By Leslie Ajlouny, Evans Distribution Systems
Third party logistics providers that operate U.S. Foreign-Trade Zones offer a unique advantage for their customers that import or export goods. They do this by allowing for value-added services to be performed before any duty is paid on the merchandise. A variety of functions often done by 3PLs can be conducted in a Foreign-Trade Zone, including assembling, testing, re-working, cleaning, re-labeling, re-packing, co-packing with other foreign or domestic product, or destroying.
A Foreign-Trade Zone (FTZ) is a secure area under the supervision of the Bureau of Customs and Border Protection (CBP). FTZs are considered to be outside of the Customs territory of the United States for the purposes of payment of duty. That translates to weekly entry savings; duty exemption on re-exports; duty deferrals and no time limits for customers utilizing the zones.
The Foreign-Trade Zone program has been in existence since the 1930s and remains relevant today as the global marketplace becomes more competitive. While many companies consider moving to foreign facilities to reduce costs, a Foreign-Trade Zone can offer the solution that companies need to keep their manufacturing or distribution operations in the United States.
According to the National Association of Foreign-Trade Zones, in 2010 (the most recent year available), a total of 2,400 companies and 320,000 American workers made use of the FTZ program to manufacture, process and distribute a wide range of products, including clothing, electronics, refined petroleum, pharmaceuticals and automobiles. More than 250 Foreign-Trade Zones exist today.
Details of the benefits of operating in a Foreign-Trade Zone include:
- Weekly Entry Savings: Under weekly entry procedures, users save by only having to file one customs entry per week, rather than one per shipment, while maintaining the same maximum Merchandise Processing Fee (MPF). There is a minimum $25 merchandise processing fee and a maximum of $485 per entry. The maximum is reached for any shipments valued over $230,952. By taking advantage of weekly entries companies, especially high volume importers, can save substantial amounts. For example, if you receive 10 shipments per week valued over the maximum amount ($230,952) you would owe $4,850 per week ($485 x 10) or $252,000 per year. By importing into a Foreign-Trade Zone, you can combine these shipments into one entry for the week for a total of $485 per week, or $25,220 per year, a significant cost savings of $226,780 per year!
- Duty Exemption on Re-exports: Whenever a manufacturer imports a component or raw materials into the U.S., they are required to pay the duties once they enter the country. However, since the Foreign-Trade Zone is considered to be outside the commerce of the United States and U.S. Customs, no duty is owed until the merchandise leaves the zone and enters the commerce of the United States. If the imported merchandise is exported back out of the country, no duty is ever due.
- Duty Deferral: Customs duty on merchandise brought into a Foreign-Trade Zone is deferred until the goods are released from the Zone. Therefore, companies can avoid substantial amounts of money being tied up for custom duties on inventory until they are prepared to release into commerce.
- No Time Limits: There is no time limit placed on goods stored in an FTZ and goods can be released immediately, unlike bonded storage.
- Manipulation of Goods: Goods can be manipulated while in the FTZ changing the essential character of the goods. Some examples include removal or application of labels or markings, changes to packaging, value-added packaging, etc.
Foreign-Trade Zones level the playing field and improve U.S. competitiveness by lowering effective duty rates, allowing special entry procedures, and encouraging production closer to market. Logistics providers that operate in FTZs are well positioned to help customers reduce costs and keep operations – and jobs – in the U.S.
Leslie Ajlouny is VP Business Development at Evans Distribution Systems, which operates General Purpose Foreign-Trade Zone #70 in Detroit, MI and #20 in Norfolk, VA.