What is a Bonded Warehouse? The Duty-Free Storage Solution

A bonded warehouse might sound too good to be true. You’ve been struggling to get import duties paid on merchandise that isn’t selling and now you find out there is a way to avoid that. See how taking advantage of a bonded warehouse can save you money and maybe save your business.

U.S. Customs and Border Protection (CBP) regulates the operation of bonded warehouses. Imported goods are stored in these facilities until taxes have been paid. Goods may remain in a bonded warehouse for five years. While the goods can’t be sold, they can undergo manufacturing changes. Duty is paid when the goods are withdrawn.

Learn the basics of bonded warehouses, the benefits of using them, what the requirements are, and more. 

What is a Bonded Warehouse?

As mentioned, a bonded warehouse is a storage area for imported goods that duty tax must be paid on. Although the term warehouse is used, it can be any secure space, building, or otherwise. Bonded warehousing was developed to help shippers better manage their merchandise and allow them time to prepare goods for distribution.

You can keep your goods in a bonded warehouse for up to five years without paying the duty fees. During this time, you can make any necessary changes to get your imports ready for distribution. This could mean changing packaging, adding necessary labels, or even just waiting until demand has increased. 

Bonded warehouses are found in countries all around the world, but they are not subject to any sort of international regulation. While the general purpose is similar, each nation will have unique regulations in place that should be investigated before you decide to use a bonded warehouse outside of U.S. authority.

What Agency Regulates Bonded Warehouses?

Bonded warehouses are regulated by the U.S. Customs and Border Protection Agency, commonly known as the CBP. This is why bonded warehouses are sometimes referred to as customs warehouses or even customs bonded warehouses. 

Thousands of different goods are imported annually, from vehicle parts to tropical fruits. Such a wide variety of products requires an equally varied availability of suitable warehouses.

Depending on your needs, there are 11 different classes of bonded warehouses in the United States as defined by the CBP.

• Class 1: Site owned or leased by the government to store merchandise that has been seized, is under examination, or is pending final release by U.S. Customs and Border Protection (CBP). Goods are held at these sites only at the direction of the CBP.
• Class 2: A private warehouse owned by an importer that is used exclusively for the storage of merchandise belonging to them.
• Class 3: A public bonded warehouse used only storage of imported goods and merchandise.
• Class 4: A yard site or large shed that has been bonded to store merchandise that is heavy or bulky, including large tanks of liquids. These sites can also be used to store imported animals
• Class 5: Authorizes bins, certain parts of buildings, or even elevators for the storage of grain.
• Class 6: Warehouses where manufacturing for export can take place. These are goods typically made from imported materials (in whole or part) that are subject to revenue tax. It may also be used to manufacture cigars using imported tobacco for domestic use or export.
• Class 7: Warehouses for smelting and refining imported metal-bearing materials.
• Class 8: A warehouse where goods can be cleaned, sorted, or repacked. Manufacturing and other alterations cannot take place. Actions need to be supervised by the CBP, for which the importer is charged.
• Class 9: A warehouse known as a “duty-free store” to sell goods and merchandise that are conditionally duty-free outside of CBP territory. Any goods stored here must be owned or sold directly by the importer and be delivered to an exit point on behalf of individuals leaving CBP territory or any foreign destination. These “duty-free stores” may also sell other merchandise.
• Class 10: A warehouse to store international travel merchandise and goods being sold on aircraft which are conditionally duty-free. These warehouses are not stores and cannot sell other merchandise.
• Class 11: Meant for storage of General Order (G.O.) merchandise. These are items that remain unclaimed for at least 15 days after arrival at their final U.S. destination.

These classes are specific to the U.S. and may not apply to other countries. If you are considering using a bonded warehouse, consult an expert with knowledge about the variety of options and differences found internationally.  

Are Bonded Warehouses Duty-Free? 

While goods are kept within a bonded warehouse, the importer doesn’t have to pay the import taxes. In that sense, yes, bonded warehouses are duty-free. 

However, bonded warehouses are not set up for retail distribution. The duties owed for the imports have not been canceled, only deferred. Once the goods are taken out and made available for sale in the United States, the import tax must be paid. 

There are three exemptions that allow merchandise in bonded warehouses to be released without payment of duties. 

• Exporting merchandise back out of the U.S.
• For release to a vessel or aircraft where items may be sold as duty-free 
• In the event that merchandise must be destroyed per CBP rulings

Bonded warehouses are meant to help importers secure merchandise until buyers can be found or until the imported goods have been altered to make them eligible for sale. All imported products sold in the U.S. are subject to duty taxes.

Where are Bonded Warehouses Located?

Since bonded warehouses are used mainly for imported products, they are often found near ports of entry. The busier the port of entry, the more likely there is to be a variety of warehouses available. Bonded warehouses whose main purpose is manufacturing with imported raw goods can be found further away from these ports.

Working with a 3PL logistics company for your warehousing needs may help you find a suitable location that meets your needs. 

Advantages of Using a Bonded Warehouse

During economically challenging times, such as those being experienced now during the coronavirus pandemic, a customs bonded warehouse can be an import businesses’ saving grace. The ability to keep goods and merchandise safe and secure and defer customs duties for a time has helped many businesses avoid bankruptcy. 

Consider some other specific benefits;

• Deferred payment of import duties: Duty is paid only when merchandise is released to the buyer. This means that you aren’t spending money on goods that aren’t also earning you money. 
• Avoid double fees for import-export services: If you are importing to manufacture for export or consolidating different items before final export, customs warehouses are great. There is no payment of duty for exports and you avoid double taxation.
• Store restricted goods: Getting proper documentation and clearance of restricted goods is often a time-consuming and laborious process. Bonded warehouses are exempt from the time restrictions on the storage of these goods, so you can file paperwork without rushing. 
• Warehouses for a variety of needs: Whether you’re importing ponies, popsicles, or perfumes, there is a customs bonded warehouse that can handle it.

Whether importers are facing disruptions to their supply chain or getting overwhelmed by inventory that simply isn’t in demand anymore, bonded warehousing can provide short and long-term solutions for storing their goods until the market improves.  

What are the Disadvantages of Bonded Warehousing?

For importers, there are few disadvantages to bonded warehouses. However, there are certain restrictions to consider. 

• Time limits: Goods cannot be stored indefinitely. You are allowed to sell for exportation, but if the market is down, there’s no guarantee it will be possible. Sometimes the market simply doesn’t exist. In that case, payment of customs duties cannot be avoided once your time is up. 
• International differences: Many countries have some equivalent to a U.S. customs warehouse. However, restrictions and time limits may differ and should be carefully researched if you plan on storing goods internationally.
• Imports only: Bonded warehouses were specifically created for the import industry to help traders with duty taxes. Businesses that are operating with domestic products alone cannot take advantage of them.  

Despite these restrictions, bonded warehouses remain the most common and most secure way importers have of protecting their shipments and their businesses. 

What are the Requirements of a Customs Bonded Warehouse?

A customs bonded warehouse is only available for storage and manufacturing of imported materials. Any products produced or manufactured domestically are not eligible. 

If you want to establish a bonded warehouse, applications are done through the CBP. The requirements are as follows:

• Submit a written application to a local CBP port director describing the site, giving the location, and stating which class of warehouse you want.
• State whether it will be used for private or public bonded warehousing. If private, provide a description of the goods and an estimate of the duties and taxes. 
• Obtain a certificate that shows the location is acceptable for fire insurance purposes. Certificates can be from the board of fire underwriters or insurance companies. 
• Provide a blueprint with detailed measurements of the building, space, or container to be bonded. 

Some classes of warehouses will have additional requirements, so be sure to check with official CBP guidelines during the application process. Also, be ready to provide a list of names, addresses, and even fingerprints of individuals who will have access to sensitive information, such as official port records. 

Who can use a Bonded Warehouse?

A bonded warehouse can be used by the CBP, bonded warehouse owners, importers, and related third parties. For these parties, the CBP has provided a bonded warehouse manual that details the application process, types of merchandise allowed, exemptions and restrictions, and more. 

Whether an importer chooses to use a bonded warehouse or not is another matter. Small scale importers who don’t ship in large quantities or often, may wish to bypass this additional step. If you manage distribution and fulfillment through a 3PL, be aware that not all logistics companies offer bonded warehouse services. 

If your shipping practices have changed, or you find yourself in need of a bonded warehouse, it’s wise to talk with an experienced 3PL first. For example, our team of logistics experts can talk through your specific scenario to determine if a bonded warehouse is a viable solution based on your unique needs.

What is the Difference Between a Bonded and Non-Bonded Warehouse? 

The main difference between a bonded and non-bonded warehouse is their connection to U.S. Customs. The connection to customs is what allows importers to defer payment of duties until goods leave the warehouse. 

In the case of a non-bonded warehouse, duties and taxes may need to be paid upfront. There is also an increased chance that any errors in paperwork or unexpected delays will cause your merchandise to be seized or even destroyed. A non-bonded warehouse is more likely to be used for the storage of domestically produced merchandise for these reasons. 

Contract Warehouse Services from R+L Global Logistics

When you need a solution for your warehousing needs, contact the team of professionals at R+L Global Logistics. We provide warehousing and distribution services all around the country and you can rest easy knowing your products will be safe and secure. 

Speak with an R+L Global Logistics representative and see if bonded warehouses are right for you. We can also assist with finding solutions for pick and pack fulfillment, cross-docking, transload, kitting services, and more. 

Our team stands ready to be your partner and help your business grow to new heights.