What Is an International Warehouse and How to Choose One

Are you going global? That’s great! 

However, navigating the customs, carriers, red tape, and customer expectations when shipping abroad? Not so much. Hitting the 3-business-day delivery window that 62% of buyers expect from free shipping orders is not easy.  

Fortunately, there are some solutions to explore, and one of the most effective is leveraging international warehouses.

This article will explain what international warehouses are, their types, core benefits, potential downsides, and how to pick the right one. 

What Is an International Warehouse?

An international warehouse is a storage building or facility located in countries other than the seller’s origin, usually in major global trade centers near international transport routes.

The strategic placement is meant to enable efficient worldwide shipping, allowing companies to deliver goods to customers abroad quickly and easily on demand.

International Warehouses Types

Public Warehouse

A public warehouse is a space in a storage facility that a company leases to other businesses. Most follow a pallet-based billing, where customers pay per pallet stored monthly or yearly. 

Initially, renting space from a public warehouse is cheaper than owning a warehouse, as there is no cost for construction or ongoing maintenance of the building itself. 

However, this means you have less control over your inventory since it is housed off-site and managed by a third party rather than your staff. 

A public warehouse is still the most practical option for ecommerce businesses that are just starting to expand internationally, particularly for startups or seasonal businesses with limited resources to establish foreign operations themselves. 

🔎 Tip: While upfront costs are lower, longer-term leasing from a public warehouse can cost more than investing in your own warehouse.

Private Warehouse

A private warehouse is a storage facility owned solely by one company for its exclusive use. For example, a company may build a private warehouse in another country to serve customers.

With a private warehouse, businesses can design the space to fit their specific needs and have control over how products are stored and managed. This means it is easier for quality control. 

It also reduces the chances of damage or loss as only one company uses the space. 

However, building and maintaining a warehouse can be costly. It may not be the best choice for companies with less cash flow, as it takes a long time to see a positive return on investment. That’s why private warehouses are typically used by large companies with high inventory volumes. 

Bonded Warehouse

A bonded warehouse is a storage facility for imported items awaiting customs clearance or goods waiting to be exported.

With a bonded warehouse, you can delay duties and taxes until goods are approved for sale or export. You can also generate early sales income from within the warehouse while postponing customs payments. 

In essence, a bonded warehouse provides a duty-free zone. It also offers flexibility regarding shipments before final clearance. 

To elaborate on why this is possible. It works because the warehouse owner first takes on the responsibility for duties instead of the importer. If the goods are later sold domestically, the owner pays the duties owed. However, no duties are due if the goods are exported or remain in storage. 

This arrangement provides flexibility for importers by postponing duties until the final destination of the goods is determined.

A bonded warehouse is best suited for import/export business. It is often located close to ports and airports since customs officials work at borders when goods move between countries.

Cross-Docking Warehouse

A cross-docking warehouse sorts and routes incoming goods directly to outbound trucks for delivery, consolidated by destination. Ultimately, it reduces waste, costs, and chances of product damage.

Cross-docking is typically only practical for large parcel carriers and companies with extensive inventories as it focuses on the end-of-line process.

It is mostly helpful for fast-moving, low-value bulk items, for example, items with limited shelf life, seasonal goods, or trend-driven products (that may go out of trend soon). 

On-Demand Warehouse

An on-demand warehouse grants businesses access to temporary storage, often a pay-as-you-go pricing model with no long-term commitment required. The flexibility of this type of warehouse makes it well-suited for businesses with unpredictable or fluctuating inventory or with seasonal product peaks.

However, it may have limited space during busy seasons. Businesses also generally have less control compared to housing their own warehouses.

Contract Warehouse

A contract warehouse is a warehouse that operates on a contract basis, much like a contract version of a public or an on-demand warehouse. 

The main difference is in a regular public or on-demand warehouse, you might face space limitations because you share it with others. In contrast, you sign an agreement with a contract warehouse, and they ensure you will always have the prior-agreed storage space. 

This approach has its advantages. However, finding contract warehouses is quite challenging. 

Climate-Controlled Warehouse

A climate-controlled warehouse is a facility that maintains precise temperatures to store perishable or sensitive items like fresh produce, frozen foods, and pharmaceuticals.

It uses a range of systems and controls, including specialized HVAC systems, dehumidifiers, pallets, special packaging materials, and insulation. All of which manage temperature, airflow, and moisture levels.

These warehouses are less common than regular storage facilities with ambient temperatures, making them more expensive. 

💡 Tip: Cold storage is the most well-known type of climate-controlled warehouse.

Distribution Center

A distribution center, commonly referred to as DC, is a facility that handles the order process, from storing to receiving orders and shipping items to retail stores or fulfillment centers. The items are usually shipped in bulk between locations. 

Regular warehouse types that aren't distribution centers may not offer shipping service and may primarily focus on storing products until they're needed, often keeping them for longer durations than distribution centers. 

Fulfillment Center

A fulfillment center is a facility where products are stored and sent directly to end customers. Essentially, it is more direct-to-consumer than a distribution center. 

In a fulfillment center, items are supposed to be stored only briefly, as the goal is to ship them out. If a product doesn't sell within a certain time, It may charge extra for storage service. 

Hazmat Warehouse

A hazmat warehouse, short for hazardous materials warehouse, is designed to store products that could harm human health or the environment due to their chemical or physical properties. This includes products containing radioactive materials or biological substances that could carry viruses and bacteria.

A hazmat warehouse follows strict safety rules and standards such as secondary containment, ventilation, and fire suppression. Storing dangerous materials in such warehouses also requires compliance with the government.

This category of warehouse comes with a higher cost due to its comprehensive safety operations. Additionally, it is often located away from cities to reduce the risk of human contact.

Consolidated Warehouse

A consolidation warehouse is a hub for logistics that takes in small shipments from various suppliers or customers, groups them together based on destinations, and creates large loads for shipping. This helps organizations save on transportation costs. 

Smart Warehouse

A smart warehouse, sometimes called an intelligent warehouse or an automated warehouse, is a warehouse that uses automation technology to enhance its operations.  

For example, it may use automated guided vehicles (AGVs), collaborative robots, and warehouse management systems (WMS) software to help with day-to-day warehouse operations alongside humans, whether it be inventory tracking, picking, and packing. Most will also use advanced safety technologies, such as machine vision and proximity sensors.

Smart warehouses can be more productive, less prone to errors, and more cost-effective in the long run. However, they can be expensive to set up, vulnerable to technical problems, and require specialized knowledge and training.

Any warehouse that uses smart technology to automate its processes can be called a smart warehouse, irrespective of its other type (whether it’s public, private, etc.) 

🔎 Insight: Many smart warehouses aim to be more eco-friendly, using renewable energy sources such as wind power to reduce their carbon emissions.

Reverse Logistics Warehouse

Reverse logistics involves transporting products from customers or from the final destination back to sellers. In simple words, it handles returns. 

This is important because businesses can recover value from returned products or need to take responsibility for their proper disposal. They may have to go through different processes, such as repackaging, reselling, recycling, repairing, or refurbishing.

A reverse logistics facility is either a dedicated center that handles returns or a general warehouse that deals with them alongside regular operations. 

International Warehouse Advantage and Disadvantage

International Warehouse Advantage

There’s no denying that warehousing is an added cost, but there are values that make up for the expense. Let’s explore the most significant ones.

Lower Shipping Expenses and Shorten Delivery Times

You may consider international shipping if you want to ship from your local storage space. 

This gives you three options: express shipping, which arrives within 1-3 days; air freight, which arrives within 5-10 days; and ocean freight, which takes 20-45+ days, depending on the routes. Express shipping is the fastest but most expensive, while sea freight is the cheapest and slowest. 

You might be able to offset the shipping cost by increasing the product price and still offer a reasonable shipping fee to customers. 

However, the real challenge is dealing with customs and other unexpected events during the long route, which may delay the package further. 

Chances are that you cannot afford that delay. Why? Because around 1 in 3 shoppers will leave the carts if the shipping time is too long. 

Neither can you overpromise the timeline, as the disappointment can backfire. In fact, a single bad experience can make 61% of customers switch to another option.

That’s where the international warehouse can help. 

Having the inventory close to customers significantly cuts shipping costs and a faster delivery time. 

If you ship from the warehouse within the same country as a customer, you can waive all the customs clearance. 

You're looking at shorter distances if you ship from the nearest warehouse to the customer’s country. Plus, less can go wrong during transit. Delays from bad weather or other hindrances caused by transporting goods over long distances are automatically reduced.

A Convenient Approach to Returns 

Say you deliver a wrong product or it doesn't meet customers' satisfaction. The product can easily be sent back to a local or the nearest warehouse rather than shipping far away cross-border again. After all, delivering product over long distances increase the chances of loss and damage. 

Customers may opt to forgo the hassle of returns or exchanges and leave with a negative impression. This means you lose the chance of redemption. 

And yes, returns matter - 20% of online purchases are returned. You risk losing the chance to regain value if you don't optimize your process. 

Mitigate Risks in the Supply Chain

Lastly, having warehouses in different locations can help businesses mitigate risks surrounding the worldwide supply game.

If things change – whether it's a disruption in the transportation routes, changes in international shipping regulations, or even a pandemic, you can still try to keep things steady thanks to the inventory in place. 

International Warehouse Disadvantage

On to the next, let’s see the challenges. 

May Require High Initial Investment and Maintenance Costs

Whether renting or building your own, managing warehouses across diverse locations can heighten operational expenses and intricacies for businesses. 

And it’s more than just the space – think investments in infrastructure, equipment, personnel, taxes, regulations, and sophisticated inventory management systems to keep track of all the stuff on the shelves.

To give you a quick overview, the primary costs associated with international warehouses are 

• Lease or Partnership Monthly Fees - The cost of renting or partnering with a storage facility. This varies depending on the location, size, and type of warehouse.
• Utility Bills -  The cost of utilities such as electricity, water, and gas used in the warehouse.
• Equipment Costs - For example, forklifts, carts, pallets, conveyors, conveyance robots, sorters, picking systems, and more.
• Salaries - The cost of paying employees who work in the warehouse.

When partnering with a warehouse, utilities, equipment, and employee costs may or may not be part of the arrangement. It’s best to discuss with your partner what services are included in the monthly fee.

Maintaining Standards When Inventory Oversight is Restricted

When you outsource third-party logistics processes or own a warehouse outside of your location, you compromise a level of control, making quality control more challenging. 

Discuss clear quality requirements with your staff or potential partner to tackle this challenge. 

Complexity in Managing Various Warehouses

Having separate warehouses allows closer monitoring of regional inventory levels, product offerings, and faster order fulfillment. However, managing different warehouses and integrating data across sites increases operational complexity and costs. 

Moreover, balancing the right stock levels across different locations can be complicated.

How to Choose International Warehouses 

As mentioned, while warehouses provide logistical advantages, they come with significant expenses. Therefore, it's important to choose the right ones to realize returns. 

Use these steps to aid with the process. 

Assess Your Storage Needs

The first step is to assess your storage needs. Consider how items should be kept - do they require temperature regulation, security, or special handling? Take into account how much space you need for your inventory and how often you need to replenish it as well. 

Understanding this will help you determine your warehouses' optimal size, type, and location. 

Research Regulatory Environment 

Different countries have different laws and regulations that may affect the operation of warehouses and the movement of goods. Things like imports, exports, shipping rules, taxes, and safety regulations. 

It is important to research the regulatory environment of the potential warehouse locations and understand the implications for your business.

Choose the Right Locations

As a general guideline, select locations that

• are near your main customer base
• are politically and economically stable
• have a robust transportation infrastructure, including roads, ports, airports, and other facilities that enable the movement of goods and people.
• have beneficial trade agreements with your home country.  
• have labor availability, meaning there is enough skilled and reliable labor force in the area to meet your current and future needs. You also need to compare the wages and benefits of workers across countries and regions.

It's also wise to diversify the locations and avoid depending too heavily on a single region, as this could expose you to risks like natural disasters, political unrest, or trade disputes. 

If you aim for several warehouses, some strategies to consider include 

• Establish a central warehouse -  A central warehouse is strategically located where you can store products in bulk and easily distribute them to nearby warehouses. 
  
  For instance, if you source products from Chinese suppliers, consider having a central warehouse in China, Hong Kong, or Singapore. This approach allows you to capitalize on lower production costs and maintain better control over inventory levels.
• Choose the nearest warehouse for each of your target markets. The nearest warehouse is a warehouse that is located close to your customers so that you can deliver your products faster and cheaper. 

With that said, most warehouses tend to be situated in key international trade centers worldwide. 

Popular locations include :

• Hong Kong, Vietnam, Singapore, Malaysia, Indonesia, and Thailand, if you wish to distribute easily around Asia
• Germany, Netherlands, United Kingdom, Poland, and Belgium, if you wish to distribute around Europe.   
• Dubai, if you wish to expand the market in the Middle East
• Houston, Los Angeles, Chicago, etc., in the USA, which allows you to expand the market in major cities across North America.

Review Policies and Processes

Another one of the key factors to consider is how the warehouse operates and whether it can meet your expectations.

Ask yourself the following questions:

• Do they solely manage inventory, or do they also take on fulfillment? 
• How do they store and handle your products?
• What technology or warehouse management system are they using? 
• How do they protect items from theft, damage, or loss?
• How do they manage amounts and refills of items?
• How do they report on your inventory status?
• Will they handle returns and exchanges?
• Ask about the industry or products they handled before
• How do they communicate with you 
• How will they resolve potential inventory issues? 

Evaluate Expenses

Of course, you should never sign up for a service without comparing their competitor’s pricing.

When you make the comparison, keep the following in mind:

• Evaluate fixed costs (such as rent or property taxes, insurance, monthly fees, and salaries) and variable costs ( such as utilities, maintenance and repair costs for equipment, etc.). 
• Clarify hidden costs, particularly any additional service fees.
• Weight in errors. Some expenses are not directly related to the warehouse operations but can affect your profitability and efficiency.

One of the most significant is inventory shrinkage and damage. Ask for historical shrinkage rates and find out their claims process - how do they handle reimbursing for inventory losses or damages?

Shop around, get quotes, ask questions, and review terms, conditions, and fee structures before committing. 

Other Ecommerce Shipping and Logistic Solutions 

After all the ins and outs, If you’re hesitating about whether warehousing is your fitting solution, there are some alternatives to explore, including:

• Dropshipping - This means you partner with suppliers or manufacturers. You list products online but don't stock them. Instead, when an order is placed, you forward the order to suppliers who ship directly to the customer.  
• Third-Party Logistics Company (3PL) - This means you let a third-party logistics company handle all your logistic process, from sourcing the storage facilities to storing and shipping. 

💡 Tip: Want to know the best ecommerce shipping solutions? Read our comprehensive ecommerce shipping guide: best solutions & tips for 2023