Two Strategies to Minimize Your Duty Burden

As global trade dynamics shift and new tariffs take effect, businesses must find ways to mitigate costs and optimize their supply chains. Two effective tools are Foreign Trade Zones (FTZs) and Customs bonded warehouses. While both aim to streamline the movement of goods and reduce costs, they operate differently and offer distinct advantages.

Let’s explore how FTZs and bonded warehouses work, their benefits and limitations, and help you determine which option may best fit your supply chain strategy.

Leveraging Foreign Trade Zones to minimize tariff burdens

An FTZ is a secure area under U.S. Customs and Border Protection (CBP) supervision that is considered outside CBP territory for duty purposes. Located in or near CBP ports of entry, FTZs allow businesses to store, manipulate, or manufacture goods without being subject to import duties or taxes until the goods enter the U.S. market.

Strategies to leverage FTZs

Duty deferral: Businesses can postpone duty payments indefinitely until goods enter the U.S. market, providing valuable cash flow flexibility.
Duty elimination: Products exported from an FTZ to another country incur no U.S. duty, opening opportunities for cost-effective global trade.
Inverted tariffs: Businesses can take advantage of “inverted tariffs” by opting to pay duties on raw materials or component parts instead of the finished product if it results in a lower overall tariff.
Operational flexibility: FTZs offer more flexibility in the type of activity that is permitted in a zone. Merchandise may be assembled, exhibited, cleaned, manipulated, manufactured, mixed, processed, labeled, packaged, repaired, salvaged, sampled, stored, tested, displayed, and destroyed – helping businesses to meet market demands without triggering immediate duties.
Merchandise Processing Fee (MPF) minimization: If an FTZ is granted this privilege, one entry can be made on an entire week’s worth of shipments instead of shipment-by-shipment. MPF caps out at a maximum amount per entry, which is why one entry filed per week can significantly reduce how much MPF a company owes.
Indefinite storage: Unlike bonded warehouses, there is no specific time limit on storage.

Potential limitations to consider

Set-up costs: There are several initial set-up costs that a business typically incurs when setting up an FTZ, such as application fees, software costs, compliance and security-related expenses.
Compliance requirements: Businesses must adhere to many strict customs regulations and compliance requirements to continue operating an FTZ—consider whether your business is prepared to take on the additional compliance oversight required.
Security requirements: FTZs are also subject to strict security requirements that businesses would need to assess on a frequent basis to ensure the safety of their inventory.

Using bonded warehouses to defer, delay, or eliminate duties

A U.S. bonded warehouse is a CBP-supervised facility where imported goods may be stored for up to five years. Businesses can use this time to process, package, or re-export the goods without incurring duty charges. Duties are only paid when the goods leave the bonded warehouse for consumption in the U.S. market.

Strategies to leverage bonded warehouses

Duty deferral: Duty payment can be delayed or reduced, providing cost savings and improved cash flow for businesses.
Duty elimination: Products exported from a bonded warehouse to another country incur no U.S. duty.
Inventory management: Businesses can control stock levels based on market demand and fluctuations in bonded warehouses, which in turn can help improve supply chain efficiency and reduce holding costs.

Potential limitations to consider

Storage costs: While FTZs come with initial set-up costs, there are storage costs to consider with bonded warehouses—businesses should compare the costs when considering the two options.
Facility access: Access to goods stored in a bonded warehouse is restricted to authorized personnel and CBP—this is important to consider if more flexibility is needed.
Activity permitted: Unlike FTZs, activity in bonded warehouses is limited to cleaning, repackaging, and sorting.
Storage limit: Bonded warehouses have a five-year storage limit in the United States from the date of import, unlike the unlimited storage time provided by FTZs.

FTZs vs bonded warehouses: A side-by-side comparison

The differences between FTZs and bonded warehouses are slight and ultimately come down to your company’s business needs. Refer to this side-by-side comparison to help determine which option may be best for your business.

	Foreign Trade Zones	Bonded Warehouses
Physical location	Outside of U.S. Customs territory but within U.S. borders	Within U.S. Customs territory and U.S. borders
Customs entry	Entry is only filed when goods are removed from the FTZ because FTZs aren’t considered within U.S. Customs territory	Entry is required to admit goods into the warehouse (no duties are paid at that time) because bonded warehouses are within U.S. Customs territory
Storage period	Unlimited	Cannot exceed 5 years
Cargo type	Foreign and domestic goods allowed	Only foreign goods allowed
Activity type	Goods may be manufactured, assembled, sorted, destroyed, cleaned, graded, mixed with foreign or domestic goods, labeled, exhibited, sold, and repackaged	Limited to cleaning, repackaging, and sorting under U.S. Customs supervision
Duty payment	Due when goods exit the zone for consumption. Dutiable at the rate in effect when privileged foreign status is approved for the foreign material or the rate applicable to the finished article upon exit—whichever is to the zone user’s advantage. Duty isn’t owed on waste material.	Due when goods are withdrawn from the warehouse. Dutiable at the rate in effect at the time of withdrawal. Duty is owed on waste material and damaged goods.
Tax payment	Not owed on foreign merchandise; domestic goods aren’t taxed if exported.	Due January 1 for all merchandise in warehouse

How can C.H. Robinson help?

Both U.S. bonded warehouses and FTZs are powerful tools, but their distinct advantages cater to different business needs. Contact your C.H. Robinson representative to see how we can help optimize your operations, reduce costs, and evaluate your supply chain strategy further.