What is a Bonded Warehouse?
The U.S. Customs and Border Protection (CBP) agency defines a bonded warehouse as “a building or other secured area in which imported dutiable merchandise may be stored, manipulated, or undergo manufacturing operations without payment of duty for up to five years from the date of importation.”
Additionally, CBP states, “upon entry of goods into the warehouse, the warehouse proprietor incurs a liability for the merchandise under a warehouse bond.”
This liability diminishes when the merchandise is:
- Withdrawn for supplies to a vessel or aircraft
- Destroyed under CBP supervision, or
- Withdrawn for consumption within the United States after payment of duty.
CBP supervises bonded warehouses. In fact, customs agents inspect and approve cargo before release for delivery to its destination. That said, cargo entering a facility follows strict customs record-keeping and documentation requirements. The government owns most bonded warehouse, but privately owned locations exist as well. The industry refers to either as a customs bonded warehouse.
Difference Between a Bonded Warehouse vs Non-Bonded?
When imported freight is stored in a non-bonded warehouse, the importer must immediately pay taxes on the goods and have them inspected no matter where they’re going next. The warehouses’ relationship with customs defines the identity of a bonded warehouse vs non-warehouse. A bonded warehouse falls under the regulatory supervision of the country’s customs agency.
Bonded warehouses are a secure location at which you can store, export, and import goods, without needing to immediately pay duties or tariffs. To make the jobs of Customs agents a little easier, they work with certified customs bonded warehouses services directly. These locations store cargo until importers pay duties and agents complete inspections.
What Services Do Bonded Warehouse Offer?
Deferred Duties & Tariffs
Duty free storage is available for up to five years in a bonded warehouse.
Order Fulfillment & Local Distribution
Bonded warehouses often offer in-house fulfillment services. Importers benefit by not paying import duties until a product is purchased and shipped out from the warehouse. This simplifies international ecommerce selling as you don’t have to worry separately about import, storage, and fulfillment.
Some bonded warehouses offer in-house product assembly. This allows businesses to import highly tariffed components to a warehouse & complete assembly in house. The newly manufactured product is now the sum of its parts. And therefore, it is tariffed under a new HS code. This code offers a lower tariff rate than the individual components. In this way, a bonded warehouse gives businesses a work-around in avoiding the initial payment of highly tariffed individual components. Instead, companies can combine components to create a new commodity with a lower HS code.
Short Term Storage
Perhaps you need to hold your cargo for weeks until another shipment arrives. As mentioned above, companies coordinate delivery of different components to a warehouse regularly for assembly. Short term storage is the bread and butter of any bonded warehouse.
Long Term Storage
Bonded warehouses offer long term storage. However it may not be the best value in terms of rates. Nevertheless, the cost of high duties may make the rates more attractive, depending on your supply chain needs. If viable, evaluate the cost of customs and look for a smaller 3PL warehouse with better rates. Lastly, cargo owners have limited say or control over how staff manage materials. This lack of control is perilous if goods need special care or controls, such as those which are fragile or contain hazardous substances.
When to Use Bonded Warehouse?
There are 11 classes of Bonded Warehouses. Therefore, there are 11 different solutions freight forwarders to use when in search of bonded warehouses. Your forwarder will know which class makes the most sense for your products. Here’s the top three:
- Class 1: Premises owned or leased by the government. It is used for the storage of seized merchandise undergoing examination by CBP, pending final disposition.
- Class 2: Importer’s private warehouse used exclusively for the storage of merchandise belonging to, or consigned to, the proprietor.
- Class 3: Public bonded warehouse used exclusively for the storage of merchandise imported or subject to IRS tax. This bonded warehouse is generally available to any importer at the discretion of the proprietor. A proprietor may impose restrictions on the use of the bonded warehouse by importers, including allowing the exclusive use of the bonded warehouse by one importer.
To learn more about different classes of bonded warehouses, click here
Where are Bonded Warehouse are Located?
Bonded Warehouses are usually close to seaports or airports. This is a necessary location. Why? Goods need to be cleared for customs. Customs and Border Patrol have legal jurisdiction within 100 miles of the US border. Therefore, these goods cannot move very far from the port until CBP completes their paperwork and inspections. Your forwarder will posses a network of bonded warehouses which they already partner with. Therefore, there is no added leg work you need to do, unless you are personally processing paper work and coordinating your supply chain.
Why Use Bonded Warehouse?
Importing At Scale is Expensive
When you’re importing a large number of goods from a foreign country, the cost can be considerable with added duties and taxes on top of the cost of goods and transport. Instead of paying it all at once, bonded warehouses give retailers the flexibility to control when they pay by releasing the inventory as desired. This significantly reduces the cost to import large quantities of goods for your ecommerce business
For example if a distillery in Mexico produced 1,000 liters of tequila worth $10,000, they would be liable for a 5% Alcohol Duty per liter of pure alcohol.
They would need to pay $0.50/Liter or $500 total in duties. Apply the economies of scale to these numbers. These quickly escalate into large sums of capital. Oftentimes, liquid capital is difficult to produce up front.
So to avoid paying it all at once – the distillery can store the tequila in a bonded warehouse, releasing product (and paying duties) as and when product is sold.