unlocking trade advantage

April 2, 2024

Unlocking Trade Advantage: Foreign Trade Zones vs. Customs Bonded Warehouses

When it comes to managing goods, businesses have a choice between utilizing a Foreign Trade Zone (FTZ) or a customs bonded warehouse.

While both serve as secure storage options, they offer unique advantages tailored to different business needs.

Although some may question whether customs bonded warehouses can match the benefits of an FTZ, the latter generally provides more significant advantages. Let's explore the distinctive benefits that FTZs offer over customs bonded warehouses.

Foreign Trade Zones (FTZs) have a rich history dating back to the 1930s. Under the supervision of U.S. Customs and Border Protection (CBP), FTZs are designated areas considered outside of the U.S. customs territory.

This unique status allows goods entering an FTZ to bypass formal customs entry procedures, including import duties. The primary objective of FTZs is to facilitate trade and enhance the competitiveness of U.S. companies.

By leveraging an FTZ, businesses can defer, reduce, or even eliminate customs duties, leading to improved cash flow, reduced production costs, and increased profit margins.

In contrast, customs bonded warehouses have existed since the 1800s, offering secure storage for dutiable goods without immediate duty payment. These warehouses serve to provide government oversight and security for goods before duty payment is required.

Duties become due only when the goods are transferred from the warehouse for consumption.


Now, let's delve into the four key advantages that FTZs offer over customs bonded warehouses:

Customs Territory Status:

Unlike customs bonded warehouses, FTZs are considered outside of U.S. customs territory. While goods entering a bonded warehouse typically require customs entry, those entering an FTZ bypass this requirement.

This distinction allows for duty payment deferral, reduction, or elimination, providing significant cost-saving opportunities.

Activity Flexibility:

Customs bonded warehouses impose restrictions on certain activities. For example, manipulation of goods is limited to specific types of bonded warehouses, and manufacturing is only permitted for export purposes in certain classes of warehouses.

Additionally, bonded warehouses entail the cost of a bond upon merchandise admission, which is not a requirement in FTZs.

Merchandise Eligibility:

Bonded warehouses only accept dutiable products, while FTZs allow for the admission of all non-prohibited merchandise. Furthermore, goods can remaining an FTZ indefinitely, whereas bonded warehouses have a five-year limit.

Export Benefits:

Goods exported from an FTZ are exempt from duty and excise tax, providing a significant advantage for businesses engaged in international trade activities.

In summary, while both FTZs and customs bonded warehouses offer secure storage options, FTZs generally provide more extensive advantages, including flexibility in customs procedures, activity options, merchandise eligibility, and export benefits.

Businesses seeking to optimize their trade operations and minimize costs may find FTZs to be the preferred choice.