Duty deferral is the cash-flow technique of holding goods in a bonded environment (an FTZ or a bonded warehouse) so that duty is owed only when the goods physically leave that environment for domestic commerce. The duty isn’t waived, it’s postponed. For brands holding 60-90 days of inventory, deferral can free up six or seven figures of working capital that would otherwise sit with CBP.
How it works in practice
A typical duty deferral setup: a brand imports a container of finished goods worth $250,000 with a combined duty and Section 122 rate of 20%. Cleared straight from the port, that’s a $50,000 duty payment on day one. In an FTZ or bonded warehouse, the container enters duty-free, the brand pays duty only as units are picked and shipped to US customers. If inventory turns every 90 days, the brand has effectively borrowed $50,000 from CBP, interest-free, for three months. Over a year of imports, the deferred cash position can easily exceed $500,000.
Why it matters
In a high-rate environment (post-Section 122), duty deferral is one of the few legal levers a brand has to soften the cash impact of tariffs. It doesn’t reduce the total duty owed over time, but it changes the timing in ways that matter for working capital, line-of-credit availability, and seasonal cash planning.
Common misconceptions
- Deferral is not avoidance. Every dutiable unit eventually pays duty when it enters US commerce.
- The setup costs (FTZ activation, bonded warehouse fees, broker overhead) need to clear a volume threshold to make deferral worth it. Brands importing under roughly $1M annually rarely justify the program overhead.
- Duty deferral does not exempt goods from Section 122. The surcharge applies at exit, just delayed.