A Guide to Bonded Warehouses: Benefits and Limitations
With tariffs continuing to swirl and dominate global trade, companies are still looking for ways to save money in both the short and long-term. While there are some options that allow them to spread out or delay duty payments for certain periods there is no real way to completely avoid the new tariffs on imported goods.
We recently explored the benefits of Foreign Trade Zones (FTZs), but another option with some similarities is a Customs bonded warehouse. Bonded warehouses also allow importers to store their goods in a specially designated location that defers duty payments until the goods are released into the marketplace for consumption. While they do share some similarities, there are also some key differences between FTZs and bonded warehouses. Let’s explore those differences, as well as some of the unique benefits of using a bonded warehouse.
FTZ vs. Bonded Warehouse
One of the key differences between these two types of zones is how they are classified by U.S. Customs. An FTZ is a specially designated area that technically falls outside the realm of U.S. commerce, exempting it from customs regulation and oversight. A bonded warehouse, on the other hand, is licensed and regulated by the Customs authority of the country in which it is located.
The functions of these two zones also have some key differences. FTZs allow companies more freedom with the goods once they enter the zone. Goods inside an FTZ are allowed to be stored, manipulated, and manufactured before they are released. Bonded warehouses have far more limited allowances once goods have entered, essentially only allowing for basic storage or repackaging.
The flexibility of an FTZ also applies to the time goods can remain in storage. FTZs have no time limit associated with them, while bonded warehouses have a five-year limit in the U.S. before penalties can be applied.
Benefits and Limitations of Bonded Warehouses
One of the main benefits of using a bonded warehouse is the opportunity for duty deferral. Imported goods aren’t subject to duty payments until after they leave the warehouse to enter the marketplace. This allows businesses the opportunity to manage their cashflow, rather than having to pay the lump sum as soon as the product enters the country.
It is important to note, though, that the duty rate locks in as soon as the goods enter the warehouse. While this strategy allows importers to defer their payment until their product is released, they will still have to pay the original duty rate regardless of if that rate changed while the goods were in storage.
Another benefit revolves around the export of goods. If goods are re-exported without entering the U.S. market, those goods aren’t subject to duties in the U.S. If the duties have already been paid before goods are re-exported, there is also the option to apply for duty drawback to request a full or partial refund on the duties already paid.
As mentioned above, unlike FTZs, bonded warehouses are subject to a time limit that goods can remain in storage. Different countries have their own limits, but in the U.S. and the EU goods can only remain in bonded warehouses for a period up to five years. While this is still a good amount of time to store goods, businesses need to ensure they are aware of this limit to avoid potential penalties or fines.
Bonded warehouses also provide benefits in terms of inventory management and supply chain efficiency. Being able to store large amounts of product in a domestic warehouse allows companies more control over inventory levels as they can monitor supply and demand while their goods remain in storage.
There are many benefits and limitations to be aware of when deciding if a bonded warehouse is the right solution for you. If you would like more information or guidance, reach out to Scarbrough today to learn more about how our bonded warehouse can support your operational needs.
