The Advantages of Using a Bonded Warehouse in Mexico
If you’re an exporter of goods to Mexico, you’ll understand the costs of doing so. One of the major costs, of course, is the transportation of your product, whether it is cigarettes or wine, cheese or spare parts for heavy industrial machinery. To make your export product as competitive as possible, it’s obviously shipping as much of it as possible, bringing the cost per item down.
If you are the importer of goods to Mexico, and the product you are importing pays a huge tax or duty, such as cigarettes, wine or energy shots, you will want to hear how a bonded warehouse works to save hundreds of thousands of dollars in cash flow.
You might have a customer who wants to take your product, but only a limited amount at a time: cash flow is king, especially in times of economic difficulty. You know the customer will come through with his orders, but in the meantime to keep the cost to him down – and keep him coming back for more – you need to find a way to ship in quantity. You could find a storage facility in Mexico to ‘drip feed’ the customer as he requests more stock, but that means you’ll need to pay the upfront costs of importation duties and taxes, as well as the costs of storage, possibly even the insurance of your stock in a foreign country.
It might seem that you’re stuck between a rock and a hard place. You either have to eat the costs of exporting smaller amounts of your product to Mexico or suffer the negative cash flow of having to pay import duties and taxes as well as the costs of storage to keep your logistical transportation costs down. Either way, your margins are going to be hit. Or you lose the customer to a competitor.
That’s where bonded warehousing comes in.
What is a bonded warehouse?
Bonded warehousing allows you to move your goods to Mexico, without officially importing them. You keep title to the goods and they are there in the country, ready to be distributed or sold quickly to your Mexican customers. It’s a little like having an extension of your own storage facility at your factory in America.
Neither you nor your Mexican importer will have to pay any import duty until the goods are moved out of the bonded warehouse. That’s a big reason to use these facilities, which are licensed under a concession granted by Mexican law.
You can keep your products in storage for up to two years, though, of course, you’ll have to pay storage costs while they are within the facility (public bonded warehouse are called almacendoras). To prove ownership of the stored products, you’ll be given a warehouse certificate.
I have a short story to tell, a few years ago we had a client who wanted to sell US made cigarettes into Mexico, he wanted to be paid upfront for the cigarettes from the distributor, the distributor did not want to pay upfront, but agreed to pay after the cigarettes crossed the border. Of course there was the little problem of the IEPS duty to the tune of almost $8,000,000 pesos, or $700,000 USD.
The solution: We arranged for the cigarettes to be imported into a bonded warehouse, the importer came to verify that the cigarettes were the correct quantity and quality, and then wired the money to the cigarette supplier, then as they needed inventory, they paid the taxes and pulled out 3 or 4 pallets at a time. They saved the cash flow of paying the Mexico government their taxes until they had orders and sold the cigarettes. We solved a problem for both parties and both parties were very happy.
Benefits of bonded warehousing abound
To be able to move your goods to your customer or importer in Mexico, you’ll need to pay the import duty – but only on the amount of product you are shipping to the customer. The amount of duty payable will be based upon the amount of import duty that you would have paid on the day that you put the product in storage. So it won’t matter if the import duty rate has risen, nor the value of the product. And if you need to ship it back to the United States, there won’t be any duty to pay. But that’s not where the advantages of using bonded storage end:
- You retain ownership of the goods until they are withdrawn from storage by the importer;
- You could receive payment for the goods when they are put into storage or when they are withdrawn;
- While in the warehouse, by law the bonded warehouse will insure your goods against theft, fire, natural disaster, etc.
- Your goods can be moved quickly to satisfy customer demand;
- You can use several bonded warehouse locations across Mexico.
There are a lot of benefits to you, but there are also benefits to the importer:
- There’s no waiting on import licenses or product manufacture: it’s there and readily available upon payment of the import duty. That means customer demand is easily satisfied;
- Costs are known up-front, and these are paid in Mexican currency. That means no currency loss. Costs such as import duties, freight, insurance, and customs costs are know in advance and fixed in advance;
- With a credit warrant on the goods in storage, the importer will qualify for further credit from the bank;
Q: What is customs bonded storage?
A: This is where an approved facility can store your goods without you or your client paying the duty. While your goods are in a bonded warehouse, the Mexico Government does not consider them here until you apply for clearance and pay and applicable duty. Until you do that, you cannot remove the product for shipment.
A: Generally there are two scenarios in which bonded storage can be beneficial. An importer who has high duty levels on their product and/or slow moving goods may benefit by deferring the duty payment until you have a customer in place. Remember, you don’t save the duty, you defer it. You make a little interest on the duty money you defer, but unless that’s a huge amount over an extended storage time, you won’t make/save much money. The other benefit is to save freight, you would ship the entire container into the bonded warehouse and instruct the bonded warehosue to release the need amount your client needs.
Q: Does the warehouse do anything different?
A: Yes. The products are stored in a separate, secure area and there are numerous record keeping requirements. Fines can be severe for even minor mistakes in procedures and paperwork and the warehouse must file a bond with the Mexico Customs service. Key employees receive background checks and the warehouse is subject to random inspections. For these reasons you will usually pay more for bonded storage.
The bottom line
It’s clear that for serious exporters to Mexico, and importers in Mexico, using a bonded warehouse has a whole host of benefits. It allows easy and fast distribution of goods throughout Mexico, and allows many costs to be known and fixed in advance. It also helps customers, exporters, and importers, with cash flow issues.
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