CUSTOMS BONDED WAREHOUSING

by Derek Nowek

Exporting is risky, and exporting to the Russian Far East arguably even more so. 
One way to substantially reduce export risk in the RFE is by using customs bonded
warehouses, which are now opening in major regional ports.  Facilities now open in
Vladivostok, Nakhodka, and Magadan cut the exporter's own exposure to customs
duties on unsold goods in a rapidly changing marketplace, enable the seller to retain
full control over merchandise until the buyer meets the terms of sale, and offer a
higher degree of security than conventional warehousing.  They also permit
exporters to offer their RFE customers shorter delivery times, better credit terms,
and lower prices.

Unlike conventional storage facilities, bonded warehouses are authorized by local
customs authorities to store goods on which payment of duties is deferred until the
goods are sold.  These goods remain off-shore, in effect, for customs purposes.  As
a result, costs associated with legally landing them can be put off until they are
actually purchased.  The primary advantage of bonded storage is that it eliminates
the exporter's exposure to customs and tax expenses for unsold goods--although
there are other advantages, as well.

Further Advantages
In addition to freeing up capital that otherwise would be tied up in customs fees for
unsold goods, bonded warehousing enables the owner of the goods to avoid losses
due to inflation from the time the goods enter the country to the time they are
purchased.  Since duty is only paid if and when the goods are sold, there is no time
for their ruble value to depreciate relative to the duty, taxes and other expenses
incurred up to the time they officially enter the country.  Bonded storage also
allows the seller to maintain on-site inventory close to the Russian marketplace.  A
U.S. firm can now sell products and make them available to a Russian buyer within
hours or days, rather than weeks or months after receiving payment. 
For many small exporters, or for those who are new to the Russian Far East,
customs bonded warehousing also offers a convenient way to test the market and
fine-tune their export strategies by selling goods in the region without formally
establishing a local office. By consigning goods to customs warehouses, a U.S.
firm can find buyers and sell goods without investing a great deal of capital until
there is some assurance that its products will sell in the RFE.  Moreover, bonded
storage permits distribution to multiple parties, an important convenience when
dealing with untested buyers.  For example, if a Russian buyer fails to meet the
terms of sale, the U.S. supplier retains full control of the goods.  Furthermore, the
supplier can store the bonded goods tax-free for up to three years, whereas
conventionally stored goods may be seized by Russian Customs if not cleared
within two months.

Another important advantage of customs warehousing is security.  Bonded storage
sites are protected by armed guards with professional training and management. 
They are also subject to both scheduled and impromptu inspections by customs
officials and local militia to ensure that bonded goods are secure and are not
released from storage without payment of duty, value-added-tax and other levies. 
More secure conditions result in lower insurance costs on stored goods, as well. 
Another advantage of customs warehouses is that they make buying U.S. products
easier for Russian importers.  Previously, Russian companies were often required to
prepay 30 or more days in advance for products located aborad which would often
arrive late.  Because of high domestic interest rates, this proved costly to many
Russian companies and meant that they would have to wait until an entire
shipment was sold before they could place another order.  Now, however, Russian
buyers can receive goods almost immediately upon payment.

Where to Look
One of the first U.S. companies to open Western-style bonded warehouses in the
RFE is Links-2 Ltd., a wholly-owned subsidiary of U.S. company Global Inroads,
which operates facilities in Vladivostok and Nakhodka.  Links-2 Ltd. provides
computerized inventory control and customs brokerage, and offers comprehensive
logistics services to RFE destinations.  Another U.S. warehouse operator is NC
International, an Anchorage-based company, which runs a warehouse in Magadan.
For information on customs bonded warehouses in the Russian Far East, contact
BISNIS at (202) 482- 4655. 

Derek Nowek covers transportation for BISNIS.

**Produced by the Business Information Service for the Newly
Independent States (BISNIS)