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Bonded Warehouses: Easier said than done in Vietnam

Bonded customs warehouses so far are easier said than done

(5 August 2009)

HCMC, Vietnam — Vietnamese exporters wish the State would give active support to the notion of establishing bonded warehouses in major ports here and abroad.

A bonded warehouse is a warehouse in which goods on which the duties are unpaid are stored under bond and in the joint custody of the importer, or his agent, and customs officers. Under this system, customs duties do not have to be paid until a foreign buyer is found for exported goods.

In late July 2009, Vinacafe Buon Ma Thuot kicked off the construction of the biggest and most modern bonded customs warehouse in the Central Highlands, investing nearly $20 million. The warehouse is located on 17 hectares in Hoa Phu Industrial Zone in Buon Ma Thuot City (Dak Lak). It will be able to store 400,000 tonnes of goods when it becomes operational in 2010.

It took Vinacafe more than one year to get the license to build the customs warehouse. In fact, the company has only got an investment license granted by the provincial authorities, while it still has not got a license for the warehouse’s operation from the Customs Department.

Vu Duc Tien, Vinacafe’s General Director, expects the project to be highly profitable. He expects to lease space for $1.8 per cubic metre per month (a cubic metre can contain 5-6 tonnes of goods). Meanwhile, businesses will be able to cut their transport fees in half when they no longer have to put goods in the customs warehouse in HCM City.

Tien said that the warehouse in the Central Highlands will help boost exports from the region, especially coffee exports. There is high demand for temporary storage of the coffee crop. Vinacafe Buon Ma Thuot expects to recover its capital investment after seven years of operation.

Though he is confident his project is feasible, but Tien still thinks that Government ought as a matter of policy the investment in the customs warehouse, such as offering preferential loans and easing the customs procedures. In reality, when businesses don’t see any a possibility to fulfill customs procedures for their goods more easily in customs warehouses, their incentive to use the warehouses is weak.

Regarding the establishment of bonded warehouses in foreign countries, businesses said that this is an ‘impossible mission’ without the support from the State. Vietnamese businesses are now mainly exporting goods under the FOB mode (free on board, i.e., they become the property of the purchaser once they are loaded aboard ship), so they rarely rent space in customs warehouses in foreign countries. The storage fee is very high in foreign countries. Coffee storage, for example, is $10 per tonne per month, an unaffordable sum for many Vietnamese enterprises.

If Vietnamese enterprises aim to build customs warehouses in foreign countries, they will have to deal with a lot of problems, including raising capital and acquiring use of land. However, experts still believe that setting up customs warehouses in foreign countries is necessary and urgent. Because Vietnam lacks customs warehouses in foreign countries, many Vietnamese enterprises have complained of heavy losses after paying the storage fee and cold preservation fee. They even had to bring goods back to Vietnam in cases that foreign partners refused to accept them.

In 2004, the Prime Minister authorized research on a project to build a Vietnamese bonded customs warehouse in Europe. However, the project remains on paper.