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.
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 Customs bonded warehouse different from a FTZ warehouse.
What's the Difference Between a Bonded and FTZ Warehouse?
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. 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.
Advantages of a Customs Bonded Warehouse
Each type of warehouse has advantages. Some businesses choose a Customs 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 Customs 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Because no duty is collected until the product is withdrawn for consumption, importers have greater control over their finances.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.
Advantages of 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 a 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.
Is a Custom Bonded Warehouse or a FTZ Warehouse Right for You?
Which type of warehouse is right for your business? Choosing between bonded warehouses and FTZ warehouses essentially comes down to how much control you want over the Customs process and your products. If you are storing foreign goods for export, Customs bonded warehouses represent the best option.