In Light of Tariffs, Foreign-Trade Zones and Customs Bonded Warehouses Bring Relief to Some Shippers

Every supply chain professional knows that volatility can take many forms. From spikes in e-commerce demand during the height of the COVID-19 pandemic to the ongoing freight recession that followed, supply chains will always ebb and flow. However, what sets the leaders apart is their ability to remain nimble, anticipate disruptions and minimize their impact on operations and the bottom line.

While this seems like a relatively straightforward approach, widespread uncertainty around the latest tariffs announced by the current administration has created a more level playing field. While additional tariffs were expected, few could have predicted their extent, and as a result, companies globally are anxiously looking for ways to avoid or reduce the tariffs they will now be required to pay.

As companies seek to mitigate the volatility, relocate their manufacturing efforts, and reposition their supply chains, Foreign-Trade Zones (FTZs) and Customs bonded warehouses may offer some degree of relief by providing flexibility around the storage of goods, in addition to financial benefits. While they are not interchangeable, each offers unique benefits that may help shippers as they adapt to the recent changes.

The Benefits of FTZs

FTZs — often referred to internationally as free-trade zones — are typically located near ports of entry for U.S. Customs and Border Protection (CBP) but are not considered to be part of their territory or oversight. While FTZs are subject to laws and regulations of the U.S. and the states where they are housed, normal CBP procedures and duties required for entry do not apply to freight that is designated to FTZs.

For shippers, this can be beneficial in a number of ways:

1. No duties required on re-exports: When goods are imported into an FTZ to be re-exported to another country, those goods are not subject to U.S. customs duties or tariffs.
2. Potentially reduced tariffs: At times, finished products have lower tariff rates than the materials that comprise them. If the goods enter an FTZ and get assembled there, the companies may choose to pay the tariff of the finished product rather than the higher rate of the individual components that were originally shipped.
3. Deferred payments: When goods enter an FTZ, duties are only required to be paid when they leave the FTZ to be distributed for commerce. This provides companies with flexibility around cash flow, which can be beneficial for financial planning purposes since the tariffs aren’t required to be paid immediately.
4. Tariff exemptions: When goods are damaged or destroyed while being stored in an FTZ, they become exempt from duties. This can be particularly beneficial for companies that transport fragile goods.
5. Shipment consolidation for streamlined processes: When multiple shipments are consolidated, it can reduce the amount of paperwork and fees that may be associated versus handling each shipment individually.  
6. Reduced merchandise processing fees: By utilizing FTZs, companies are able to create one customs entry per week rather than having to file an entry for every individual shipment, resulting in lower administrative costs, faster customs clearance and lower brokerage fees.
7. Loophole for annual quota limits: For goods or countries that are subject to annual limits, utilizing FTZs allows them to store more than the annual limit. Those products can then enter the domestic market once a new quota period is initiated.

How Do Customs Bonded Warehouses Differ From FTZs?

While FTZs are physically located within the U.S., they are exempt from normal customs regulations since they have not entered U.S. commerce. On the other hand, Customs bonded warehouses are licensed and regulated by CBP and serve as a place for goods to be stored until they are released for consumption or re-export. While both can offer similar benefits in some instances, they have different limitations that companies should consider before deciding to use them.

Some of the key differences include:

• Storage limitations: With FTZs, shipments can be stored indefinitely while bonded warehouses have limitations (typically five years from the date of import). Furthermore, only foreign goods can be stored in Customs bonded warehouses while both foreign and domestic shipments can be placed in an FTZ.
• Timing of payments: Customs duties are deferred for shipments stored in FTZs until the products enter the U.S. market while they are deferred for items in bonded warehouses only until they leave the warehouse itself.
• Scope and flexibility: FTZs often allow for assembly, manufacturing and processing of goods while bonded warehouses are primarily used for storage alone. Some bonded warehouses offer manufacturing capabilities, but this is typically only allowed for items that are re-exported.

Making the Right Choice

When comparing the use of a Customs bonded warehouse versus an FTZ, considerations around timing, capabilities of the facility, location, potential trade policy changes and the scope of the benefits of each are critical. Working with an experienced logistics partner can help companies navigate the nuances of each option and help to ensure they get the maximum benefit from the option they choose.

NXTPoint Logistics has FTZ warehousing space available in Jacksonville and Fort Lauderdale, Florida. To inquire about available space and determine if an FTZ could be beneficial for your organization, contact our experts.