Bonded Warehouses: What They Are, Benefits, and How They Work

Importing goods can be costly. Luckily, businesses can use some tools to help reduce these costs. One such tool is using bonded warehouses

Bonded warehouses are a vital part of the global economy, but many people don’t know what they are or what benefits they offer. In this article, you will learn what a bonded warehouse is, the benefits of using one, and how they work.

Table of Contents

What is a bonded warehouse?

A bonded warehouse is a type of warehouse where goods can be stored and processed before paying taxes. The main users of bonded warehouses are importers and exporters who need to store goods temporarily before shipping them to their final destination.

How does bonded warehousing work?

Bonded warehouses (or customs-bonded warehouses) are monitored by customs officials, who oversee the payment of duties on imported goods. As long as the duties are paid, the importer can store the goods in the customs-bonded warehouse for an indefinite period. Once the duties are paid, the importer can then release the goods from the bonded warehouse and have them delivered to their final destination.

Did you know?

Bonded warehouses can defer tariffs for up to five years. That's a long time to hold onto your cash!

Is it possible to avoid paying duties completely?

Three conditions exist which allow the tax-free release of goods stored in bonded warehouses.

  • Instead of releasing goods into the US, they export back out.
  • Special duty-free sales circumstances.
  • If CBP rules that the goods must be destroyed.
Customs bonded warehouse worker checking materials as they are received

What are the benefits of bonded warehouses?

There are several benefits to using a bonded warehouse. The main benefit is the flexibility of storing goods before the tariffs are due. This added time frame allows many companies the ability to perform additional tasks or defer the taxes until the goods are sold.

Delayed Tariff Payment

First, it allows importers to delay paying duties on their imported goods. This can be helpful if the importer does not have the funds immediately available to pay duties.

Reduced Customs Processing Times

The goods stored in a bonded warehouse are exempt from customs inspections, which can save the importer time and money.

Increased Security for Your Goods

Bonded warehouses offer increased security for your goods because they are monitored by customs officials. This means that any goods stored in a bonded warehouse are subject to regular inspection, and any duties owed on the goods must be paid to keep them in the warehouse. This helps to ensure that your goods are secure and accounted for at all times.

Ease of Customs Clearance

Bonded warehouses make customs clearance easier by allowing importers to store their goods in a tax-free environment. This means that the importer does not need to pay duties on the goods until they are ready to be shipped to their final destination. This can save the importer time and money, and it makes the customs process simpler and more efficient.

Value-Added Services Pre-Tax

Additional services for products stored in a bonded warehouse can help further reduce import costs by placing them before the tax assessment. These services include assembly, testing, and packing, to prepare them for offering to the market.

This can come in handy when a raw material has a higher tax rate than the total cost of finished goods. In many circumstances, the total cost may still be higher, but sometimes importers can save a lot by modifying goods in a bonded warehouse.

Storing Restricted Items

Customs-bonded warehouses have distinct advantages for storing restricted items, such as longer storage periods that allow the importer additional time to handle paperwork and legal formalities.

Disadvantages of Bonded Warehousing

While the benefits for utilizing a bonded warehousing for your importing process, there are a few disadvantages to consider.

Tariffs Must Be Paid Before Release

This is not exactly a disadvantage, but something to keep in mind. That is, the duty for various goods still needs to be paid. When you use bonded warehousing, you are simply shifting when you pay for the duty. Instead of at the point at which your goods enter the country, customs duties are paid when they leave the customs-bonded warehouse.

While the rates of duties and taxes are relatively stable, they do change from time to time. This usually coincides with trade wars or other political events. Therefore, the duty could increase or decrease relative to the initial expectation depending on how long the goods are held in the customs-bonded warehouse.

Higher Potential Cost

As the saying goes, convenience costs more, so it is with bonded warehousing options. While the duty cost is deferred until the goods leave the warehouse, the cost of storage for this convenience is usually much higher.

Storage cost is important to businesses because it can be a major expense and it needs to be allocated wisely. Businesses need to find a storage solution that is affordable and meets their needs. They also need to make sure that their goods are secure and accounted for at all times. A customs-bonded warehouse may provide the needed services, but can easily exceed cost limitations.

Inferior Service Level

Most customs-bonded warehouses do not offer the same level of service as a 3PL or fulfillment warehouse. This is because the core component of a customs-bonded warehouse is simply storing goods for deferred duty payments. Therefore, they are usually not well-suited for meeting requirements such as quick order processing, inventory management, or even integration with your ERP or online eCommerce software.

What are the different types of bonded warehouses?

CBP defines 11 different types of bonded warehouses. The different classifications depend upon various factors such as who owns or runs the warehouse, or what type of goods are stored there. Here are the 11 types of customs-bonded warehouses:

  1. Government-owned customs bonded warehouses. These facilities store merchandise under CBP direction in circumstances such as intensive exams.
  2. Privately owned customs bonded warehouses. A company may choose to contract with a private bonded warehouse to store its goods. This is optional and entered freely by the business.
  3. Public customs-bonded warehouse. These facilities are devoted to only the storage of goods.
  4. Bonded yards. A bonded yard stores heavy or bulky goods including large liquid storage tanks, corrals, and other large goods.
  5. Bonded bins. The class of bonded warehouse called bonded bins are for the storage of grain and large parts of buildings.
  6. Manufacture in bond. Some businesses manufacture goods solely for export to other countries. Often, they qualify to import their parts, materials, or machinery duty-free. This type of bonded warehouse stores goods in that classification.
  7. Smelting and refining metals. Some bonded warehouses deal with metal products and raw materials that are used for smelting and refining.
  8. Bonded goods modifications. These bonded warehouses deal with the modification of imported goods (not including manufacturing).
  9. Duty-free stores. These bonded warehouses exist for the temporary storage of goods that are to be exported out of the country.
  10. International travel merchandise. These goods are sold conditionally duty-free and some bonded warehouses exist to service this class.
  11. Abandoned goods. This warehouse stores what’s known as “general order” merchandise, which is goods not claimed after 15 days arrival in the U.S.

Free Trade Zone Warehouse: Another Kind of Bonded Warehouse?

A free trade zone warehouse is a bonded warehouse that exists in a designated free trade zone. Goods that are stored in a free trade zone warehouse are not subject to duty until they leave the zone.

This can benefit businesses that import goods into the country because it allows them to store their goods tax-free until they are ready to ship them out. It can also help businesses avoid paying duties on goods that may sell within the free trade zone.

Bonded warehouse interior with stored goods

Conclusion: Should I Use a Bonded Warehouse?

Bonded warehouses can provide several benefits for businesses, but it’s important to understand the different types and what they offer. Before deciding whether or not to use a bonded warehouse, businesses should consider their needs and determine which type would be the best fit.

Additionally, because bonded warehouses can be quite a bit more costly, you should do your homework to determine what the total cost will be compared to a standard privately owned fulfillment warehouse or 3PL.

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