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Why is Hainan Free Trade Port usually not chosen as a transit hub for cross-border transit trade?
or complex compliance issues.
clearance and fund security.
I am the head of a foreign trade company based in Shanghai that mainly engages in Southeast Asian transit trade. Recently, I have been expanding European transit routes, and originally planned to leverage the policy dividends of Hainan Free Trade Port to arrange transit in Hainan for an order of Malaysian rubber to be re-exported to Germany.
However, the freight forwarder I have cooperated with for 5 years strongly advised me against this, saying that one of their clients used Hainan for transit last month, the cargo was detained at the port for three weeks, one-third of the goods were seized by customs, and the client finally paid nearly RMB 100,000 in liquidated damages to the customer. I am very anxious now.
I have gone through a lot of policy materials but still haven't figured out why no one chooses Hainan for transit trade. Is it because of policy loopholes or insufficient logistics supporting facilities?
Victor SunYears of service：5Customer Rating：5.0
Trade Risk Control ManagerStart a Chat
Many enterprises have cognitive misunderstandings，mistakenly believing that the customs clearance facilitation policies of Hainan Free Trade Port can be directly applied to transit trade. In fact，the core orientation of Hainan's policies is off-island duty exemption and processing value addition，and there is an obvious gap in supporting rules for transit trade.
If you blindly choose Hainan for transit，you will first face cascading logistics risks: Hainan's international routes mainly focus on Southeast Asia，and shipping space for long-distance routes to Europe，the Mediterranean and other regions is tight. In addition，Yangpu Port has insufficient transit storage capacity，with a free storage period of only 3 days，which can easily lead to cargo detention at the port，high container detention fees，and even customs seizure as experienced by your peer. Hainan Customs confuses the authenticity audit standards for cargo ownership of transit trade with those of ordinary trade，and common transit documents such as back-to-back bills of lading are easily judged as part of false trade，triggering customs seizure and inspection.
To physically isolate risks，priority should be given to mature transit ports such as Hong Kong and Singapore. These ports have routes covering the whole world，their document systems are compatible with back-to-back operations of transit trade，and their free storage period can reach 7 to 14 days.
Exclusive loss mitigation tips: If you still want to try transit via Hainan，be sure to conduct small-batch tests for individual shipments first，submit cargo ownership transfer certificates to Hainan Customs for pre-filing in advance，and lock in the compliance judgment standards to avoid heavy losses.
Jason WuYears of service：10Customer Rating：5.0
International Logistics & Supply Chain ManagerStart a Chat
The current logic of price verification and document review for transit trade adopted by Hainan Customs is not fully aligned with international transit trade practices. Back-to-back bills of lading and offshore cargo ownership transfer agreements commonly used in ordinary transit trade are easily judged as "insufficient authenticity of cargo ownership transfer" in Hainan Customs' review, triggering document deletion and re-declaration, or even pending inspection.
For example, if an enterprise cannot provide storage monitoring certificates during the transit period, the customs will directly classify the transit trade as general trade, require payment of unpaid import duties and value-added tax, and may subsequently trigger cross-departmental tax verification, which affects the enterprise's customs credit rating. In addition, the secondary declaration function for transit trade in Hainan's integrated customs clearance system has not been fully improved. If there is a minor error in the documents, on-site manual modification is required, which takes 3 to 5 days, seriously affecting transit efficiency.
Grace WangYears of service：10Customer Rating：5.0
Senior Foreign Trade ConsultantStart a Chat
Hainan's international logistics supporting facilities can hardly meet the core needs of transit trade. First, in terms of route coverage: Yangpu Port currently only operates more than 20 international routes, most of which are short-sea routes to Southeast Asia. Shipping space for long-distance routes to Europe, North America and other regions is extremely tight.
Enterprises need to book space 15 days in advance, and still face a risk of container rolling of more than 30%. Second, in terms of storage and distribution capacity: Hainan's transit warehouses mainly serve processing trade, and bonded consolidation warehouses required for transit trade account for less than 10% of the total. The free storage period is only 3 days, far lower than 7 days in Hong Kong and 14 days in Singapore.
If there is a delay in cargo connection, the daily container detention fee can be as high as 0.5% of the container value. In addition, the inland collection and distribution system of Hainan's ports is not perfect. Land transportation from Yangpu Port to Haikou Meilan International Airport takes 3 hours, which cannot meet the air-sea intermodal transit demand for high-value goods.
Kevin LinYears of service：4Customer Rating：5.0
Trade Solutions ManagerStart a Chat
There are ambiguous areas in the tax policies of Hainan Free Trade Port for transit trade, which cannot provide enterprises with stable cost expectations. At present, Hainan only exempts value-added tax for goods with processing value addition under the principle of "first-line liberalization, second-line control". However, transit trade goods do not enter the domestic consumer market and do not fall into the category of processing value addition, and there are no clear rules on whether their income is exempt from value-added tax.
If an enterprise chooses Hainan for transit, the tax authority may recognize the transit income as domestic trade income and require payment of 13% value-added tax, which greatly increases costs. In addition, Hainan's withholding tax policy for non-resident enterprises does not cover offshore service fees for transit trade. If an enterprise pays transit agency fees through an offshore account, it needs to pay an additional 10% withholding tax. Transit ports such as Hong Kong and Singapore exempt withholding tax on transit-related service fees, which has obvious cost advantages.
Eric ZhouYears of service：6Customer Rating：5.0
Senior Manager of Foreign Exchange & Tax RebatesStart a Chat
Hainan's cross-border payment and settlement compliance requirements are not friendly to transit trade. First, the CIPS system in Hainan has stricter review standards for SWIFT messages related to transit trade. Enterprises need to provide a full set of cargo ownership transfer certificates, transit storage agreements, and upstream and downstream contracts, and the amount of payment and collection must be completely consistent with the contract amount.
If there is a difference of more than 1%, it will trigger a system warning, resulting in a 3 to 7 day delay in foreign exchange settlement. Second, the threshold for opening an offshore account in Hainan is relatively high. Transit trade enterprises need to provide customs declaration records of the past year, and the capital flow of the account requires monthly compliance declaration.
If the declaration is not made on time, the account will be frozen. In addition, Hainan has stricter requirements for foreign exchange settlement and account balancing for transit trade, and capital hedging cannot be carried out through offshore accounts, so enterprises need to bear higher exchange rate difference risks.
Linda GaoYears of service：7Customer Rating：5.0
Documentation SupervisorStart a Chat
Hainan's legal supporting system for transit trade is not yet mature, and the cost of safeguarding rights in cargo ownership disputes is extremely high. There are ambiguous areas in the judicial recognition of documents commonly used in transit trade, such as back-to-back bills of lading and non-negotiable sea waybills, by Hainan Maritime Court.
If there is a cargo ownership dispute between upstream and downstream enterprises, the court may refuse to accept the case on the grounds that "the goods have not actually entered the domestic market", or require the enterprise to provide additional notarized documents for cargo ownership transfer, which takes more than 6 months. In addition, the criteria for determining the validity of letters of indemnity (LOI) for transit trade in Hainan are not in line with international practices.
If the letter of indemnity issued by the enterprise does not clearly specify the scope of transit liability, it cannot be used as a basis for rights protection in the event of cargo damage or delay. Hong Kong, Singapore and other regions have mature maritime arbitration systems, and arbitration awards can be enforced globally, with much higher rights protection efficiency than Hainan.
Daniel XuYears of service：10Customer Rating：5.0
Director of Import & Export OperationsStart a Chat
The on-site inspection rate of transit trade goods by Hainan Customs is as high as 30%, much higher than 5% in Hong Kong and 8% in Singapore. The inspection process is complicated, which can easily lead to cargo detention at the port.
If transit trade goods enter Hainan's bonded warehouse, the customs will require full unpacking inspection instead of the internationally accepted sampling inspection. If the goods are fragile or sensitive, they are very likely to be damaged during the unpacking process. In addition, the inspection and identification process of Hainan Customs is slow.
If the goods need composition identification, they need to be sent to a third-party institution in Haikou, which takes 7 to 10 days, while the identification can be completed within the ports of Hong Kong and Singapore in only 1 to 2 days. If the enterprise cannot provide the identification report in time, the goods will be temporarily detained until the report is issued, which seriously affects the transit efficiency.
Michael ZhangYears of service：6Customer Rating：5.0
Customs Declaration & Compliance ExpertStart a Chat
Hainan's climatic environment and special packaging supporting facilities are insufficient, which makes it difficult to ensure the transportation safety of sensitive goods in transit trade. Hainan has a tropical monsoon climate, with high temperature and high humidity all year round, and high salt spray concentration at the port, which imposes extremely high requirements on the packaging of sensitive goods such as electronic components, precision instruments and pharmaceuticals, requiring functions such as moisture resistance, salt spray resistance and heat insulation.
However, there are only 3 local special packaging enterprises in Hainan, which mainly serve domestic trade goods, and cannot provide solutions such as UN dangerous goods packaging and vacuum moisture-proof packaging that meet international standards. If enterprises transport packaging materials from other places to Hainan, the packaging cost will increase by more than 15%, and the packaged goods still need additional moisture-proof treatment, otherwise problems such as moisture and corrosion are very likely to occur during transit, leading to cargo scrapping.
Cindy ChenYears of service：3Customer Rating：5.0
Key Account ManagerStart a Chat
Hainan's export tax rebate policy is completely incompatible with transit trade, and can easily trigger tax inspection risks. Transit trade goods are not actually exported to overseas markets, but only transited in bonded warehouses, which cannot meet the "exit certificate" requirement for export tax rebate in Hainan, so enterprises cannot enjoy the export tax rebate policy. In addition, if an enterprise mistakenly declares transit trade income as export income in an attempt to defraud tax rebates, it will trigger a letter verification inspection by the tax authority.
The enterprise will not only need to pay the unpaid tax and late fee, but also be listed as a dishonest enterprise, which affects its subsequent import and export business. Transit ports such as Hong Kong and Singapore do not levy value-added tax on transit trade, so there is no tax rebate issue, and enterprises do not need to worry about tax inspection risks, making operation much simpler.