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Bonded Warehousing 101: A Simple Guide for Efficient Logistics

vijay

Vijay Kumar

Senior Specialist - Marketing @ Shiprocket

April 15, 2024

9 min read

In recent years, eCommerce has grown to be a vital component of global retail. This trend, which has been going on for the past few years, is influenced by a growing global economy, ushering in numerous business opportunities. By 2023, the global eCommerce market is projected to reach a value of USD 6.3 trillion. Over the following years, this number is anticipated to increase, indicating that online retailers are starting to find borderless eCommerce to be a lucrative alternative.

However, a challenge persists in inventory storage, particularly for delicate products requiring a secure and cost-effective solution. This is where Customs Bonded Warehousing comes into play, providing a convenient option for importers and exporters. The ability to securely store valuable goods is a significant advantage, streamlining the logistics process in international trade.

From 2023 to 2028, the global market for bonded warehouses is anticipated to increase significantly, mostly due to the rising need for importing and exporting.

The Definition of Bonded Warehousing

A bonded warehouse is a specialised storage facility in a foreign country, managed by a private entity and supervised by the local customs authorities. Its key advantage is deferring the payment of customs duties until the goods leave the warehouse. It allows businesses to store goods closer to foreign customers for faster delivery while postponing customs duty payments until the goods are released. Whether privately or government-owned, bonded warehouses store imported or exported goods duty-free and are commonly used for items subject to specific regulations. These warehouses offer services such as deep freeze or bulk liquid storage. Goods within a bonded warehouse may be manipulated by the proprietor or placed under customs supervision. Duties may be deferred if withdrawn for international shipping and consumption during this period; otherwise, duties must be paid later to the government or a private entity. Bonded warehouses simplify international trade by offering storage solutions and streamlined customs procedures.

Types of Customs Bonded Warehouses

Bonded warehouses fall into two primary categories: owned and operated by the state and privately owned.

  1. Government Warehouses:

These facilities, owned and overseen by government authorities, serve as storage spaces where rigorous oversight is applied to ensure compliance with regulations and the security of stored goods.

  1. Private Warehouses:

On the other hand, privately owned and operated warehouses are managed by independent companies, offering businesses a dedicated space to secure goods.

Further private/public division is sub-categorised into:

  1. Temporary Storage Areas:

Temporary storage areas, encompassing covered and open spaces, act as holding zones where goods are temporarily housed while awaiting requisite approvals or completion of necessary documentation.

  1. Public Warehouses:

Public warehouses, under the ownership of government entities or port authorities, present an accessible option for businesses seeking customs-controlled storage solutions.

  1. Private Warehouses Type 1:

Warehouses falling under Type 1 in the private sector are company-owned but operate as shared spaces. They accept goods from the proprietor and external clients.

  1. Private Warehouses Type 2:

Conversely, Type 2 private warehouses are exclusively reserved for storing goods owned by the warehouse proprietor. External businesses are precluded from utilising these facilities for their storage needs.

  1. Free Warehouses:

Free warehouses, vigilantly monitored by customs agents, offer the flexibility for businesses to store goods. However, customs duties must be settled for goods stored within these premises.

  1. Bonded Logistics Parks:

As specialised economic zones overseen by local authorities, bonded logistics parks provide extensive areas for meticulous warehousing and logistics operations.

Are Customs Bonded Warehouses a Duty-Free Zone?

A Duty-Free Store (DFS) is a bonded warehouse known to us even before we recognised its technical term. Duty-free stores, classified as bonded warehouses, sell goods for use overseas or on international flights.

A Customs bonded warehouse is a secure place where imported goods can be stored without immediate payment of import taxes. While in the warehouse, you, as the importer, are not required to pay import taxes.

It’s important to note that bonded warehouses are meant for something other than retail distribution. The import taxes are deferred, not cancelled. The import taxes must be paid once the goods leave the warehouse and become available for sale in the United States.

There are three situations where merchandise in bonded warehouses can be released without paying duties:

  1. If the goods are exported out of the U.S.
  2. For release to a vessel or aircraft where items may be sold as duty-free.
  3. In cases where merchandise must be destroyed per CBP rulings.

Bonded warehouses help importers store merchandise until buyers are found or until the imported goods meet sale requirements. All imported products sold in the U.S. are subject to duty or taxes.

What Distinguishes Bonded Warehouses from Their Non-Bonded Counterparts?

The choice between bonded and non-bonded warehouses depends on your specific business needs and the nature of your goods. Here are a few differences between them:

AspectBonded WarehousesNon-Bonded Warehouse
Definition and PurposeA secured facility authorised by the government for storing imported goods without immediate payment of duties, taxes, or customs fees.Standard warehouses store goods without customs privileges, serving for domestic distribution before payment of duties.
Customs Control and RegulationsStrict oversight deferral of customs duties.Upfront taxes, customs duties, and regulations.
Time Limitations and Storage PeriodsTime limits are flexible for efficient inventory.Flexible duration, cost considerations for duties, and taxes.
Value-Added ServicesMay offer services like labelling and sorting.May offer services like labelling and sorting.
StorageIdeal for long-term storage, up to five years.Primarily for temporary storage, less conducive for long-term.
Deferred DutiesSaves money by deferring duties.Duties are settled upfront, impacting immediate costs.
Storing Restricted GoodsAllows time (up to five years) for paperwork. Stricter time limits require prompt paperwork approval.
International ShippingFacilitates easy international shipping without upfront duties.  Goods are subject to upfront duties, impacting flexibility.
The Stress-Free Option Stress-free secure storage with deferred taxes.Immediate settlement of duties, impacting costs.

Why Should Importers and Exporters Choose Bonded Warehouses?

For businesses that frequently engage in international shipping, utilising a bonded warehouse brings notable advantages. It offers you the convenience of importing and storing products globally until needed.

In this scenario, you have two strategic choices:

  1. Importing: If there’s a significant demand dip, you can store products in the bonded warehouse. This allows you to defer paying tariffs until they are transported to their final destination within your country. Notably, you are only obligated to import some goods simultaneously.
  2. Exporting: On the flip side, you can use the warehouse to hold products, facilitating the consolidation of assets before exporting them. The essential benefit here is that duty fees need only be paid once the consolidated products are placed under the supervision of Customs. This smart approach effectively steers clear of any potential for double taxation.

Other benefits include:

  • Deferred Duties: You pay duties only when goods are taken out for use or sale, allowing you to retain funds until needed.
  • Convenient International Shipping: Store goods until demand increases, paying duty upon local delivery. If local demand is low, exporting becomes cost-effective.
  • Storage of Restricted Items: Bonded warehouses store regulated goods without time restrictions, offering up to five years for paperwork.
  • Security: Experience stress-free storage with 24/7 surveillance. Store without concerns about inspections, demand changes, or complex paperwork.
  • Long-Term Storage: Affordable and flexible long-term storage with the option to extend without extra fees. However, goods can’t stay stored beyond five years.
  • Greater Convenience: Simplifies international shipping, strategically located near ports and airports for quicker transport and streamlines customs clearance.
  • Boosted Cash Flow: By deferring customs duties, you free up short-term cash for other investments or operational expenses.
  • Quality Control: Enables inspection and testing of stored goods, ensuring they meet quality standards before shipping.
  • Improved Customer Service: Quick access to conveniently located warehouses ensures faster delivery times, enhancing customer service.
  • Connecting with Reliable Logistics Suppliers: Proximity to ports and airports facilitates easy connections with logistics suppliers, reducing costs and improving efficiency.
  • Single Point Contact: Provides a single point of contact for all storage needs, simplifying operations and communication for your business.
  • Anticipate Supply and Demand: Facilitates better anticipation of customer demand, allowing you to adjust inventory levels efficiently.

Shiprocket: Providing Comprehensive Warehousing Service

Connect with Shiprocket Fulfillment for an efficient, tech-driven solution tailored to your retail or eCommerce brand. This end-to-end service enhances efficiency for both B2B and B2C operations. With 42+ fulfillment centers, achieve nationwide distribution without warehouse investments. Same/next-day delivery commitments boost customer satisfaction and business growth. Benefit from a unified management system for streamlined control over warehouses, inventory, orders, and performance. Utilise 12+ channel integrations for comprehensive order management. Covering 24,000+ pin codes, Shiprocket attains PAN India reach through 25+ courier partners. Facilitate precise B2B order fulfillment at any scale with our smart centers. The all-in-one tech stack optimises your supply chain for eCommerce efficiency.

Conclusion

Bonded warehouses are vital for international trade, providing secure storage and various benefits. They enhance customer service, defer customs duties, and connect with reliable logistics. Proximity to ports, airports, and your primary customer base is crucial when choosing a warehouse.

Recognising the purposes of bonded and non-bonded warehouses is critical. Bonded ones offer temporary storage with customs privileges, supporting international trade. Non-bonded warehouses cater to domestic distribution under standard regulations.

Understanding these differences informs your global trade decisions, ensuring compliance and optimising your supply chain.

What if goods are damaged in bonded warehousing?

Warehouses have insurance for damage or loss. Clear documentation at entry helps facilitate any insurance claims.

Can businesses modify or repack goods while in bonded warehousing?

Yes, modifications and repacking are often allowed. However, businesses must comply with customs regulations and notify authorities of any changes.

Can businesses share a bonded warehouse space with other companies?

Shared bonded warehouse spaces, known as multi-client facilities, are common. This allows multiple businesses to benefit from cost-sharing while maintaining separate inventory and compliance records.

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