Discussion on Bonds, and Foreign Trade Zones vs. Bonded Warehouses

Increasing tariffs and subsequent updates and reductions are confusing cost planning for international logistics operations. Translating changes incorrectly and acting on that information could expose you financially and place deliveries to clients at risk.  

For this webinar, we invited two experts to help explain the effects of tariffs on your use of bonds and when leveraging a Foreign Trade Zone or Bonded Warehouse could be advantageous to you.

• Bonds, Saturation, and Bond Stacking - know how to avoid exposing yourself to unnecessary risk
  
  
• Foreign Trade Zones vs. Bonded Warehouse - learn when it makes sense to leverage one of these types of facilities.

Here is the feedback to the questions we couldn't get to during the webinar:

-With deferred tax payments under the ACH debit account, is it necessary to use bonded storage? Or can we continue operating with the same cold storage to inspect frozen meat? On the other hand, in what cases should bonded storage be used?
The PMS ACH Debit/Credit account Program allows for the consumption entry process to take place with up to 45 days to pay the duties, tariffs, and taxes that are applicable.  Managing inventory in a bonded facility such as a bonded warehouse or Foreign Trade Zone further delays payment based on the timetable to ship goods to your customer which further strengthens your cashflow.

-I know FTZs have to file an admission to warehouse with the 214, is that also the case for bonded warehouses? What filing do bonded warehouses have to do?
A bonded warehouse requires a warehouse entry, otherwise known as an entry type 21.  Upon filing this entry, it authorizes entrance to a bonded warehouse and only requires payment of the HMF (Harbor Maintenance Fee).

-How do FTZs and bonded warehouses differ with HAZ materials?
HAZ MAT is allowed in an FTZ, but there are restrictions for some HAZ-MAT materials such as explosives.  I recommend conducting due diligence prior to sending it to a FTZ.  (Alba can assist with this)

-When do you pay the MPF and HMF?  When admitting to the zone or at the time of withdrawal?

Neither is paid at the time of receipt.  The HMF is paid on a quarterly basis, and the MPF is paid at the time of entry.

-Is there a spot to see the physical site requirements to become an FTZ? I worry the upfront cost of this would overshadow the benefits the FTZ would bring.
All bonded facilities are subject to the guidelines set under the TD72-56 and appendix B.  The security requirements differ from one port to another, but most ports require access control, alarm systems, motion detectors, and cameras.  Alba can guide you here. 

-When was the NPF treatment for FTZ entries removed, which prevents paying the duty rate at time of shipment & having to pay the duty based on time of entry?
The NPF status is still allowed with the other three zone status.  The only difference is the EO and CSMS mandates goods subject to tariffs must be in PF status.  Additionally, the duties, tariffs, and taxes are paid at the time of entry, but determined at the time of receipt.

-For bonded warehouses, no domestic product means what exactly?  In a bonded warehouse, you are only allowed to have bonded goods in this restricted area?
You are not allowed to have domestic goods, duty paid goods, equipment, or supplies in the same secure area.  Most companies section off a portion of their warehouse with fencing as required by CBP.

-How do you prove to customs goods were destroyed?  If destruction is usually determined by a destruction certificate if performed by a third party.
In an FTZ, a CF216 describes the scope of activity for destruction, and CBP’s approval authorizes the destruction.  During the process Customs usually requires pictures of the before, during, and after statuses.  In some cases CBP may want to be onsite.  Proof of destruction by a third party is provided with a destruction certificate.

-In the apparel/textile industry, is it more advantageous to setup an FTZ when the import volume is at a specific level, or are there benefits even at a smaller scale?
We recommend companies go through a cost / benefit analysis to determine their net savings.  In general, a savings of $100K or more is usually enough to move forward.  In general companies with a net savings of less than $100K can option using 3^rd Party FTZs.  Please note: this is a general rule not a requirement.  The decision to set up your own FTZ is largely determined on a case-by-case basis.  Alba can assist here.

-Is it possible to discuss product samples with FTZ?  More specifically:
1. if in my industry we need to supply our customers samples of product (free of charge) in order to sell product. Is there a way for those goods to come out of the FTZ duty free?
2. the product for a sample then gets mounted to display boards, then the boards are hung onto displays. can the boards and displays which are exclusively used for sampling purposes be duty free (through FTZ)?
This is possible but contingent on the condition of the product to ensure it is only used for samples and cannot be used for its intended use.  There is a chapter 98 provision for this.  If the product cannot be placed in a condition to ensure it is only for sampling then the duties, tariffs, and taxes must be paid accordingly.

-Can you store product in a bonded warehouse and later move them to an FTZ?
Yes, this is allowed with a restriction, the goods must be placed in ZR (zone restricted) status which only allows the goods to be exported or destroyed.

Maya Mackey joined Avalon in March 2024 as the Assistant Vice President, Strategic Development. She began her career in 1996 in the contract bond department for a small surety company. In 1998 she joined the bond department of an insurance broker specializing in the broker/forwarder industry. She worked her way up to managing the bond department and then decided it was time to branch out into sales. Her role evolved into a key account management role, where she managed a book of medium-to-large accounts.

Maya is a licensed insurance producer and has earned the designations of Associate in Insurance (AINS), Certified Customs Specialist (CCS) and Transportation Risk and Insurance Professional (TRIP). She enjoys speaking and sharing knowledge as a subject matter expert on the bond product, as bonds are her first love. She participates in industry association events and conferences for the NCBFAA, TIA, and local associations around the country.

Adam Lees has been a Licensed Customs Broker since 1997 and has been actively working in the International Logistics industry for 30+ years. Adam began working in the finance department of a Swiss freight forwarder in 1993 and in 1996 passed the broker’s exam. Since then, Adam has held several positions in the logistics industry including Import and Branch Managers, District Manager, and US Customs Product Manager for multiple freight forwarders and customs brokers. He has worked in ports of all sizes – Hartford, CT; Rochester, NY; Orlando, FL, and JFK.

As the VP of Customs Brokerage for Alba Wheels Up, based in Valley Stream, NY, Adam has direct oversight over the company's Customs Brokerage operations. As with his previous roles, he is also the Customs Brokerage liaison with Alba's software vendors.

Adam currently serves as the vice chair of the Regulatory Agency Committee and is a member on multiple NCBFAA committees including the Customs Committee and several sub-committees.

Adam obtained his bachelor’s degree in international business at the University of Vermont.