During a recent webcast hosted by Integration Point, Michael D’Oust, President and CEO of PointTrade Services, Inc., discussed savings within supply chains using a multitude of Foreign-Trade Zones (FTZ).

Now, he answers your most pressing questions from the webcast:

Q: How can I measure my potential savings to decide if further investigation is needed?

We generally recommend starting with the best available source of information, which is typically a company’s Automated Commercial Environment (ACE) import data. This information will provide the basis for the FTZ financial feasibility analysis to determine what the initial (first year) and ongoing estimated savings will be by operating under zone procedures. Once this data is collected, a financial feasibility analysis can be performed. Our firm (PTSI), as well as many other consultants, conduct financial feasibility studies at no cost to determine the sensibility of a project. 

If you do not have access to your ACE account, you may also request your broker provide the import data for the past 12 months as the basis. Note that it is important to consider that many companies that have multiple business divisions may have multiple Importer of Record (IOR) numbers, so be careful to consider this when performing the analysis. There can also be many nuances to performing a financial feasibility study to identify which imported shipments should be included or possibly excluded from the study.

 

Q: How can I get upper management to buy into the idea of a zone?

There are numerous ways to approach management with a potential zone project. The most critical point is usually related to zone savings and benefits vs. costs, timeline, resource requirements, risk management, supply chain and operational implications. It is customary to prepare a business plan to present to management so an informed decision can be made. Many companies have steering committees to evaluate proposed projects. It is also important to consider budgeting approval as part of the process. 

Q: What are the biggest success factors of zone operations?

  • Corporate commitment to compliance
  • Divisional stakeholders understanding that the FTZ is an important part of decision making (i.e., awareness and other ongoing training and educational opportunities)
  • Comprehensive and well-documented systems interface design
  • Knowledgeable and competent zone administration team with solid backup resources
  • Tracking key performance metrics to identify trends and make swift adjustments as needed
  • Layers of internal controls – manual and systems
  • IT/IS support to facilitate accurate and timely reporting

Q: ­Who would be a good fit for a subzone?

Companies that operate their own facilities outside an already designated FTZ site are generally a good fit for subzones. Subzones can be comprised of a single site or a group of sites established for a specific use.

Q: What is ASF?

ASF stands for Alternative Site Framework. It is an optional framework for organizing and designating FTZ locations that allow the zones to use quicker and less complex procedures to obtain FTZ designation for their eligible facilities.   

Q: Beyond financial savings, are there any other supply chain benefits a zone could offer?

Here are some examples:

  • Supply chain efficiencies and improved responsiveness through streamlined customs procedures (i.e. direct delivery, weekly entry)
  • Shorter transit times when leveraging direct delivery
  • Non-time constraints on storing merchandise in the zone, unlike bonded warehouses
  • Improved inventory controls
  • Improved U.S. Customs and Border Protection (CBP) compliance

Q: ­So, do you import the goods as privileged or non-privileged?

These two zone statuses determine which HTS classification and duty rate will apply to the merchandise upon withdrawal from the zone for consumption into the U.S. The privileged status directs that entry is based on the classification and duty rate of the material or component in its condition when admitted to the FTZ. Non-privileged status directs entry based on the classification and duty rate of the product in its condition when withdrawn from the FTZ. The application between these two zone statuses can result in an inverted tariff opportunity for zones conducting production activity, where the zone user can apply the lower duty rate between the input or the finished good product.

Q: ­How much is the bond required for zone operators? ­

The amount of the FTZ operator’s bond is determined by CBP. Usually, the amount can be determined based on the estimated duties of the average foreign inventory. The amount of a consumption entry bond will be determined by the port director according to the guidelines in 19 CFR 113.13(b) and CD 099 3510-004. 

 

Q: Is there any benefit to having my supply chain partners become an FTZ?

Yes, there are often advantages to having a full supplier network utilizing FTZ procedures. We recently assisted a smaller supplier to a much larger manufacturing company in getting set up in an FTZ. While the supplier was smaller in size and volume, the specific type of item they were importing was of high value and high duty so it made sense from a financial savings perspective to begin operating under zone procedures in order to process zone-to-zone transfers to the larger manufacturer who was also operating in an FTZ. Because the supplier no longer had to pay duty on the merchandise transferred to the larger manufacturing zone, they were able to create a competitive advantage over other suppliers in the market by selling to the manufacturing zone at a lower price.   

Q: ­How much does it cost to start up an FTZ? ­

The costs associated with starting an FTZ can vary significantly depending on a number of factors. Items to be considered include grantee fees, consulting fees to assist with the activation process, and software to automate the tracking and reporting of zone activity. Once a zone is live, a typical ROI can be 12 months or less. 

 Michael D’Aoust, President and CEO, PointTrade Services, Inc.

https://www.pointtradeservices.com/

For more information on FTZs, visit Integration Point FTZ resources page Here.