As U.S. brands and other importers navigate through today’s tumultuous trade environment without spending a boatload on tariff costs, bonded warehouses and foreign trade zones (FTZs) have rapidly become en vogue.
Both options represent a means for companies to defer duty payments to a later date, while maintaining their imported goods on U.S. soil and allowing them to preserve cash flow that they can use to better allocate when necessary.
A customs-bonded warehouse enables companies to store inventory for up to five years, without having to pay tariffs until they are transferred elsewhere. This can enable the business to save money through the storage period. Shippers can also re-export the goods to another country duty-free. Upon withdrawing the inventory, businesses will pay the tariff corresponding with the goods at the time of withdrawal.
If a tariff is lowered or a product exclusion is announced while goods are in bond, the importer can benefit from the lower rate when they do import them.
FTZs are designated zones considered outside of U.S. Customs and Border Protection (CBP) domain, often located near American ports of entry.
Unlike bonded warehouses, there’s no time limit to how long inventory can be hosted. These zones can also enable a host brand to carry domestic duty-paid merchandise in the same activated building they hold foreign non-duty-paid goods, while the bonded facilities exclusively serve foreign-imported merchandise.
FTZs lock in the duty rates at the time of admission for goods, so the importer will not benefit from a potentially lower tariff rate in the future. However, this could also serve as a hedge for companies in the event the 10-percent baseline tariffs on most imports escalate again after the end of the 90-day tariff pause in July.
“The main difference is the intensity and need for this as quickly as possible,” Scott Taylor, leader of the FTZ practice at law firm Sandler, Travis & Rosenberg, P.A.
“A lot of the companies that we work with are interested in a Foreign Trade Zone first, especially with a lot of 3PLs setting up activated space as quickly as they can to service all these companies that traditionally haven’t really had to pay much attention to duties,” Taylor told Sourcing Journal.
3PL giant Geodis, which operates 10 different FTZs across 20 different customers, is starting to feel the pressure of high demand for the space.
The company gets three-to-five duty deferral requests per day as of mid-April, according to Shana Head, senior director of FTZ product at Geodis in Americas, up from one-to-three inquiries per week just in January.
“We’re seeing interest in all types of commodities right now. It’s mostly based on country of origin—so where the material is sourced from, not necessarily what the material is,” Head said. “Anything that’s being sourced from China that doesn’t have an exclusion—they’re getting hit really hard. But the interest is across the board and isn’t isolated to any one commodity or country.”
According to Taylor, who has developed and structured more than 550 FTZ projects, it traditionally would take three-to-six months combined to get an official FTZ designation for a building, alongside approval from customs.
“Companies don’t have that time anymore,” Taylor said, noting that his firm has sought to accelerate the approval period by traveling to facilities daily to consult clients ahead of a CBP inspection.
On the bonded side, warehouse-as-a-service company Flexe has a network of U.S.-based customs-bonded facilities totaling 21 million square feet, is seeing an acceleration of demand for its space among retail and fashion, industrial manufacturing, home goods and furniture.
Karl Siebrecht, CEO and co-founder and Flexe, told Sourcing Journal that bonded warehouses range from 40 percent to 60 percent more expensive than their non-bonded counterparts.
This could turn brands away in normal circumstances, but with tariffs going up to 145 percent on Chinese goods, for example, businesses see more cost value in leveraging the bonded option for storage.
With the acceleration of demand, Siebrecht expects more supply to come online.
“You’ve got a lot of warehouse operators who are watching all this happen, thinking, ‘Hey, maybe I’m going to invest to go through the requirement to become a bonded warehouse, which takes some time and money for a warehouse to go from non-bonded to a bonded facility,” said Siebrecht.
But for now, “the demand is far outpacing the capacity,” said Tom Wicky, CEO and co-founder of 3PL and fulfillment services provider MyFBAPrep. According to Wicky, MyFBAPrep has 10 bonded warehouses in its nationwide network that can handle 500 pallets or more.
“We still have space,” Wicky said, noting that industrywide prices for storage have accelerated as supply gets constrained. “Three-to-six months ago, if I call and say I need to store 20 pallets in a bonded facility, my price is a lot less—$25 a pallet, versus the $100 they’re looking for now.”
Some major logistics businesses are already positioned well to help out customers scrambling to find an alternative for their imported cargo.
When sharing an update on dialogue with more than 300 customers, warehousing giant Prologis said many are “accelerating shipments where possible” and “looking for short-term flexibility,” with some evaluating alternatives such as FTZs and bonded warehouses.
Another company that may benefit from the increased use of bonded warehouses is Forward Air, which operates 40 bonded U.S. customs container freight stations and several additional central examination stations. The increase in bonded warehouse demand could be a temporary shot in the arm for a company that is looking to sell itself to a new buyer.
Shippers turn to Canada for warehousing alternatives
As businesses get used to FTZs and bonded warehouses in the U.S., they are also rerouting shipments to Canada, particularly if they are importing Chinese goods.
According to data from Flexport, there was a 50-percent spike in shipments from China to Canada in just one week in mid-April.
Third-party sellers from Amazon and Walmart are getting into the fray, according to a report from the Financial Times. The move is a stalling tactic for sellers, suppliers and distributors alike as they look to circumvent the tariffs for now.
“If we trust the U.S. administration…[and] that’s still a big if, this is the worst it’s going to get. And so we’re prepared to wait this out,” a senior executive at a major third-party seller on Amazon and Walmart told FT.
But the move to Canada isn’t without risks, especially for smaller businesses that typically need immediate cash on hand. For one, there are still added costs involved, with an extra $500-$600 per container tacked on for those products headed toward Canada. And if the vendors or sellers needed to import products into the U.S. for any reason before the tariffs on Chinese goods were changed, they would be incurring the expense of the warehouse storage and the tariff.
