Bonded Warehouses vs FTZ Warehouses in Singapore: Is There a Difference?
While Singapore's bonded/Zero-GST warehouses & FTZ warehouses share similarities, it's the minor differences that set them apart. Find out what they have in common and what are their differences in Janio's article!
August 30, 2019
What you Need to Know When Choosing Between a Bonded Warehouse or an FTZ Warehouse
When you’re deciding on how to optimise your supply chain for cross-border eCommerce fulfilment across the Southeast Asian region, getting the services of a warehouse in a geographic hub like Singapore is a good long-term investment.
Positioning your goods in a hub like Singapore can help to cut down the time needed to deliver to Southeast Asian consumers, making the eCommerce fulfilment process more timely for your end-consumers.
If you’re considering engaging warehouse services, it also helps to know your options, especially if your consumer base spans multiple countries in a region like Southeast Asia. Since warehouses can differ in type and their distance to key locations in the supply chain, it helps to know what kinds of warehouses there are.
Generally, importing a shipment into a destination country will incur import taxes if they are above the de minimis rate, a rate below which B2C deliveries into a country incur no additional import taxes and duties. This would especially be the case if you’re shipping in bulk because the value of the shipment in most cases would be much higher than the de minimis rate. Thus, it helps to find a storage space that will not incur duties and taxes immediately when the goods enter the country to save on administrative time.
To that end, bonded warehouses (known as Zero-GST warehouses in Singapore1) and Free Trade Zone (FTZ) warehouses come to mind. While the two types of warehouses share some similarities that can net you some savings in paying duties and taxes, it’s the minor details that could set bonded warehouses and FTZ warehouses apart.
What are the similarities between Bonded and FTZ warehouses?
Both bonded and FTZ warehouses allow the storage of non-dutiable goods for long stretches of time while deferring tax payments until they enter a country's open-market, subject to warehousing charges and fees.
The goods that move within bonded or free trade zones will continue to have payments on duties and taxes deferred until it leaves the warehouse (or free trade zone) to enter a country's open market. If the goods leave the bonded or FTZ warehouse to another destination country, the shipment will only incur duties and taxes from the destination country and not the warehousing country.
As an eCommerce merchant looking to optimise your supply chain, these warehouses can be a good opportunity for you to prepare for overseas deliveries by reducing the pick-up and first mile delivery time of the logistics supply chain, particularly if you find one near an airport.
In Singapore, there is no limit to the storage time for both bonded and FTZ warehouses. The indefinite storage time also means you don’t risk having to ship your entire inventory out to a different warehouse when the storage time runs out.
What are the differences between Bonded and FTZ warehouses?
Bonded warehouses are controlled by the country’s customs office, whereas FTZ warehouses, as its name implies, are located within the country’s designated free trade zones. This means that bonded warehouses do not necessarily have to exist within the free trade zone to operate, which may be an advantage for certain use cases.
FTZ warehouses can also hold locally made goods on top of imported goods, unlike bonded warehouses, which in many cases can only store foreign made goods. Using an FTZ warehouse may be advantageous in certain use cases such as if you decide to set up a local manufacturing base for your products on top of internationally shipping in your products from its origin country.
While there are very little differences in how bonded and FTZ warehouses are run in Singapore, other countries may have differing sets of rules on how their customs and FTZ’s are run. Thus, some countries’ bonded warehouse terms may differ significantly from their FTZ warehouse.
For instance, Taipei’s bonded warehouse has a maximum storage time of 2 years2, whereas Taiwan’s FTZ warehouses can store goods for an indefinite period of time 3</sup.
Thus, it helps to do your research if you’re planning to store your goods in any foreign bonded or FTZ warehouse.
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If you plan to use a bonded or FTZ warehouse in Singapore to optimise your supply chain, contracting both types of warehouses can be beneficial, as you do not need to register for a business within Singapore. But bear in mind that if you want to store and deliver products to consumers in Singapore, you’ll still need to register as a business entity in Singapore. You can offload your storage to the warehouse owners to do the paperwork for you.
However, depending on your use case, choosing between a bonded and an FTZ warehouse comes down to what you want to do with it.
Which is Better for Transshipment: Bonded Warehouses or FTZ Warehouses?
When your eCommerce business needs to scale up in size to serve the Southeast Asian region better, making use of a transshipment hub can help open up new channels and means to serve your regional customers. But first, it helps to know what transshipment means.
Transshipment means that a shipment is transferred from one vehicle to a different vehicle that will finish the journey, with the shipment itself usually being held at an intermediate destination for a brief amount of time before the transfer. By using an intermediary area, it helps to open up new lanes and vehicles to serve other eCommerce consumers where doing so via a direct route could be out of reach either by its astronomical costs or channel unavailability.
For instance, there are no direct flight paths from Los Angeles, USA to Kuala Lumpur, Malaysia. By using Singapore as a transshipment area to switch from air freight to cross-border trucking, an eCommerce merchant will have a new market opened up for them, and can potentially save on shipping costs by switching the means of transport during transshipment.
If you’re considering using Singapore as your transshipment hub, engaging in a FTZ warehouse for transshipment is more advantageous due to its proximity to the airport.
For example, the Changi Free Trade Zone (CZ) is close to Changi airport. Thus, transshipping your goods at a warehouse within CZ will cut down the delivery time from the hub to the airport, reducing the goods’ delivery time for its next flight as opposed to using a bonded warehouse, which could be located further away from the airport.
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Aside from using a warehouse as a transshipment hub, there are other use cases for bonded and FTZ warehouses to consider.
Which is Better for Reaching your eCommerce Customers?
While deciding on whether to use or set up a bonded or an FTZ warehouse in Singapore, it helps to know where your customers are located in order to maximise the efficiency of the logistics supply chain.
If your Customer Base is Largely Local
If your customers are based mostly in the local market with a small percentage of customers in other Southeast Asian countries, then it helps to find a bonded warehouse that is located centrally to cut down on delivery time.
Since Singapore’s roads can become congested during peak hours, having a centrally based warehouse can help to decrease time on the road for your last mile delivery vans and mitigate the frustrations experienced by customers if their delivery is late or have to be rescheduled.
With that said, operating a bonded warehouse in Singapore will require some set up time on your end as it requires you to register for a business entity and apply for additional permits with the customs office. For more information about Singapore’s bonded warehouse scheme, you can check out the Singapore customs’ website1.
If your Customer Base is Regional
However, if your customer base is regional - meaning you have a healthy mix of local and international orders - then having your warehouse situated near the airport is the most ideal option.
In that case, Singapore’s FTZ warehouses will be a better choice for being closer to the airport for the same reasons in using Singapore’s FTZ warehouses for transhipment.
Additionally, finding an FTZ warehouse in Singapore that can double as a regional fulfilment centre can also help to offset order fulfilment to an external party. This frees up your business’s bandwidth in order for you to be able to focus on other things that are of use to you, such as planning your discount campaigns and marketing your product to the region.
The differences in bonded and FTZ warehouses in Singapore boil down to the location and permits needed to start using them. So, taking the time to explore what you really need to use these warehouses for will help you in making an informed decision on what kind of warehouse you need for your eCommerce supply chain to be optimised.