Unpacked: How bonded warehouses work
In the weeks since the tariff rates went into effect, retail companies that import from China have been scrambling to find ways to minimize their impact.
One logistics solution that has popped up is storing goods in bonded warehouses, which give brands a place to store their goods without immediately paying import duties or taxes. A bonded warehouse is a facility located on U.S. soil, with the Customs and Border Protection closely supervising it until a brand releases its inventory to distribute. According to the Customs and Border Protection, a bonded warehouse is a “building or other secured area in which imported dutiable merchandise may be stored, manipulated or undergo manufacturing operations” for up to five years without payment due. Brands may opt to store their goods in bonded warehouses in the hopes that, by the time they remove their inventory from them, tariff rates will be lowered.
Matthew Hertz, founder and CEO of Third Person, an AI-powered platform which connects brands with fulfillment partners, said bonded warehouses can be an important part of a brand’s importing strategy during volatile trade tensions. “It doesn’t necessarily save the brand money from a cash flow perspective, but it helps them defer the payment until the tariff is a more favorable rate,” Hertz said.
According to a Transport Topics report from mid-April, demand for bonded warehouses shot up following Liberation Day tariff announcements, with some of these spaces costing up to 60% more than traditional warehouses. In the latest development, China and the U.S. have agreed to temporarily drop the tariff rate to 30% for 90 days, which will likely lead some companies to release their products from bonded facilities in the coming weeks.
Ultimately, logistics experts say that while these warehouses can play a role in a brand’s tariff strategy, they are an additional cost that companies are taking a gamble on.
Since Liberation Day, Hertz has received a handful of inquiries from brands about how to go about storing products in bonded warehouses upon arrival from China. However, with all the daily updates coming in during the 90-day pause, he said brands are prioritizing getting already-manufactured products through customs in time for the fourth quarter.
He also pointed more generally to the unpredictability of tariff policies under the Trump administration, which is prompting brands to take a gamble on using something like bonded or free trade zone warehouses.
The 90-day truce with China will allow brands to “figure things out and [attempt to] have a successful ’25,” Hertz said. However, Hertz explained, the temporary relief means all affected brands will likely be rushing to get their goods through customs during the pause window.
As such, utilizing a bonded warehouse could still be the right call for certain brands. “Even at 30% [China tariff] rates, bonded warehouses will definitely play an important role,” he said.
Hertz said bonded warehouses were introduced in the 1800s as a way for the government to monitor goods before tax duties were due. To this day, they are still a way for importers to defer payment on imports until they’re needed. “It’s a really effective tool for brands to defer and potentially circumvent tariffs altogether,” he said. “The downside is that there are not a whole lot of bond facilities available.”
The reason bonded warehouses cost substantially more, Hertz said, is due to the additional regulation and licensing costs required to operate them. For context, Hertz said, the going rate for bonded warehousing is about $60 per pallet, compared to $20 at a traditional 3PL.
‘In our discussion’
Some brands that are heavily reliant on Chinese manufacturing have moved forward with putting inventory in bonded warehouses. Kim Vaccarella, founder and CEO of the bag brand Bogg, told Glossy earlier this week that her company has been paying an extra 25% to keep its products from China in bonded storage. Other brands, however, are still in the exploratory stage.
Kristy Glenne, managing director at Antler, said the company is open to using bonded warehousing for its products coming to the U.S. from China. But the consideration will be based on figures and whether it makes more sense to just pay the going tariff rates in the coming months.
“We’re always looking at everything when it comes to logistics, from ocean freight carriers to warehouses,” Glenne said. “Bonded warehouses are definitely in our discussion, but they are expensive.” The company would have to justify the move while sorting its long term importing strategy, Glenne said, noting that a bonded facility would likely be a temporary solution.
“There’ll still be a price attached to the inventory,” Glenne said. “Either you pay the premium for the bonded warehouse or pay the tariff itself.”
Joseph Firrincieli, sales manager at logistics service OEC Group, agreed that there are several advantages and risks to using a bonded warehouse while waiting out tariff negotiations. Each company must determine whether it is the right solution for its importing strategy.
“The whole point of it is to store the inventory there and then hope the tariffs get lifted, and then they take it out,” Firrincieli said. “But what if the tariffs don’t get lifted and [the inventory] is in there for a year?”
With that, he explained, a brand would have spent cash on premium storage space and still be forced to pay tariffs when it eventually needs the inventory out. “Depending on the commodity being imported, it might be cheaper in the long run to just pay the tariff up front,” Firrincieli said.
The good news is that the rates are dropping as brands find a moment of relief during tariff negotiations. When the demand for bonded warehousing spiked in the past month, the pricing surged as companies competed for space. “So we’ll probably see a lot of people taking products out of the bonded warehouses,” Firrincieli said, bringing the demand for bonded warehousing down compared to the past few weeks.
Still, the news has been changing daily, Firrincieli said, so some brands “feel safer keeping their imports in these warehouses until they have more insight.”
For brands to take on this additional cost at peak rates, Hertz said the decision would largely depend on their cash flow and the amount of debt they’re willing to take on to avoid paying high tariffs.
Overall, Firrincieli said, bonded warehousing can be a useful tool for companies that can afford them while awaiting more long-term trade policies to be announced “It’s a lot of math you’ve got to do,” he said.