Entrepôt

What Is an Entrepôt?

The term entrepôt, also called a transshipment port and historically referred to as a port city, is a trading post, port, city, or warehouse where merchandise may be imported, stored, or traded before re-export, with no additional processing taking place and with no customs duties imposed.

These port cities originated as a result of the growth of long-distance trade during the era of wind-powered shipping. In the modern age, customs areas of countries have rendered entrepôts obsolete. However, the term is still used to refer to duty-free ports where a large volume of re-exporting takes place.

Understanding Entrepôts

The use of entrepôts dates back to the days of long-distance, wind-powered sea routes. These seaports enabled traders to utilize part of a route to sell their goods without having to bear the risks and costs associated with long-distance travel over an entire route.

The use of trade entrepôts has become largely obsolete as transportation options and safety have improved, and as the establishment of customs areas in seaports and airports have negated the financial benefits of entrepôts. Goods in customs areas are stored for re-export and because they do not technically enter the country in which they are located, no customs duties are charged.

History of Entrepôts

Historically, entrepôts were usually ports located at strategic points along the sea trade routes. Entrepôts flourished especially during the height of colonialism when ships would travel long distances to bear goods, such as commodities and spices, from the colonies in the Americas and Asia back to Europe. Many of these commercial cities were spawned as a result of the burgeoning, long-distance sea trading. In the past, entrepôts removed the need for ships to travel the whole distance of the shipping route, making this their main benefit. Ships would sell their goods into the entrepôt and the entrepôt would, in turn, sell them to another ship traveling a further leg of the route.

For example, at the height of the spice trade in Europe, the long trade routes necessary for the delivery of spices to Europe made the market price of the goods much more expensive than the original buying price. If a trader did not want to travel the entire route, they may use entrepôts on the way to sell their goods.

Entrepôts Today

However, entrepôt trade has continued in some regions. Indirect trade through an entrepôt may provide savings in transportation costs and is a way to take advantage of specialized agents processing and distribution. In particular, Hong Kong and Singapore have remained centers of entrepôt trade through the twentieth century and beyond. Entrepôt trade still accounts for about a third of Singapore's exports. Hong Kong's position, geographically and as a free port, made it an entrepôt for trade with China, especially in the first part of the twentieth century. In this arrangement, traders in Hong Kong imported goods from China and then distributed them to a final destination.

However, in 1951 a United Nations trade embargo on China and North Korea reduced that role. Now, with the re-integration of China into the world economy and the country adopting a more open foreign policy in the past few decades, Hong Kong has resumed the role of intermediating trade between China and the rest of the world.

The term can also be used to refer to a financial entrepôt, which is a financial center where most activity is foreign traders dealing with each other, so that money flows through the center, but not much is retained in the local market.