If you've grown your business to where it now makes sense to store your inventory in an overseas warehouse, you may have come across the option of using a bonded warehouse.
What is a bonded warehouse? The textbook definition is "a building or a custom-controlled warehouse where goods are kept for processing before delivery".
These warehouses can be government-owned or privately owned by large enterprises. But what makes it different from a regular warehouse is that bonded goods are retained here until the customs duty is paid.
These bonded goods are only kept for a defined period of time, during which the duties and taxes should be paid in full. Otherwise, the shipment is confiscated and dealt with according to the laws of that country. Most of the time however, they dispose of these shipments.
Benefits of using a bonded warehouse
Companies use bonded warehouses to legally and safely deliver their products to customers. Bonded storage is a secure storage and is under customs laws. The bonded goods are well taken care of and documented. Exporters prefer bonded warehouse facility not just for security but for other benefits:
- No duty needs to be paid until the item is released for delivery to the buyer, giving full control of payment to the importer. And, if the goods go unsold, they can be exported without having to pay the duty at all, as VAT is only paid when you sell your products and not on re-exported goods from the bonded warehouse. Some businesses report saving 25% to 30% off taxes.
- Restricted items are allowed to be stored. These items can be safely stored in bonded storage until they need to be sent out.
- Facilities are equipped to handle different types of storage. Good bonded storage can store any kind of product for as long as needed. A good example would be for perishable food items - there are freezers, dry containers, and other temperature controlled rooms available.
- You receive a bond on your items. When you store bonded goods, the warehouse authority will give you a bond which ensures that you won’t face any monetary loss at the time of the release of the shipment after the payment of taxes, including VAT or GST.
- They offer additional logistics solutions. It's possible to have access to a complete logistics solution, as bonded warehouses are affiliated with freight forwarding companies who handle distribution, deliveries, and more.
Alternatives to a bonded warehouse
Although it is very safe and secure and has its own benefits, the bonded warehouses may have restrictions depending on the country it's located in.
For example, the country your warehouse is in may not have a reliable postal solution, or have access to established express couriers.
Also consider the current trade war between China and the US. With tariffs being imposed from both sides, those who manufacture and fulfill from China could be negatively impacted if they are importing their products directly to the US.
For such businesses, utilizing a warehouse that's located in a free port could be a better solution.
A good example of a free port is Hong Kong, which has many warehouse facilities and is considered one of the top shipping centers in the world.
A fulfillment center or warehouse in Hong Kong is good for you in the following scenarios:
- You want to save on duties and taxes. Hong Kong is very trade friendly in that there are no applicable import and sales taxes. Moreover, if you're shipping to the US, the Hong Kong Policy Act is your friend. According to this Act, the US cannot impose any tariffs on your products / shipments unless their value is over $800 USD.
- You want to ship globally with ease. If your manufacturer is based in Southern China, it makes sense to send your goods to Hong Kong for fulfillment. Why? Thanks to its location, 100 airlines service Hong Kong, with direct flights to 220 destinations (not to mention over 50 cities in Mainland China), allowing you to have access to more shipping solutions with faster delivery times.
- The warehouses are well established and connected. Overheads are less, allowing you to save more. Also, their shipping costs are lower compared to other overseas warehouses.
A bonded warehouse is a secure place to store items intended for export while you wait for a buyer, allowing you to delay the payment of customs duties and taxes.
However, for some businesses, it is easier and more profitable to use free ports like Hong Kong for warehousing and fulfillment purposes. It is fast, easy to set up, and cost effective. What more can a small business ask for?
Useful resource: 8 Types of Warehouses for eCommerce
Bonded Warehouse FAQ
What is the function of a bonded warehouse?
A bonded warehouse can has multiple functions. For instance, it allows businesses to store their goods closer to foreign customers, it holds goods for items that have not yet cleared through customs, and more.
What are the requirements for a bonded warehouse?
Each country is subject to different requirements for a bonded warehouse. Be sure to check for the requirements within the country first.
Interested in fulfilling from a warehouse in Hong Kong? Contact our sales team for a free quote and additional information!
You can also take a look at our 20+ partner warehouses that can help you store, pick and pack your orders.