Meaning
Floating assets currently on ships or trucks serve as the basis for securing short-term working capital loans. Lenders accept in transit collateral as security because the goods are identifiable and have a known market value. This type of financing is common for businesses with long shipping cycles.
Possession Status
Control over the goods is maintained through the transfer of the bill of lading to the lending bank. Even though the bank does not have the in transit collateral in a physical vault, the legal document gives them the right to claim the cargo. The carrier acts as a temporary bailee for the owner.
Monitoring Frequency
Daily updates from global positioning systems and carrier portals allow the lender to track the movement of the goods. If the in transit collateral is delayed by weather or port congestion, the bank may adjust the risk rating of the loan. Real-time data is a requirement for this lending model.
Liquidity Value
Banks discount the value of the cargo to account for potential price drops or salvage costs in the event of a default. The amount of credit available against in transit collateral is usually lower than that for goods already in a domestic warehouse. Market volatility determines the size of the haircut.