China’s eCommerce industry is set to grow significantly in the coming decade and foreign companies often have logistics and fulfillment as their prime issues.
True, China might have a mature eCommerce market but many things are done differently here compared to the West. Besides, with large spendings on marketing and increased requirements to reduce lead times, you have to be careful when choosing your logistics setup.
In this article, we review China bonded warehouses in greater detail, covering the following topics:
- What is a bonded warehouse?
- Fees when Selling via Bonded Warehouses in China
- Bonded Warehouses vs. Hong Kong Fulfillment
- Bonded Warehouses in China
What is a bonded warehouse?
Bonded warehouses are areas or buildings located in any of China’s special customs supervision areas. In short, even if your products are physically within China’s borders, they are treated differently to products that are not located in a bonded zone.
For example, products can be imported, manufactured, assembled, and re-exported overseas from the bonded zone without interference from the China customs and the need of paying import duties.
So how is this possible?
Prior to the establishment of Free Trade Zones and bonded warehouses, it was difficult for companies to enter the Chinese market unless they had much financial backing and experience in trading.
The first Free Trade Zone was set up in Shanghai in 2013 and many more have been established since. In short, the bonded warehouses are located in these Free Trade Zones.
Benefits of using bonded warehouses in Free Trade Zones include:
- Registrations in FTZs are simpler and faster
- Streamlined and more efficient processes
- Faster customs clearance
- Goods can move between FTZs and overseas without the need for paying taxes and duties in China
Fees when Selling via Bonded Warehouses in China
One of the key benefits of selling via bonded warehouses is that the costs are significantly lower compared to Hong Kong- or overseas fulfillment, for example. Cost reductions can be realized primarily thanks to the lower labor costs and cheaper last-mile deliveries.
To give you a better overview, let’s review a calculation example and where we compare the fees when using a bonded warehouse to Hong Kong fulfillment in the first year of operations.
Keep in mind that I have not included fees for the inbound of the goods or the costs for the bonded truck, for example.
- Product: Whey Protein
- Single Unit Weight: 1 kg
- Outer Box Weight: 6 kg (6 bags)
- Quantity of Single Units: 1,000 pcs / the first year
- Volume: 3.37 m3
- Shipping mode: Air Freight
- Australia to Shanghai: US$0.81 / unit
- Australia to Hong Kong: US$0.77 / unit
Let’s assume that the 1,000 pcs are stored for 6 months.
- Bonded Warehouse: US$1.82 / unit
- Hong Kong Fulfillment: US$6.82 / unit
Pick & Pack
- Bonded Warehouse: US$0.89 / unit
- Hong Kong Fulfillment: US$1.79 / unit
- Bonded Warehouse: US$1.00 / unit
- Hong Kong Fulfillment: US$3.34 / unit
- Bonded Warehouse: US$4.46 / unit
- Hong Kong Fulfillment: US$12.73 / unit
As you can see in this calculation example, the fees are comparatively low when using the bonded model.
I also want to highlight that both these options have notable benefits and disadvantages.
Bonded Warehouses vs. Hong Kong Fulfillment
The bonded model is suitable for companies that are determined to stay in the Chinese market for a long time and that want to reduce shipping lead times and costs as much as possible.
Yet, Hong Kong is renowned for being a perfect fulfillment location, thanks to its liberal trading environment, low taxes, English-speaking workforce, and proximity/integration with mainland China.
Below I’ve listed some of the benefits and disadvantages of using the options.
Let’s start with the benefits of using a bonded warehouse.
- Pre-declared goods, quicker to clear customs
- Larger order value accepted
- Lower risk of orders being held (assuming full compliance)
- Lower cost of pick and pack and storage
- Can use local China couriers to deliver (cheaper)
Below you can also find examples of disadvantages.
Requires a bonded truck to bring goods into bonded areas (min. 1 truckload, around RMB 1,000 from PVG, RMB 2,000 from Yangshan Sea Terminal in Shanghai)
Not a good option if you intend to ship to other countries in the region (from the same stock)
Stringent inventory records, any differences may result in charges
Pre-declaration required and changes in sales price required to be declared to the customs
Hong Kong Fulfillment
Let’s continue with the Hong Kong fulfillment model and review the benefits of this option.
- No tariffs when shipping products for storage in Hong Kong
- Easy and fast to register an HK company
- A good way to test the Mainland China market for your products
Below you can find examples of disadvantages of the model.
- Generally more expensive pick & pack fees and storage costs
- Slower delivery times
- Goods can be held up in customs (and are subject to changes)
- Chinese consumers are subject to an annual quota of duty-free cross-border retail imports
Bonded Warehouses in China
You can find many bonded warehouses in China. Many of the companies have operated for decades and have premises in multiple locations, both overseas and in the mainland.
KLG was founded in 2013 and a joint-venture between Intermax (ITM) and the Dutch company Kuijken Logistics Group (KLG). They have offices in a dozen location in China, including Shenzhen, and help foreign companies with:
- Freight forwarding
- Supply chain management
- Tailor-made solutions
- Digital solutions
- Quality controls
In addition to these services, you can also get help with sample picking, the unloading of cargo, QC and labeling, repacking, and more.
Their team consists of both Chinese and Dutch nationals and they are used to cater to foreign companies, having no issues to communicate in English.
MOL Logistics is one of the biggest logistic operators with offices in 21 cities around mainland China. It was founded as early as 1960 and also has offices in America, Europe, Africa, the Middle East, and more.
The company established its first office in Shanghai in 2004 offers the following services:
- International air freight
- International sea freight
- Various logistics services
- Total logistics solutions
- Overseas removal
KorChina provides various logistics services to foreign and local companies and currently has more than 1,000 workers. In addition to mainland China, you can find their offices in the Philippines, Singapore, the US, Thailand, Belgium, and more.
In China, they have offices in all the major cities, including Shanghai, Shenzhen, Tianjin, Qingdao, Beijing, Dalian, and more.
Services offered by the company include:
- Express Courier
- Supply Chain Management
- Air Freight
- Ocean Freight