Bonded Warehouse

What it means

In customs language, a customs bonded warehouse is "a building or other secured area in which imported dutiable merchandise may be stored, manipulated, or undergo manufacturing operations without payment of duty for up to 5 years from the date of importation." That is CBP's own definition.^[1] The legal authority is 19 U.S.C. 1555, and the operating rules are in 19 CFR Part 19.^[1]

The word "bonded" refers to the bond the operator posts. Before goods that have not been released are stored, the owner or lessee of the warehouse must give a bond approved by the Treasury. The bond protects the government against losses or expenses tied to the stored goods.^[2] The goods then sit in joint custody of the warehouse proprietor and a customs officer.^[2]

Duty is deferred, not avoided. When goods are withdrawn for consumption, they pay duty at the rate in force on the date of withdrawal, not the date they arrived.^[3] That can work for or against the importer if a tariff rate changes while the goods are stored.

How a bonded warehouse works, step by step

1. Goods arrive and are entered for warehouse. Instead of a consumption entry, the importer files a warehouse entry and the goods move into the bonded space.^[3]
2. The proprietor becomes liable. On entry into the warehouse, the proprietor takes on liability for the goods under its warehouse bond.^[1]
3. Goods are stored, and in some cases worked on. Storage can last up to five years from importation. CBP can allow a longer period only on request and for good cause.^[3]
4. Goods leave in one of four ways. CBP says the proprietor's liability generally ends when goods are exported, withdrawn as supplies for a vessel or aircraft, destroyed under CBP supervision, or withdrawn for consumption in the U.S. after duty is paid.^[1]

Goods can also be moved to another bonded warehouse at the same port or rewarehoused elsewhere. Goods withdrawn for export, or for shipment to certain U.S. territories such as Guam and American Samoa, leave without paying duty.^[3] The consignee can also ask to destroy goods under customs supervision instead of exporting them, at its own expense, within the bonded period.^[3]

The classes of bonded warehouses

CBP regulations at 19 CFR 19.1 sort customs warehouses into classes by what they may hold or do. The list below follows the current text of the regulation.^[4]

Most importers who "use a bonded warehouse" use a Class 3 public warehouse run by a third party, or set up a Class 2 private one for their own goods. Class 11 is where freight goes when no one claims it. CBP describes general order merchandise as goods not claimed or entered within 15 days after arrival.^[1] For how that happens, see general order cargo.

What can be done to goods inside

Storage is the default. Changing the goods needs permission. Under 19 CFR 19.11, goods in a bonded warehouse may be "cleaned, sorted, repacked, or otherwise changed in condition, but not manufactured."^[5]

• A permit comes first. The proprietor may not allow any manipulation without a prior permit from the port director. The application is filed on CBP Form 3499 and must describe the work in enough detail for the port director to judge it.^[5]
• Repeat work can use a blanket approval. The port director can approve a blanket application for up to one year for continuous or repetitive manipulation, with a running record of quantities before and after each job.^[5]
• Manufacturing is a different class. Manufacturing in bond is limited to Class 6 warehouses, and only for export.^[4]
• Duty follows the manipulated goods. CBP says duties on manipulated articles are determined at the time of withdrawal.^[1]

Who operates a bonded warehouse

The Treasury designates the building. A private company owns or leases it and acts as the proprietor.^[2] The proprietor does all the labor on stored goods under customs supervision, at its own expense, and repays the government for the customs staff who supervise goods coming in and going out.^[2]

To set one up, an applicant writes to the local CBP port director, describing the premises, the location and the class of warehouse. The application comes with a fire underwriters' certificate and a blueprint of the space. Bonds for each class are executed on CBP Form 301.^[1] CBP states it cannot recommend existing bonded warehouses to individual importers.^[1]

Why it matters

A bonded warehouse matters when the importer does not yet know where the goods will end up, or when cash tied up in duty is a real cost. Goods that may be re-exported can avoid U.S. duty entirely. Goods sold slowly into the U.S. can pay duty one withdrawal at a time.^[1] The trade-off is cost and paperwork: storage, supervision, a warehouse entry and a filing for every withdrawal. A customs broker usually handles those filings.

RapidShips is not a bonded warehouse; our warehouse stores only freight that Customs has already released.

Bonded warehouse compared with a foreign-trade zone

Both defer duty, and both are run by private operators under CBP oversight. The main difference is scope. A bonded warehouse is a customs warehouse with a five-year limit and tight limits on what can be done to the goods. A foreign-trade zone is licensed by the Foreign-Trade Zones Board, has no fixed storage limit and allows a wider range of activity, including manufacturing.^[6][7][8] The side-by-side detail, with costs and a decision checklist, is in bonded warehouse vs. free trade zone.

Example

Illustrative case, not a real shipment: an importer brings in 20 pallets of goods and is not sure how many it will sell in the U.S. versus ship on to Canada. It files a warehouse entry and stores the pallets in a Class 3 public bonded warehouse. Over the next year it withdraws 12 pallets for consumption, paying duty on each withdrawal at the rate in force that day. It exports the other 8 pallets, which leave without U.S. duty. If it wants to relabel the cartons first, the warehouse must get a manipulation permit before doing the work.

Frequently asked questions