Free Trade Zone vs. Bonded Warehouses – What’s the Difference?
When goods are imported into or exported out of the United States, they are often stored in one of two different types of warehouses: a bonded warehouse or free trade zone (FTZ) warehouse. We recently published an article that looked at the many advantages of locating your business in a free trade zone (FTZ). We looked at why these areas are particularly attractive for warehouse users and operators.
Yet it is also worth considering a custom bonded warehouse – or at least, it’s important for industrial users to know the difference between these two. While these facilities are similar, they do have differences, such as the purpose for which each warehouse was developed, what you can do with goods and limitations on storage.
Depending on what a company is trying to accomplish, one type of warehouse might be better suited than the other. In this guide, we’ll look at what makes a bonded warehouse different from a FTZ warehouse.
Bonded Warehouses vs. FTZ Warehouses
Bonded warehouses were introduced in the 1800s to provide government supervision and secure storage for dutiable goods before the actual payment of duty. The duty is due when the goods are transferred from the warehouse for distribution. Goods stored in bonded warehouses go through the usual Customs processes.
FTZ warehouses, on the other hand, were introduced in the 1930s to help improve global trade and international competition for U.S. companies.
FTZ warehouses, on the other hand, were introduced in the 1930s to help improve global trade and international competition for U.S. companies. These warehouses are located in special areas within the United States that the government classifies as outside of U.S. Customs territory. Because they are not considered inside U.S. Customs territory, merchandise stored in a FTZ warehouse can move without traveling through formal Customs entry procedures, including import duties.
Benefits of Utilizing a Bonded Warehouse
Each type of warehouse has advantages. Some businesses choose a bonded warehouse because goods stored there can move between other bonded warehouses. Further, goods can also move into free trade zones for export, deconstruction or permanent storage of the product.
Another advantage to bonded warehouses is associated with increased storage times. Some countries allow unlimited storage time. In the U.S., however, imported goods are allowed to be stored for up to five years. This creates an opportunity to delay the introduction of a product to market until there is greater demand.
Because no duty is collected until the product is withdrawn for consumption, importers have greater control over their finances. Lastly, if an importer is unable to find a buyer in the U.S., the goods can be exported without paying duty.
Benefits of Utilizing a FTZ Warehouse
With a FTZ warehouse, goods do not go through an official Customs entry process when first stored in the warehouse. This allows for duty payment to be delayed, reduced or even eliminated in some cases. FTZ warehouses also don’t have regulations as strict as bonded warehouses.
Goods can be inspected, repaired and repacked within a FTZ warehouse. This allows a business to remove damaged products and withdraw them before going to market. These processes must be approved by U.S. Customs and Border Protection beforehand.
In an FTZ warehouse, goods can be manipulated, manufactured or destroyed, which is only possible in certain classes of bonded warehouses.
In an FTZ warehouse, goods can be manipulated, manufactured or destroyed, which is only possible in certain classes of bonded warehouses. All non-prohibited merchandise may be admitted. Lastly, merchandise can remain in a FTZ warehouse indefinitely, whereas bonded warehouses have a five-year limit.
Which Warehouse is Right for You?
For some organizations, it is best to enter into an FTZ while others will benefit from a bonded warehouse. There are multiple benefits of both programs including delayed duty and tariff obligations and the ability to re-export goods without penalty.
Deciding which is “best” for your business will often depend on two factors: the first is how much control you want over the Customs process and your products. If you are storing foreign goods for export, bonded warehouses are often the best option. The second factor is usually geographic location (and related, your business’s geographic flexibility). Most businesses will choose whichever warehouse type is closest to them. Companies with geographic flexibility may decide to move elsewhere if it means being in closer proximity to one type of warehouse or the other.
Are you ready to explore warehouse options in more detail? Contact us today. Our team of industrial experts would happily chat about different warehouse solutions, including which type of warehouse may be best given the specifics of your business.
About the ComReal Miami Industrial Team: The ComReal Miami Industrial Team has been assisting companies with their South Florida real estate needs for over 30 years. The industrial team specializes in the sales and leasing of industrial properties. Visit Warehouses Market and/or call 786-433-2380 for more information.