If you import goods, bonded warehouses can save you money. When you exports goods to Europe, you usually have to pay a tariff on those goods. By storing goods in a bonded warehouse, you can delay payments of the duties until the goods are released from the warehouse. In other words, bonded warehouses improve a company’s cash flow.
For example, consider an American company with a bonded warehouse in Rotterdam. The company ships goods to its warehouse and stores them for three months. When a customer order comes in, the company then pays the duties and ships the goods to the customer. In short, the bonded warehouse allows the company to delay payment on those duties for three months.
I recently spoke with Peter de Groot, Product Strategy Manager at Descartes (an ARC client) about its solution in this area. During our conversation, I thought we were delving pretty deeply into the complexities of setting up a bonded warehouse in the European Union. But from Peter’s perspective, we were actually talking about it at a high level. Clearly, logistics and compliance folks don’t speak the same language. I won’t go into the complexities of what we spoke about (I’m not even sure I could), but here are my main takeaways from our conversation.
- The value of bonded warehouses can extend beyond delaying the payment of duties. For example, you can reduce lead times for goods flowing through a warehouse deemed by customs to be under “administrative control”. If you can prove to customs that you are “in control” of your customs processes—i.e., that you have good inventory control and are diligently keeping all of the records customs requires—then customs moves away from frequent physical inspections of your warehouse and shipments towards something called “administrative control,” which basically means customs trusts you. Customs is more apt to conduct frequent inspections of costly goods, high tech goods, and food products if a warehouse is not under control, which ultimately results in delayed shipments.
Imagine two semiconductor companies with goods arriving at the same time, at the same European port, and headed to the same customer site. One of these semi companies, however, consistently gets its goods to the customer one day sooner because it flows the goods through a bonded warehouse under administrative control. It’s this kind of performance that can lead your customers to prefer working with you instead of your competitors.
- Bonded warehouses can also reduce “transit declaration” fees. If goods need to be transported without being cleared a transport declaration must be made. The goods remain under the supervision and control of customs and companies must pay a 25 to 50 Euro fee for that declaration. If you are running a JIT production environment and are making hundreds of shipments per week, these fees add up. A bonded warehouse, which eliminates these fees, saved one Descartes customer more than $100,000.
- The concept of “virtual warehouses” can help companies centralize their customs department in one nation and reduce their administrative overhead. For example, imagine goods coming into Rotterdam and being shipped to various nations in the EU. The Rotterdam warehouse can serve as the nexus of a virtual warehouse that extends to warehouses in other EU nations. Import and export fees are paid to the Netherlands, but not to the other EU nations. This means you don’t need customs experts for France, Germany, Spain and so forth, just trade compliance experts for the Netherlands.
- The Descartes solution is not a warehouse management system (WMS); it integrates with and complements a WMS. Because WMS solutions give you virtually perfect inventory control, they help companies establish administrative control. The Descartes solution provides the kind of documentation and logic required by the EU customs authority. Perhaps the best form of integration between the bonded warehouse solution and a WMS, for the purposes of establishing that you are in control of your goods, would be for the WMS to block and unblock transactions. For example, when the WMS receives goods, it could bloc put-away and send a message to the customs solution to verify that all the data on the inbound order is complete and all customs-related formalities have been taken care of. Once the customs solution sends an “all is OK” message, the WMS unblocks the put-away tasks, thus allowing workers to put the goods away.
- Descartes’ solution can be fairly easily modified to support bonded warehouses in North America. The company is looking for beta customers in this region.
In conclusion, bonded warehouses can save companies money. But collaboration between trade compliance, finance, and logistics will be necessary to maximize the value of these investments.
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