What's A Bonded Warehouse? What To Know About The Spaces That Let Shippers Skip Tariffs

Shippers of all stripes have scrambled for the last month as the Trump administration’s blistering tariff regime came into clearer focus, seeking ways to blunt the impact of steep levies imposed on every major trade partner.

One solution in particular has emerged, with industrial users hunting for access to a small and dwindling pool of property. The sought-after spaces are called bonded warehouses and offer the ability to store goods for up to five years without paying tariffs until the inventory leaves the warehouse.

But while importers clamor for these spaces, bonded warehouses are widely seen as a short-term solution for short-term problems, and those who haven't locked in space may already be too late. 

“Waiting out things with products sitting in a warehouse isn't a business model,” Watson Land Co. Chief Operating Officer Lance Ryan said. “These are retail goods for the most part, and so that's problematic.”

Similar to better-known foreign trade zones, bonded warehouses are certified by U.S. Customs and Border Protection, which ensures spaces meet certain specifications. The process tends to be driven by the property’s user, most often a third-party logistics provider, rather than a landlord.

Consultants in the industry say that the base cost for setting up a bonded warehouse runs from $20K to $50K, not including the fees for a consultant or the costs over time for things like security upgrades. 

An FTZ warehouse might run as much as $70K, also excluding additional fees. Not every property is suitable for these uses: Buildings must meet geographic and infrastructural requirements to be eligible. Even with an appropriate building and cash in hand, the process of securing the status takes four months on the low end, industry professionals told Bisnow. 

The deferment of tariffs made possible by bonded warehouses potentially positions users to reap significant savings and, in the current environment, ride out waves of uncertainty stemming from rapidly changing trade policy coming from the White House. 

These twin benefits have created a mad dash for the spaces.

The concept of a bonded warehouse has been around since the early 1800s, but they remain relatively rare, with 1,751 bonded warehouses nationwide, according to CBP. That limited supply has been maxed out. 

There is little to no existing bonded warehouse space left in the country right now, consultants and brokers operating in the niche told Bisnow. 

JLL Senior Managing Director Danny Reaume, who works with many 3PLs in this niche, said he has had clients who have shipped containers from China and just left them on the ship to return to the same Chinese port they came from rather than pay the tariff upon arrival. 

Now, he’s helping a client who has hundreds of containers on a ship moving toward the West Coast and who will need 400K SF of bonded warehouse space in two weeks to store all those goods when they arrive. Such a footprint isn’t available in one contiguous space.

“We are hodgepodging bonded space between five or six different 3PLs, up and down the coast,” Reaume said.

He has found 60K SF at the edge of the Inland Empire, 70K SF in Los Angeles’ South Bay, and 20K SF in the Bay Area, among others.

“If there's space, it's getting gobbled up,” Reaume said. 

There is even some spillover into the foreign trade zone warehouses, a similar type of industrial space employed by corporations and 3PLs operating globally. 

FTZs come with more bells and whistles than bonded warehouses, but they similarly allow importers to hold off on paying duties immediately upon arrival. But unlike bonded warehouses, the duties are set when the goods come into the warehouse rather than on their departure.

Until the second Trump presidency and the frequently changing tariff policies that have come with it, FTZ and bonded warehouses were seen as offering similar benefits. But because there is no certainty or predictability about what will happen to the tariffs and when, timing is suddenly very important, said David Harlow, president and CEO of ITC Diligence International, an international trade consultancy dealing in both bonded and FTZ warehouses.

Because no one really knows what’s going to happen, it’s putting importers and exporters in an unusual position, Harlow said.  

“Typically, in international trade, the last thing we want to do is gamble,” Harlow said. “But that's the predicament that many companies are in today: trying to decide which program is best based on what they think will happen to the tariffs tomorrow, next month or next year.” 

There is broad optimism among the majority of the industry professionals that tariffs, especially those on Chinese goods, will generally be lower in the near future, but even with that optimism, FTZs are starting to be absorbed simply because there's no more bonded warehouse space, Harlow said.

The incredible demand for space has meant 3PLs with vacant space are able to charge premiums for it, but landlords aren’t getting any of that. Occupiers are the ones going through the bonding process and fronting the money for these certifications, so landlords with eligible warehouses aren’t reaping the benefits of this boom. 

However, the tumultuous trade situation has raised awareness of the benefits of both types of properties. Some consultants and developers said that especially with FTZ space, it is likely to become an increasingly beneficial marketing tool for owners whose properties can be activated in this way.

“A lot of these companies that are calling us, we've been working on for five, 10, 15 years to become foreign trade zones, and now, all of a sudden, ‘Can I have it tomorrow?’” said Curtis Spencer, CEO of IMS Worldwide, a logistics consultancy that works extensively with FTZ and bonded spaces.

For many, the answer will be “no.”

Anyone looking to break into this small corner of the industrial market now and reap the benefits of the current demand is likely to be disappointed. Because of the time it takes to get an application approved to bond a warehouse or activate a warehouse in an FTZ area, those seeking to begin the process now are already too late, industry professionals said. 

“Nobody is taking advantage of this bonded demand right now if they weren't already in the bonded space,” Reaume said.