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In international logistics, an FTZ warehouse or free trade zone warehouse offers distinct advantages regarding customs duties, storage, and operational flexibility. While it shares some similarities with bonded warehouses, their differences are significant and cater to distinct business needs. Here, we’ll discuss these key differences to guide businesses in deciding which option best suits their needs.
FTZ stands for Free Trade Zone, referring to a specialized location in a country where goods can be imported, stored, manufactured, and re-exported subject to customs regulations.
When looking up “FTZ” one may be redirected to results referring to terms like Free Trade Zone and Foreign Trade Zone. That’s because these terms are often used interchangeably, especially in the U.S.
They’re, in fact, the same thing, as they both refer to areas where goods can be imported without the immediate imposition of customs duties.
In the U.S., FTZs are commonly located within or near ports of entry. While these secure areas are under the supervision of Customs and Border Protection, they are technically not considered CBP territory.
Hence, the entry procedures and dues set forth by the CBP generally don’t apply in these specialized zones or in free trade warehousing facilities.
An FTZ warehouse serves the same purpose as a typical logistics warehousing solution. It functions as a storage facility where goods can be stored, handled, and manufactured.
Its distinct characteristic, however, is that it’s situated within a free trade zone. That means it primarily houses imported goods and serves as a designated area where these products can be stored without being subject to customs duties until they enter the domestic market.
The FTZ strategy involves utilizing the benefits of FTZ warehouse operations. FTZ warehouses offer significant flexibility and cost savings for businesses engaged in international trade.
The deferred payment of taxes and duties, as well as accessibility to facilities designed to store, handle, and manufacture goods, means importers can reduce costs and optimize the supply chain. Additionally, it can streamline logistics and improve inventory management. This strategy particularly benefits businesses involved in high-volume import/export activities.
At Buske Logistics, our experience with Fortune 100 clients such as Coca-Cola, Pepsi, and Crown has shown that utilizing FTZ warehouses can reduce overall logistics costs, thanks to deferred duty payments and enhanced operational flexibility.
A special purpose Free Trade Zone is a designated area tailored to specific industrial activities, such as manufacturing, assembly, or specialized storage.
These zones offer targeted benefits, such as streamlined regulatory processes, specialized infrastructure, and industry-specific incentives. These resources make special-purpose FTZ an attractive option for businesses with specialized operational requirements.
For example, a pharmaceutical company often requires strict temperature control and security measures. A special purpose FTZ for pharmaceuticals would be equipped with state-of-the-art climate control systems and advanced security protocols to meet these requirements.
Like an FTZ warehouse, a bonded warehouse is a secure facility that mainly handles imported goods. Another fundamental similarity is that importers are not yet required to pay duties and taxes while their goods are stored in a bonded warehouse. However, certain functions and regulations that apply to these warehouse solutions differ significantly.
Here are the key differences between foreign trade zone vs customs bonded warehouse:
FTZ Warehouse
Custom Duties and Taxes
Deferred until goods leave the warehouse and enter the U.S. market
Flexibility and Operations
Greater flexibility and more operational activities allowed
Storage Duration
Indefinitely
Cost
More savings due to state and local tax exemptions; more operational flexibility
Regulatory Compliance
FTZ board approval; FTZ zone regulations; annual reports
Bonded Warehouse
Custom Duties and Taxes
Duties and taxes are paid once goods leave the warehouse
Flexibility and Operations
Limited activities and operations
Storage Duration
Up to 5 years only
Cost
Less cost-efficient due to limited operational activities allowed
Regulatory Compliance
Customs bond; license from customs; accurate records
In an FTZ warehouse, customs duties and taxes are deferred until goods leave the FTZ and enter the U.S. market. In a bonded warehouse, duties and taxes may be collected once the goods are removed from the warehouse for domestic consumption.
Here’s one aspect where the FTZ vs. bonded warehouse differences can become more evident.
Bonded warehouses are often used for storage, although certain facilities are designed to cater to limited manufacturing operations like repacking and labeling. However, only minor changes are typically allowed in these areas.
In contrast, FTZ warehouses offer much greater operational flexibility. Businesses can perform various activities such as manufacturing, assembly, value-added activities, processing, and even re-exporting goods without being subjected to immediate customs duties.
The ability to conduct extensive manufacturing and processing operations within an FTZ can lead to significant efficiencies and competitive advantages in the global market.
Goods stored in an FTZ warehouse, similar to the ones Buske Logistics has in Houston can stay in the facility for an indefinite period. On the other hand, imported goods handled in a bonded warehouse can only stay there for up to five years. This limitation requires careful planning for businesses that need extended storage but is beneficial to those looking for an efficient turnover of goods.
While both FTZ and bonded warehouses offer opportunities to defer customs duties and taxes, FTZ warehouses offer broader and more significant cost-saving opportunities.
For instance, FTZs allow for reducing or eliminating customs duties, exemption from certain state and local taxes, and the ability to conduct manufacturing or assembly without incurring additional duties. These additional advantages typically make FTZ warehouses more cost-efficient compared to bonded warehouses.
In comparison, bonded warehouses often only allow limited merchandise manipulation, such as repacking and labeling.
Aside from complying with regulations set by customs authorities, establishing a warehouse in a free trade zone also comes with specific requirements.
Common FTZ warehouse requirements include:
On the other hand, bonded warehouse operators have to secure a customs bond and a license from customs authorities. While annual reports are usually not required, they must keep accurate and detailed records of activities for inspections and audits.
Any legal merchandise, such as raw materials, components, finished products, and goods for manufacturing or re-export, can be stored, handled, processed, and manufactured in FTZ warehouses.
Goods not allowed in an FTZ warehouse typically include those prohibited or restricted under U.S. law, such as illegal drugs, counterfeit goods, certain types of explosives and munitions, and highly perishable items that do not meet specific storage requirements.
Additionally, goods that violate trade restrictions or embargoes imposed by the U.S. government are also not permitted in FTZ warehouses.
Retail trade of imported goods is not allowed within an FTZ. Similarly, manufacturing goods subject to internal tax revenue, including firearms, alcoholic beverages, perfumes with alcohol, tobacco products, and sugar, is not permitted.
Although some bonded warehouses are designed to manipulate imported goods, these facilities cannot assemble and manufacture components into finished products.
Limited activities such as repacking, labeling, and cleaning merchandise can be done, subject to customs approval and supervision.
FTZ and customs-bonded warehouses both offer unique advantages. The right choice depends on the business's specific needs, the nature of the goods, and its operational flexibility requirements.
Contact Buske and consult our logistics experts to determine the best choice for your international logistics needs.
