpler terms, this is inventory you’ve purchased and paid for, but haven’t physically received yet. It’s still moving through the supply chain, whether by truck, ship, rail, or air.
Common Examples of Inventory in Transit
- Products are shipped from a supplier in China to a U.S. fulfillment center.
- Goods are en route from a regional distribution center to a retail outlet.
- Stock transferred between company-owned warehouses in different cities.
Why In-Transit Inventory Matters
Many businesses overlook the importance of managing inventory in transit. Yet, failing to account for it can lead to:
- Stockouts and delays due to misjudged availability.
- Inaccurate inventory reporting is affecting reordering decisions.
- Higher carrying costs, especially for high-value or slow-moving goods.
- Cash flow mismanagement, since you’re paying for goods not yet usable.
In today’s globalized and omnichannel supply chains, real-time visibility into in-transit inventory is no longer optional—it’s essential.
How to Calculate In-Transit Inventory Costs
To fully account for inventory in transit, you need to calculate both the value of the inventory and the associated transportation costs. Here’s a simplified formula to guide you.
Step 1: Determine Daily Carrying Cost
Let’s say you ship inventory worth $15,000, and your estimated carrying cost is 15% of the inventory’s value annually. First, calculate the daily carrying cost:
pgsqlCopyEditDaily Carrying Cost = (Inventory Value x Carrying Cost %) / 365
= ($15,000 x 15%) / 365
= $6.16 per day
Step 2: Calculate Cost of Transportation
Assuming the average transit time is 20 days, multiply the daily cost by the transit duration:
pgsqlCopyEditTransportation Cost = Daily Carrying Cost x Transit Days
= $6.16 x 20
= $123.20
Step 3: Total Cost of Inventory in Transit
Now add the transportation cost to the original shipment value:
pgsqlCopyEditTotal In Transit Inventory Cost = Inventory Value + Transportation Cost
= $15,000 + $123.20
= $15,123.20
This final number helps you accurately reflect your inventory value in financial reporting and inventory forecasting tools.
How In-Transit Inventory Affects Your Business KPIs
Here’s how poor in-transit inventory visibility can disrupt critical business metrics:
| Business Metric | Impact of Poor In-Transit Inventory Management |
|---|---|
| Inventory Turnover Rate | Slows down if in-transit stock isn’t included correctly |
| Order Fulfillment Time | Increases if products are expected but not yet delivered |
| Cash Flow Management | Gets strained due to capital tied up in undelivered goods |
| Customer Satisfaction | Drops due to delays or backorders |
In Transit Inventory vs. Other Inventory Types
It’s important to distinguish in-transit inventory from other inventory types in your system:
| Inventory Type | Description |
|---|---|
| In Transit Inventory | Shipped, not yet received |
| Raw Materials | Unprocessed goods used in production |
| Work-in-Progress (WIP) | Items currently being manufactured |
| Finished Goods | Ready-to-sell products located in storage or on premises |
| Non-Inventory Items | Items not tracked in inventory (e.g., office supplies) |
📌 Explore More: Non-Inventory Items: Definition, Examples, and Best Practices
Final Thoughts
Effectively managing goods while they’re en route is crucial for any business dealing with physical products. Without proper oversight during this phase, companies risk stock inaccuracies, delayed orders, and strained cash flow. These issues can ripple across departments, affecting everything from procurement to customer satisfaction.
By implementing the right tools and processes, businesses gain better visibility, improve planning, and reduce costly surprises. As supply chains grow more complex, maintaining control over items in transit becomes a key driver of operational efficiency and long-term success.