Importance of Bonded Warehousing at a Logistics Park
Worldwide, the need for warehousing and logistics infrastructure is growing to meet major surges in demand, particularly from e-commerce.
Research from Statista shows that e-commerce sales worldwide amounted to $4.28 trillion and are projected to grow to $5.4 trillion in 2022. This boom in demand, alongside inflation, poses several challenges for carriers, distributors, and manufacturers. It also showcases the importance of bonded warehousing at a logistics park.
One result of increased e-commerce demand is a higher cost for shippers to absorb. The Advertising Specialty Institute reports that DHL will raise shipping rates by an average of 5.9 percent starting January 1, 2022, to fund more infrastructure to meet e-commerce needs.
Meanwhile, tariffs and nontariff barriers disproportionately affect small- and medium-size businesses that export to foreign markets. Those with less capital to pay import duties and taxes are at a competitive disadvantage. One answer is smart use of bonded warehousing.
Bonded warehousing simplifies storage, increases efficiency by allowing the storage of goods near distributors, and gives importers the option to store goods for a longer period at lower cost. Moreover, because duties on bonded goods are not collected until after the merchandise is withdrawn, importers can defer duties and tax payments, giving them more control over their finances.
How bonded warehousing works at a logistics park
Bonded warehousing refers to a building or other secure area where imported goods can be segregated, stored, cleaned, packaged, or sorted without the payment of import duties. Goods can stay in bonded warehousing for up to five years. From there, merchandise can be distributed after payment of duty, or re-exported, or destroyed. Goods stored in bonded warehousing can include the supplies required by air and ocean carriers to sustain their operations, including fuel for aircraft and cargo ships, and items sold on passenger flights.
Bonded warehouses are often built within logistics parks, which offer access to ports of entry, transportation, and public facilities like office space. Bonded warehouses are safe and secure. Depending on its needs, an importer can store goods in warehouses with temperature-controlled facilities, freezers, wet containers, or dry containers.
Advantages of bonded warehousing
The major advantage of bonded warehousing is duty deferment. In some cases, such as if the importer fails to find a domestic buyer, importers can also re-export bonded merchandise and avoid duty altogether.
Goods stored in bonded warehouses can be transported to other bonded warehouses either at the same port or a different port, or into free trade zones (FTZs, also called foreign trade zones in the US). To move merchandise between different ports, importers must file a rewarehouse entry. An importer that transports merchandise at the same port only requires a rewarehouse entry if the port director asks for one.
Importers transferring merchandise between integrated bonded warehouses need to file for approval before transfer. However, once the approval has been granted, the importer can transfer merchandise to any other warehouse without filing a withdrawal from the warehouse or a rewarehouse entry. So long as importers record the actual location of their merchandise, it will be treated as though it is in the first warehouse.
Additionally, goods can be kept in bonded warehouses for up to five years with no additional tax payments. This is ideal for companies that wish to distribute their product gradually, paying duty only as they remove goods from the warehouse. This flexibility also benefits companies that need time to process applications through customs or find a domestic buyer for their goods.
Kinds of bonded warehousing
The warehouse space that holds bonded goods can fall into one of several categories.
The US Customs and Border Protection (CBP) identifies eleven classes of bonded storage centers, though categorization varies from country to country. In the US, bonded warehouse classifications are based on several factors. These include the kinds of merchandise being stored, the ownership of the warehouse, and the purpose of the goods (whether they will be re-exported, sold, or stored). For example, tobacco products must be stored in a Class 6 warehouse.
Bonded facilities can be owned privately or publicly, or by the government.
A public warehouse is owned by the state or port authorities. Meanwhile, a private bonded warehouse is owned by an independent party, generally a business. The warehouse can be used solely by the warehouse proprietor or by an owner storing goods for its clients.
Logistics parks exist on a broader level. Rather than referring to one specific structure, they typically are complexes encompassing warehousing, open yards and other logistics infrastructure.
Bonded warehousing vs. FTZs
An FTZ offers similar benefits—duty deferment and extended time frame—as a bonded warehouse. The major difference between the two is that FTZs exist outside of the jurisdiction of customs, while bonded warehouses are subject to customs authorities and regulations.
Additionally, goods stored in most classes of bonded warehouses cannot be manufactured or altered in a way to enhance their value. Goods in an FTZ warehouse don’t face the same restrictions.
Bonded warehousing vs. nonbonded warehousing at a logistics park
Another form of warehousing is nonbonded, where duty is paid before the storage of merchandise. Compared to bonded warehouses, nonbonded warehouses have a stricter time limit for the storage of restricted items.
An importer’s needs affect the type of warehousing used. Importers must choose the warehousing type that fits their industry’s needs, which includes regulatory requirements for importing goods. The right warehousing type improves efficiency and lowers costs.
Efficiency and the type of warehousing at a logistics park
A warehousing efficiency article published in 2021 found that UK warehouses lost three thousand hours a year in productivity because of inefficient processes. With e-commerce demands set to grow 14.3 percent in 2021, efficiency is a must for suppliers worldwide.
Within logistics parks, different types of warehousing offer different levels of efficiency. This is because the type of warehousing used dictates the goods that can be stored in a warehouse and how national policies might restrict the use of certain goods (for example, the restriction on manufacturing within bonded warehouses).
In the US, the CBP’s paperwork approval rate varies, which affects the turnover rate of goods kept in a warehouse.
Goods that need to be kept for a short period of time, like short-term on-demand merchandise, can be kept in nonbonded warehouses. Global Trade magazine suggests that goods like those typically kept in overflow storage for retail and e-commerce and short-term storage for construction projects are best suited for flexible, short-term warehousing.
Warehousing type to best fit industry
The type of industry determines how well bonded or nonbonded warehousing will work. Goods that need to be kept in a long-term facility are better suited to bonded facilities due to the deferral of duty, which lowers costs.
Certain industries that trade restricted goods, like alcohol, can avoid higher tariffs and taxes when using bonded warehousing. In the US, for example, distilled spirits can move between bonded properties or be withdrawn without paying taxes. Likewise, the beer industry places high value on the importance of bonded warehousing at a logistics park.
How bonded warehousing simplifies storage at a logistics park
Business owners know that smart warehouse storage is essential to storing and shipping efficiency. Bonded warehousing simplifies storage primarily by shortening delivery times. A manufacturer or distributor can store goods in a bonded warehouse for the long term and have them ready when needed. Logistics parks are generally located near ports and transportation networks, saving time in shipping and distributing goods.
Using bonded warehousing to store goods more efficiently
The US CBP is currently testing a way to expedite the clearance of goods. Through the Entry Type 86 program, importers can efficiently clear e-commerce goods without having to go through formal customs entry.
Entry Type 86 filing applies toward de minimis goods, or those with a retail value of $800 or less in the country of shipment. Typically, these goods are regulated by Partner Government Agencies and require additional administrative documentation and a formal customs entry with a customs officer on site. However, importers filing under Entry Type 86 can electronically file their goods in advance, clearing them before arrival.
E-commerce goods are typically imported into an Express Consignment Carrier Facility, which holds goods until they have been inspected and cleared by customs. This comes with a fee. By filing in advance, importers can deliver directly into a bonded warehouse, expediting their delivery and saving money.
How to determine whether bonded warehousing is the best choice for your storage needs
There are many storage options available for importers, each offering their own risks and benefits. When considering whether to use bonded storage, it’s important to know your company’s goals and needs. Those looking to manufacture goods, for example, will find themselves unable to do so under the constraints of bonded warehousing.
For companies with more capital, paying duty upfront is worth avoiding the paperwork it takes to apply for bonds. Conversely, those that need to store goods for longer than five years might turn to FTZs instead.
Types of industry best suited for bonded warehousing
Within most classes of bonded warehouses, merchandise cannot be further manufactured or processed in a way that enhances its value. So finished products (such as jewelry or cars) and intermediate goods (such as engines) are best suited for bonded warehousing. Goods that will be re-exported or destroyed after importation also fall under this category.
In addition, restricted goods, such as tobacco and alcohol products, can be securely stored in bonded warehouses. These are ideal especially because some merchandise requires additional paperwork and needs to be stored temporarily.
Prerequisites to fulfill for bonded warehousing
A facility’s bonded warehouse must meet several quality prerequisites to ensure the products remain safe and secure.
To get a warehouse bond, proprietors must fill out a written application detailing the type of warehouse used, its location, and what bonded goods will be stored. In some cases, you may need to describe your recordkeeping system and inventory control. This is especially important for brewers because a daily record of operations is mandatory and will be reviewed in brewery audits.
You may also need to provide a list of everyone with a financial interest in the warehouse and all the officials involved with managing it.
Finally, you must submit a blueprint of the building, along with evidence that the warehouse has fire insurance or is eligible for it. From there, you can obtain a customs bond for each bonded facility.
Location for bonded warehousing success
Bonded logistics parks are typically the most convenient place to operate a bonded warehouse. These are located near areas of transportation for freight and cargo transport, as well as airports and ports. This is particularly important because port directors may deny an application for a bonded warehouse if it’s too far outside port limits to efficiently use nearby customs resources.
Businesses need to balance speedy delivery with available inventory. Developers meet these needs by building logistics parks near urban centers, ports, airports, rail lines, and major road networks. For example, the Agility Logistics Park in Maputo, Mozambique is built near major highways that provide access to markets in Maputo, north Mozambique, and South Africa.
Make warehousing work for you
The importance of bonded warehousing at a logistics park—with numerous financial and logistic benefits—cannot be overstated. From simplifying the storage process to increasing the efficiency for filling and shipping orders, investing in bonded warehouses saves time and money.
Clients that need logistic solutions in the Middle East, Africa, and South Asia have found a reliable, secure partner in Agility. When working with John Deere, for example, Agility built a sustainable, durable, and cost-effective logistics park in Nagpur, India.
Agility designs, engineers, and operates custom warehouses and industrial facilities. Agility properties are built for sustainability, security, and continuous IT connectivity to support multi-nationals, market leaders, and small businesses alike. Contact Agility today to learn more about solutions to your infrastructure and warehousing needs.