Watch: Why Choose FTZs to Mitigate Tariffs?

Successfully dealing with the evolving world of tariffs is among the benefits, beyond duty deferral, that foreign trade zones bring, says Maddi Krieger, FTZ solution engineer at QAD Inc.

The effect of tariffs varies depending on whether one uses an FTZ or bonded warehouse, Krieger says.

“Folks want to know what can we do to mitigate tariffs, and they come with those two options on the table,” she says. “In an FTZ, you pay no duties up front. The goods come straight to your warehouse, and then you pay duties as they leave your warehouse. With a bonded warehouse, it’s a very similar model. However, the drawback with a bonded warehouse is that it isn’t quite as agile because you can’t co-mingle merchandise. Warehouse space is so limited, and things need to move quickly. We don’t have time to fence off certain areas or segregate the merchandise, and you only have five years before you need to get that merchandise out. So while [the bonded warehouse] might be quicker to set up, it’s just not quite as agile.”

Goods can remain in a FTZ until “the dawn of time,” Krieger says. “While there are costs associated down the line, you’ll be really happy with the ability to commingle and store merchandise as long as you need.”

With the tariff picture evolving seemingly on a daily basis, a bonded warehouse might work if one needs to move goods in and out quickly. However, in this changing tariff environment, many companies feel they need a longer-term solution that an FTZ provides. “People are concerned with the cost they’re going to be passing along to somebody,” Krieger says. “So is there a benefit to keeping something for a longer period in one of these facilities? Does that help them mitigate those tariffs?”