Purpose and competitive advantage of Custom Warehouse and Free Trade Zone

What is the purpose of a Customs Warehouse? Free Trade Zone?

The purpose of a customs warehouse is to provide companies with the chance to store imported goods under customs control while deferring the payment of import duty and taxes. These items can go through non-transformative kinds of processes including breaking bulk, grouping packages, sorting, grading, and repackaging. However, there are other types of customs warehouses that can be sought after depending on the needs of a company; examples are listed below.

  • Private Warehouse: A warehouse owned and operated by an organization or corporations. These entities dictate who can store and operate in their warehouse.
  • Public Warehouse: A warehouse more geared toward import, export, manufacturing, distribution, and short-term distribution needs.
  • Automated Warehouse: Modernized warehouses are now equipped with mechanization (either in a small or large scale) to reduce labor costs, streamline functions, increase productivity, and reduce errors.
  • Temperature Controlled Warehouse: This storage option is equipped to handle imports that require more specialized handling. This is usually coupled with other specifications such as air conditioning and humidity control.
  • Distribution Center: This warehouse specializes on receiving products from suppliers and shipping them to customers. Products moving into a distribution center are not handled with storage in mind, but more towards breaking down, aggregation, resorting, and shipment.

Meanwhile, a free trade zone is a customs-free international zone where goods can be handled, manufactured, reconfigured, and reexported without intervention from customs.

 

Are there restrictions for access in a Customs Warehouse/Free Trade Zone?

Storage Time

In general, both a customs warehouse and a free trade zone allow for companies to store their products indefinitely. However, a custom warehouse has more flexibility and options that can be tailored to the needs of a company. For example, if a company is pursuing a short-term storage option to obtain enough time for customs procedures to be completed, they may choose to use ADT Warehouses (Temporary Warehouse Deposit). Importers may only keep their products stored for a period up to 45 days for maritime imports and 20 days for other types of imports.

Restricted Goods and Flexibility

When it comes to restricted goods, a customs warehouse is more accessible for those looking to store restricted goods (live animals, meat/dairy products originating outside of EU, firearms, etc.). A customs warehouse can allow for these products to come in given the clearing from customs. A free trade zone, however, these items are generally not allowed entry.

However, if a company is looking for a more accessible environment for their products, they should look towards a free trade zone. While a customs warehouse can provide many advantages, a company must be much more involved with the national customs agency. This limits the movement of goods and places it at the discretion of customs – both with approval and business hours. In a free trade zone, you are free to move products around this special tax area and at any time of the day. Additionally, a customs warehouse can only admit international products. A free trade zone can admit both domestic and international products.

 

How does RPA complement these types of warehouses/zones?

RPA (Inward Processing Regime) is a regime that allows companies to process, modify, destroy, or repair non-Union goods. This regime can be implemented inside EU customs territory without paying import duties or VAT.

RPA can be extended to companies willing to import and manufacture within their own warehouses or within customs manufacturing warehouses. However, it should be noted that this regime must be authorized by the local customs agency after an application is submitted. When it comes to free trade zones, they benefit from not being within customs territory and therefore are not subject to the charges imposed on value added manufacturing.

 

What kinds of competitive advantages are there when using Customs Warehouses/Free Trade Zones?

Specialized Storage

Overall, customs warehouses and free trade zones allow for the storage of large quantities and are equipped with long term storage options such as temperature and humidity controls. This optimization is ideal for companies looking for more specialized forms of storage and for those who need to move around large quantities of goods.

Security

Of course, with large movement of goods, a large risk – especially in terms of security. However, for both customs warehouses and free trade zones, the customs agency lays down security requirements at each installation to avoid theft and tampering. Additionally, customs warehouses also offer the companies the service of inspecting and taking account of goods. For a company operating in a free trade zone, this responsibility falls on them.

Streamlined Customs Processing

Customs processing can be a complicated and long process, especially for those who are not experienced enough to understand every little detail of regulation. Customs warehouses are prepared for this by having more trained personnel that deal with customs processing. They facilitate the storage and movement of goods to ensure legality. This challenge is exacerbated when imports are moved into a company/retail warehouse. For this case, it is recommended to look for a customs broker.

Free trade zones, on the other hand, do not offer this service. However, this disadvantage can be offset by avoiding customs overall. Given a free-trade zone’s international trade designation, any business occurring there can take advantage of a consolidated, simplified customs process. One place where this can be seen in when a company exports to the United States. In a free trade zone, you can take advantage of a consolidated weekly entry. Here, you are required to pay up to $528.33 a week for any number of entries into a free trade zone. Outside of this area, you are required to pay this amount for every entry made. This streamlined custom procedure can reduce the amount a company pays in fees. It can even reduce customs brokage fees by reducing the number of entries needed to be filed.

Liability

Finally, an outsourced warehouse can serve as a good liability assurance for any lost/damaged/stolen goods. Since the responsibility of security lies on the third party, this can ensure that an incident will not hurt a business’s bottom line.

 

Conclusion

Overall, both options for exports are very similar in qualities. Both options serve to smooth out the trade process. However, when deciding on which option to use, it is important to consider all the intricacies of both options. If a company is more interested in maintaining revenue by reducing customs processing times and costs and outsourcing security, then a free trade zone may prove to be more beneficial. A customs warehouse would be ideal for those looking to outsource liabilities, distribute products, and ensure a better control on the taxes they pay.