Goids in transit and transshipment of goods

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HIMANSHU SAMAIYA

HIMANSHU SAMAIYA (Querist)
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16 May 2015 meaning not clear

RAMESH KUMAR VERMA

RAMESH KUMAR VERMA (Expert)
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18 May 2015 “The transhipment’ (transshipment) means the shipment of off-loading of goods from one location and loading to another (or one country to another) and from one carrier to another by mode of air, sea, road, either of two, or of all” .

So a Transhipment could be from a vessel to another vessel, one air craft to another aircraft, a vessel to an air craft, an air craft to a vessel, a road carrier to a vessel, a vessel to a road carrier, an aircraft to a road carrier, a road carrier to an aircraft or a road carrier to another road carrier or by means of all of them. However, the term ‘transhipment’ is widely used international trade by air and sea.

reasons for transhipment
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When the distance of movement of goods from one place to another is very far, the single service of one carrier to move goods from the origin to final destination may not be possible in most of the cases. The owner of carrier would be one for movement of goods from its origin to final destination, although the carrier changes at a transhipment location or locations.

If a shipment is on less container load (LCL) basis, a transhipment is effected for the purpose of consolidation by dividing large shipment to small and small shipments to large by deconsolidating at transhipment hubs.

Goods In transit
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Goods in transit refers to merchandise and other inventory items that have been shipped by the seller, but have not yet been received by the purchaser.

To illustrate goods in transit, let's use the following example. Company J ships a truckload of merchandise on December 30 to Customer K, which is located 2,000 miles away. The truckload of merchandise arrives at Customer K on January 2. Between December 30 and January 2, the truckload of merchandise is goods in transit. The goods in transit requires special attention if the companies issue financial statements as of December 31. The reason is that the merchandise is the inventory of one of the two companies, but the merchandise is not physically present at either company. One of the two companies must add the cost of the goods in transit to the cost of the inventory that it has in its possession.

The terms of the sale will indicate which company should report the goods in transit as its inventory as of December 31. If the terms are FOB shipping point, the seller (Company J) will record a December sale and receivable, and will not include the goods in transit as its inventory. On December 31, Customer K is the owner of the goods in transit and will need to report a purchase, a payable, and must add the cost of the goods in transit to the cost of the inventory which is in its possession.

If the terms of the sale are FOB destination, Company J will not have a sale and receivable until January 2. This means Company J must report the cost of the goods in transit in its inventory on December 31. (Customer K will not have a purchase, payable, or inventory of these goods until January 2.)